This year, the Cambridge nonprofit Root Capital expects to have surpassed $1 billion in loans made to small businesses in the developing world, a sector neglected by large commercial banks. Root Capital was founded 15 years ago by Willy Foote, a former financial analyst specializing in Latin America who left Harvard Business School to develop a lending model aimed at helping impoverished rural communities.
1. Because many farmers in sub-Saharan Africa and Latin America don't have the traditional collateral needed to borrow money, such as property deeds, Root Capital relies on less conventional ways to judge creditworthiness. For example, it accepts future production of harvests — including cocoa, coffee, cotton, fruit, and nuts — as collateral for financing. That approach has been a success; Foote says Root Capital's repayment rate is about 97 percent.
"In most countries, economic prosperity comes from small businesses, yet in the developing world, many businesses fail to thrive, or fail period, because they are systematically locked out of the banking sector" Foote said. "We're trying to create a blueprint for how you lend in these agricultural markets, and we're proving that there is business to be done at the last mile at the end of a dirt road in low-income countries. And in the absence of hard assets that banks look for in places like Burkina Faso or Rwanda or Southern Mexico, you can lend against creative collateral, like a promise to buy a crop."
2. Root Capital doesn't just loan money; it also offers financial training to rural entrepreneurs, helping them improve their business skills and strengthen their market connections.
"We offer a mini-MBA in finance for agricultural business leaders, and this year we'll train upwards of 250 businesses across Latin America and Africa. It's boots-on-the-ground sharing of best practices on how to run a cash flow statement, moving from paper-based books to accounting software, or even cloud-based platforms for inventory management — almost like vocational training. We're bringing private-sector banking skills to markets that have been completely underserved by capital markets."
3. Foote believes poverty, not just ignorance and malevolence, is often the cause of environmental degradation such as rain forest destruction and clear-cutting of woodlands. Some poor farmers inadvertently harm the environment in their desperation to survive. Improving their economic situations, Foote says, may also benefit the environment.
"When you can't make ends meet through living in the countryside, and often because you're mired in subsistence farming, you resort to economic survival tactics. Some farmers have no better alternative than planting in virgin forests, illegal logging, and, in the worst-case scenario, drug trafficking or drug production. If we can right-size agriculture in the 21st century to meet their needs, that goes a long way toward a lot of sustainable development goals."
4. When Foote was 13 years old, he moved from St. Louis to Florida after his father became president of the University of Miami, and he describes that relocation as deeply influential on him.
"That was a crazy time, right after the Mariel boatlift, with mass Cuban immigration to Miami, and it was an interesting place to be a teenager. I ended up falling in love with Latin American culture and music and studying Latin American history and economics in college. I later spent two years in Mexico, where I witnessed large-scale poverty and became fascinated by efforts to link farmers in the most difficult conditions to markets that could transform their livelihoods. Mark Twain said the two most important days in your life are the day you were born and the day you find out why. For me, [the latter] was the time I spent in Mexico.
5. Foote is also a musician and starts many of his staff meetings with folk songs tied to Root Capital's work.
"I grew up playing folk music with my father, and when I started living and working in Latin America, everywhere I'd go I'd study with local teachers, so I know probably 300 Latin American folk songs. Immodesty aside, I'm known in northern Nicaragua as the only gringo who can sing most of the revolutionary folks songs of the 1980s!"