The Amazon rainforest in San Martin, Peru where the key, permanent crops are coffee and cocoa. In 2017, deforestation reached 155.914 hectares, with 60% of deforestation taking place in Ucayali, Madre de Dios, Huánuco and Loreto.
In Peru, the Savings and Credit Cooperatives Federation (FENACREP) brings together around 150 savings and credit cooperatives (COOPACs), or roughly 1.6 million members. The organization is enthusiastic in helping its member institutions move towards a climate sensitive approach to agricultural lending and operations.
With 2.600 million people worldwide dependent on agriculture, climate smart agricultural lending is key to financing more sustainable agriculture value chains and production with a lower impact on deforestation and degradation. In Peru, with a forest area of just 57% remaining, the transition towards sustainable finance is a priority.
Anni Delgadillo, the Value Chain Project Coordinator at FENACREP, explains the project’s objective and the rationale behind FENACREP’s efforts towards sustainable commodity lending and finance.
Why is FENACREP involved in promoting sustainable commodity lending and finance?
One of the principles of cooperatives is commitment to the community. That means that COOPACs must work towards the sustainable development of their communities. Given that agriculture is a predominant activity in rural areas of Peru, our member COOPACs interact both directly and indirectly with agriculture producers. The COOPACs provide financial services to agricultural producers, impacting their access to inputs, incomes, food security and quality of life.
At FENACREP, we try to ensure that the financial services provided by COOPACs respond to community needs and that they are inclusive and sustainable.
Why are the COOPACs key in providing financial services to small and medium agricultural producers?
COOPACs that provide financial services to the agricultural sector, unlike other types of financial institutions such as banks, are often geographically closer to where commodity value chains are located, so they understand better the needs of producers, create more trust and empathy with producers and more importantly, they have a more detailed understanding of the agricultural dynamics and productive cycles and other factors that affect production and productivity.
From your experience at FENACREP, what are the factors affecting agricultural dynamics and why do they affect COOPACs?
Climate change and its effects could impact the agricultural dynamics of value chains. In our work with coffee, cocoa, quinoa, avocado, aguaymanto and dairy producers, we have seen how climate change has increased pests, animal diseases and water resource shortages, disturbing, in some cases, producers’ liquidity and their ability to pay back contracted credit and consequently, affecting COOPACs. Limited national-level information available to COOPACs on climate change impacts in the agricultural sector deepens this problem.
And what is FENACREPs´ Value Chain Project doing to address this problem?
The Value Chain Project focuses its work on understanding producers' financing needs and providing them with financial education training, designing attuned credit lines in coordination with COOPACs, supporting producers’ access to markets to guarantee credit repayment to COOPACs, sharing knowledge between COOPACs and training on credit risk assessment, including environmental risks.
In designing tailored credit lines, for example, we have worked on irrigation systems financing in the cocoa and aguaymanto value chains; biodigesters financing in the dairy value chain; fertigation financing in the avocado value chain; and, fertilizers and pressurize irrigation financing in the olive value chain. We are presently also working on renewable energy financing and usage.
What do you envision strengthening in the Value Chain Project?
At FENACREP, as part of our commitment to community, we understand the need to transition to sustainable commodity production in the different agricultural value chains we work with. Nevertheless, we cannot work in isolation. We envision ourselves working with new and diverse partners at the international, local and sub-national levels. Partnerships will help us strengthen specific areas such as access to alternative funding sources and climate sensitive credit risk assessment that align with COOPACs and their agricultural producers’ partners realities and needs.
COOPACs financing system and the support of sustainable agriculture production is an example of the role local stakeholders can play in promoting sustainable consumption and production and protecting and restoring forests.
The UN-REDD Programme is supporting Peru in identifying mechanisms for financing sustainable land use in the country. In coordination with the Ministry of Environment (MINAM), from 2019 to 2020, work will focus on engaging financial institutions, such as banks and savings and credit cooperatives, in moving towards protecting and restoring tropical forests and incorporating deforestation risks into their financial operations. Supporting FENACREP’s Value Chain Project with COOPACs is a concrete step towards this end.