Peru Resilient Farming III
Settled by the promoter
Working Capital Associates provides direct financing to value chains of agriculture products from Sub-Saharan Africa (SSA) and Latin America (Latam). So far, the company has raised 1.610.000€ through GoParity to fund three different organizations: a coffee cooperative in Peru (Peruvian Resilient Farming I and II); a cocoa company in Peru (Resilient Cocoa Farming I, II, III, and IV); and a family-owned cocoa company in Ecuador (Ecuadorian Cocoa Farming I, II, III, IV, V, VI and VII).
This is the fourteenth campaign promoted by WCA with GoParity. Nine out of the previous thirteen campaigns have reached payment plan maturity. All investors received their capital back, a total amount of 1.130.000€, and corresponding interest.
The goal of this campaign is to provide financing to a Cooperative that brings together 3.200 families that produce certified, organic, specialty coffee in the Northern Highlands of Peru at 1,000+ meters above sea level.
These families (93% of which are smallholder farmers, holding a land of less than 5 hectares) are aggregated into a social purpose entity – a Cooperative – whose goal is to provide the farmers with Environmental, Social and Governance (ESG) services in order to improve their productivity and respond to their social needs. These services include training, health, family, and wellbeing support, as well as help with fair-trade and organic certifications.
The growth of organic coffee production in these regions has boomed over the last 20 years, spearheading Peru as a major producer of organic coffee (at about 90,000 ha of certified organic land, Peru is the world’s second-largest exporter of organic coffee), a business that generates 1.5 million jobs involving approximately 223,000 families.
Such phenomenal growth of organic products emerged from unintended circumstances – given the fact that products contained low levels of chemical fertilizers and pesticides due to their unaffordability – customers saw these products with enhanced interest.
To accommodate the increasing demand and due to the farmers’ inefficient production methods - a consequence of their lack of capital - the growth in these regions has been mainly achieved from opening up new areas to commercial agriculture causing Amazonian deforestation – making such growth unsustainable and with a high environmental cost.
The funds raised through this campaign will be used as Transactional Working Capital to provide liquidity to the Cooperative. Transactional Working Capital is a short-term debt financing asset that allows the producer/aggregator/seller to receive early payments and the buyers to delay their payments.
In commercial sales, standard market practice for payments is between 30 to 90 days from the time when the seller issues its invoice – such payment terms usually strain the cash availability of the seller, while allowing the buyer to hold on to their cash for longer. Often times, the seller’s working capital gap is resolved by accessing traditional bank financing, which usually requires to be over-collateralized over hard assets (i.e. factories, buildings, machineries). However, due to the elevated requirements demanded by banks as guarantees for the loans, impossible to meet for smallholders, such bank loans seldom resolve any working capital gap.
Transactional Working Capital fills this gap without the need for collateral. That, in turns, obtains the following results for both the smallholders and the aggregator:
WCA maintains a Trade Credit Insurance Policy with a global insurance company providing worldwide trade credit insurance, surety, and collections services, with a strategic presence in 50 countries. The Project repayment will be guaranteed under such Trade Credit Insurance Policy, which effectively protects GoParity lenders from default in a credit related (e.g. insolvency, bankruptcy). The policy covers against losses from Insolvency, Protracted Default and Political Risk and covers up to 90% of the value of the underlying commercial transaction financed by WCA. As the latter provides up to 85% financing to any underlying commercial transaction, the policy in essence covers more than WCA’s entire financing.
WCA is the only female-owned and led company providing direct financing to value chains of agriculture products from Sub Saharan Africa (SSA) and Latin America (Latam).
WCA follows a themed responsible investment approach which “allows investors to address ESG issues by investing in specific solutions to them, such as renewable energy, waste, and water management, sustainable forestry and agriculture, health products and inclusive finance” (PRI).
The company follows two key themes:
The company also applies gender-lens to its investments, seeking to finance a significant level of female-led businesses that follow sustainable and responsibly managed standards.
WCA’s goal is to grow value chains by providing access to finance to SMEs, in the framework of three keys SDGs:
The company also applies a “No Harm” Impact Goal, when reviewing its investment opportunities and applying a negative screening to harmful/controversial products and industries.
The team is composed of ten professionals, with senior executive team members having 10+ years of experience in Emerging Markets and/or Trade Finance, and a collective experience in financing over USD1 billion in short-term debt and Emerging Markets transactions.
WCA is headquartered in London and registered with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017. The company operates using a “commercial finance company” model, by raising funds (in the form of loans and/or co-investments) from international investors, which it then on-lends to borrowers in their target markets.
The company’s revenue comes from the net interest margin between interest received from the borrowers and interest paid to the lenders.
Traditionally, the funds obtained come from impact funds, credit funds, Development Finance institutions (DFIs), and private wealth seeking thematic investments, which provide the company with medium to long-term funding.
The company’s target market is comprised of 2million SMEs that are financially constrained across Africa (#1.6million) and Latam (#0.4million). Specifically, the company is focusing on Peru, Costa Rica, Colombia, Ecuador, Kenya, Rwanda, Tanzania and Ethiopia, with a preference for food value chains.
The company has tailored its services to SMEs, these suffering from the highest levels of transactional financing requests – approximately 58% of transactional finance proposals are rejected by banks, despite the sector globally submitting 44% of all transactional finance proposals. Banks reject such a high volume of proposals for three specific reasons: very cumbersome AML/KYC requirements imposed by regulators, capital requirements such that short-term financing to lower-rated enterprises is unprofitable and constraints on banks’ capital.
WCA follows the Principles for Responsible Investments based on the Ten Principles of the United Nations Global Compact.
In addition to this, WCA has established ESG standards related to investments in controversial sectors and products. The company believes that certain industries, countries, and/or sectors are not compatible with its principles, and therefore will refrain from financing companies that are against its sustainability values.
Latin America and Sub Saharan Africa
Number of Goparity Loans
First instalment was paid to all the investors
791 investors successfully raised 160.000€
This campaign is open for investment