Koert Jansen

"Trade finance is a crucial link in the sustainable value chain"

A strong value chain is bankable. We aim to demonstrate that to banks in the countries of origin.

In the 2009 "December Update from the Global Impact Investing Network (GIIN)", fund manager Koert Jansen explains the impact of the current activities and the perspectives of Triodos Sustainable Trade Fund.

Tell us a bit about the projects you fund with the Triodos Sustainable Trade fund

We are financing the export of fair trade and organic agricultural products from developing countries to Western countries in the European Union or the United States or Japan. As an example, a coffee cooperative engages in a fair trade or organic sustainable value chain. In order to commit in this chain, the cooperative has to sign an export contract, and has to make sure that it will actually get the coffee to fulfil those contracts. This is where finance becomes crucial because the members of the cooperative, the farmers, especially small-hold farmers, cannot afford to wait for their payment until the European or American buyer has transferred the money to the cooperative. Farmers need to get paid as they deliver their product. Now, to bridge that cash flow intensive period - from harvest time to processing, cleaning, packaging, shipping, and final payment of the buyer - we provide what you call "trade finance" or "pre-export finance."

What are the export products that rely on your fund for financing, and where are they grown?

We offer this financing for a lot of different products and commodities-coffee, cacao, sugar, herbs and spices, fruits, sesame seeds, cotton - with average loans of EUR 500,000 to 700,000. Roughly speaking, 60% of our investments from this fund are in South and Central America. Almost all the rest are in Africa. There are a few exceptions. One is a cotton project in Kyrgyzstan. We are also about to disperse a loan to a project in Palestine for fair trade olive oil.

What is the financing structure for these deals?

Our funding structure is a bit different from classical investment funds. Triodos Bank provides the fund - the fund is a separate legal entity - with a line of credit which the fund uses to make loans. But, of course, as you can imagine, this type of business is high risk - working in developing countries, in Africa and Latin-America, and in trade situations where real collateral is not at all or hardly available. Therefore, Triodos Bank requests that the fund provide them with guarantees, which we get from foundations and development organizations. We raise one-third of the total value of the credit line as a security for this loan, which is then physically deposited in a Triodos Bank account and receives around 3% interest. So, Triodos Bank takes two-thirds of the risk for the credit line, and one-third is secured by external guarantors.

Do you think this model, in which two-thirds of the risk is held by a commercial entity and one-third is held by socially-minded investors making a 3% return, is accurately valuing risk in trade financing?

I think we are already advancing with this fund, compared to how this has been done in the past and is still done by some of our peers. Typically, the funding for this type of fund is 100% social funding or grants, whereas in our case two-thirds is commercial, this being the risk that Triodos Bank is taking. One-third is still social, although these people also get a return. Of course, 3% for this type of venture is not compensating the risk profile. But this is a step forward.

What do you see in the future for trade financing?

 5-10 years from now, I do expect that more local banks will take this up, especially in commodities like coffee and cotton. I think that the risk perception will change as we demonstrate that even if you finance without having fixed assets as a collateral, it can be pretty good business. Over the last 7-8 years, we have a loan loss of less than a percent, calculated over what we disburse in a year. That's not something that many of the local banks would expect. It's still a shame that we have to do this from a European country. So, I think - and I hope actually, because that's the end objective, to make ourselves redundant - that the local countries will pick this up.