ABN Amro, Rabobank and BNP Paribas have closed a US$25mn credit facility to finance a sustainability project to support coffee farmers in Kenya, Honduras and Mexico.
The credit facility will be available through NKG Bloom, an initiative run by Neumann Kaffee Gruppe, a coffee service group with 49 companies in 27 countries. ABN Amro structured the facility and acted as lead arranger and co-ordinator.
The three banks will share the risks on farmer defaults, with the facility further supported by two default guarantees by the US Agency for International Development (USAID) and IDH, the Sustainable Trade Initiative.
The NKG Bloom initiative was piloted in Uganda in 2017 and the programme will be launched in Kenya, Honduras and Mexico this year. The initiative is designed to address poverty in coffee communities and hopes to reach 300,000 coffee families in 10 major coffee producing countries by 2030.
NKG Bloom aims to enable farmers access to finance, an education and technology to harness their production potential, work more sustainably and to make their coffee traceable. One example of this is the digitalisation of the payment process for farmers involved in the project, enabling them to track their payments online.
Ruben Tas, senior director of loan market origination at ABN Amro tells GTR that the new facility will be used for short, medium and long-term loans to the farmers. The long-term loans can be up to seven years and can be used for replanting projects.
He explains that many coffee trees in these regions are older and need to be replanted. But this takes time and money, which the farmers simply don’t have. With a longer tenor loan, he says, they can opt to undertake replanting projects, which can increase yield size by up to six times.
Director of impact banking at ABN Amro, Liesbeth Kamphuis tells GTR: “We assisted with the first NKG Bloom project in Uganda. It was a fertiliser programme to reach 50,000 coffee farmers.”
ABN Amro was the only bank involved in the 2017 US$9mn facility. In that instance, farmers were given loans to buy fertiliser to increase their production, as well as training and guidance.
The new deal marks the third impact banking transaction for ABN Amro. The first transaction also took place in 2017 and involved Root Capital, a US-based agricultural impact investor: it provided impact financing to small agricultural organisations. ABN Amro and Root Capital have since continued to partner on impact banking projects.
ABN Amro’s impact banking team was formed four years ago. Kamphuis says: “We have built a whole network to see how we can team up with partners for impact banking purposes. It is challenging to do these deals, as they can’t be achieved with financing alone, structuring is complex and what it means to work in a sustainable manner must be understood.”
The bank says it is looking to build an impact banking portfolio of around €50mn, with the aim to be involved in “many more” sustainable initiatives. “We have projects in the pipeline,” Kapmhuis says. “Our focus has been on cocoa, coffee and palm oil. Palm oil is strict, as it is a very sensitive subject, but these farmers need to be helped too.”