Jason Potts is creating a global community of financial service providers, sustainable producers and supply chain partners, dedicated to facilitating access to investment in sustainable agricultural production in the developing world.
A nova ideia
Jason is making finance accessible to small- and medium-sized enterprises (SMEs) working in the sustainable agriculture industry. He is creating a collaborative network for global lenders to improve the efficiency and effectiveness of investing in sustainable agricultural SMEs. Jason’s organization, the Finance Alliance for Sustainable Trade (FAST), matches socially oriented lenders and investors with certified sustainable SMEs to facilitate the development of more sustainable production and trading relationships in global commodity supply chains.
Jason uses a novel multipronged approach that includes connecting lenders, small producers and supply chain actors (such as buyers, traders, and manufacturers) to strengthen both the supply and demand sides of the market as well as risk management strategies for delivering finance within the sustainable agriculture supply chains. With his online and offline platforms Jason supplies valuable information to SMEs and investors and reduces transaction costs in the delivery of financing to sustainable SMEs. Through his directory of SMEs, financial institutions can search for key specifications on small agricultural firms that help inform their investments. Jason also builds the capacity of sustainable SMEs in emerging economies to solicit and manage finance through a series of “Financial Fairs.” SMEs also use the FAST website, where they can access the criteria lenders use to select investees, as well as interest rates and training services provided by FAST. By building a more robust information base around lending to sustainable agricultural SMEs, Jason’s vision is to facilitate a transformation of the market that more accurately integrates the true costs and benefits/risks and opportunities of agricultural production within financial products offered on local and global financial markets.
Through his global and regional financial fairs, Jason brings SMEs and local and mainstream financial institutions together to increase visibility and investments in the SMEs. He provides portfolios of SMEs to investors and gives them opportunities to engage in speed-dating-type networking with the SMEs at the fairs. Jason boosts the technical expertise of sustainable agriculture entrepreneurs and their staff, giving them financial literacy training and helping them to develop more attractive investment models. This reduces the investment risk for financial institutions and makes investment in agricultural SMEs more appealing. The banking sector’s delivery of services to the SMEs is also being transformed through the creation of new, informed and facilitated products and services for SMEs. By pooling the resources of individual financial institutions and other SME lenders in emerging economies, Jason is creating a new market for investors and enabling a larger and more vibrant sustainable agricultural sector.
An estimated 2.5 billion people around the world depend on agriculture for their livelihoods. Meanwhile, an estimated 90 percent of those dependent on agricultural production live under the poverty line in developing countries. Widespread poverty across rural agricultural producers in the developing world leads to limited opportunities for strategic business development and investment for sustainable livelihoods. In addition, a major barrier to the growth of small to medium enterprises in the developing world is a generally inadequate level of financial literacy. Without a source of credit, enough collateral to obtain initial loans, or even the banking know-how, many rural workers are caught in a persistent cycle of poverty in the developing world.
For agricultural producers in emerging economies, there are insufficient resources for investment in business development and sustainable agricultural production practices. Although national governments have long recognized the importance of agricultural production in determining economic well-being, most emerging economies have undergone financial restructuring, which limits their capacity to invest in or manage agricultural production. At the same time, persistent poverty among producers prohibits them from being able to invest in the development of agricultural production to ensure social, economic, and environmental sustainability. Recognizing the financial instability of rural smallholder agricultural production, banking institutions traditionally avoid lending to this sector, further aggravating the problem.
Market-based sustainable agricultural production initiatives such as Fairtrade, the numerous certifications of organic products, Forest Stewardship Council, Better Cotton Initiative, Roundtable on Sustainable Biofuels, and others have made significant progress in the identification of broadly accepted criteria for sustainable agricultural production. True sustainability, however, requires the adoption of sustainable business practices including, inter alia, business management and marketing skills and access to finance—capacities which are typically not directly addressed by certification initiatives.
At the same time, certification initiatives do require the adoption of new management systems which have been observed to reduce volatility and risk across certified organizations. Moreover, certification initiatives are building new and lucrative markets for producers. Markets for sustainable agricultural products have been growing at between 20 percent and 100 percent per annum (depending on the sector) and therefore represent a major opportunity for developing country producers.
As markets for sustainable markets grow, the demand for finance by sustainable SMEs in the agricultural sector is also growing rapidly. At present, demand for financing to supply markets for sustainable agricultural is currently estimated at around US$3 billion per annum. Supply, on the other hand, is estimated at less than US$500 million per annum, creating a major market gap.
Recognizing this gap, a small group of financial service providers has emerged over the last decade, dedicated to servicing sustainable agricultural production in emerging economies through the delivery of innovative financing products. This group of financial service providers is tackling some of the important immediate and root causes of the sustainability challenges facing developing country producers and economies, however, on their own, they remain unable to meet the level of financing demand and need to enable SMEs to lead a wide-scale transition to sustainable agricultural production. Moreover, the absence of sector level data on the growth and performance of investments in sustainable agriculture SMEs in emerging economies renders it difficult to overcome the stigma traditionally associated with agricultural lending in the developing world. Conventional financial institutions are therefore still largely unwilling to invest in agricultural SMEs, whether certified or not.
With a history of launching several sustainability initiatives and personal exposure to large-scale economic inequalities in the poorest nations, Jason was determined to seek a systemic solution to this failure in the market for sustainable agriculture financing. Jason is taking a multipronged approach to improving the role of financing for the overall sustainability of agricultural production. Jason’s organization, FAST, is managing a global marketplace for sustainable agriculture finance and providing related matching services. It is a membership-based model, whose members include sixteen global and local financial institutions and hundreds of SMEs in developing countries, mainly Latin America and Africa. FAST members interact through online and offline platforms. Jason’s trilingual online marketplace provides financial institutions with tools and resources to understand the financial needs of sustainable agriculture SMEs. They can view a directory of SMEs from across Latin America and Africa and based on their interest, seek advice on how they can invest. Jason’s strong local partner organizations help him identify the SMEs with which he works.
Offline, Jason brings SMEs and financial institutions together at financial fairs and global forums. These are industry gatherings meant to showcase the SMEs, support them in accessing finance, and help them get on the radar of global financial institutions, such as the International Development Bank, Triodos, Citigroup and Root Capital, which are also present. These events also offer an opportunity for new entrants to become acquainted with sustainable supply chains, often a new market for these lenders. Participants at FAST financial fairs gain a unique opportunity to get to know SMEs directly, building trust and partnerships. Also at these fairs, Jason’s team provides day-long seminars that complement FAST’s online tools to lenders and SMEs. This training for financial institutions prepares them to take advantage of investments and other financial opportunities in sustainable agriculture SMEs in emerging economies. FAST also hosts a bi-annual forum in partnership with a financial institution where SMEs and lenders collaborate on a global scale. In 2011, this partner was Rabobank Group, a European bank and one of the world’s thirty largest financial institutions, with global experience investing in food and agribusiness.
Jason works on building both the supply and demand of financing for sustainable SMEs. In the early stages of his work, Jason focused on bringing financial institutions together to work on a shared agenda and work plan through the creation of FAST which itself is “member owned” by the financial institutions. His success in bringing financial institutions together has prepared the way for the implementation of a new vision of finance, which combines sustainability parameters as part of the risk management process for finance delivered to SMEs. Using the experience of its members, FAST is now developing informational and training tools that are expected to facilitate the establishment of “sustainable SME finance” as a new asset category for investment.
Jason’s approach seeks to harness existing supply chain relationships as a basis to managing risk and allowing the delivery of finance to collateral poor SMEs. On the one hand, contracts with buyers (e.g. Starbucks and Green Mountain Coffee) can be used to provide security in place of collateral, thereby allowing financial institutions to lend where they normally would not. Commercial relationships for sustainable products are also often bolstered by certification agencies, which bring a series of management practices that can also further reduce risk at the institutional and field levels. Combined together, the buyers, along with the certification bodies, take the role of a “peer group” for sustainable SMEs that allow them to be bankable in a manner similar to the peer groups that allow microfinance to function. By improving access to, and transparency of information on supply chain relationships, Jason seeks to significantly reduce the costs of the delivery of finance as well as the cost associated with investing in sustainable SMEs.
Jason is widening the supply side of sustainable markets and helping agricultural SMEs become more attractive to investors by focusing on working with SMEs that have attained or are committed to attaining a credible sustainable certification label. Once the SMEs are certified or demonstrate likelihood of becoming certified, Jason’s organization supports the SMEs to be in a position to actually receive and use the finance, a model that most local and mainstream banks aren’t involved in right now.
Over the next three years, Jason envisions expanding FAST to more countries in Africa through existing and new local partnerships. He will create a local presence in Africa and Latin America to attract more global investors, that is, mainstream financial institutions, to become FAST members. Jason plans for FAST to become a trusted reference point for facilitating investment into the sector through the management of a global sustainable SME fund for FAST members.
At the highest level, Jason is determined to create growing recognition of the sustainable SME sector as an asset category by mainstream financial institutions. In 2011, FAST facilitated partnerships through which financial institutions committed more than US$20 million in loans to SMEs. This is the beginning of the implementation of a longer vision to facilitate significant capital flows to the sector through the growing commitment and expectation that investment leads to demonstrably positive social and environment outcomes.
Jason grew up on the west coast of Canada in a family committed to social and environmental issues. At the age of 11, he rode his bike with his family from Vancouver to San Francisco as an expression of their commitment to using “human-powered” transportation. His family owned an apple orchard in California and he remembers always having a strong sensitivity to farmers and nature. These early experiences of being close to the land and bike riding as his primary form of transportation inspired Jason to bike around the world before going to university. After two years, twenty-two countries and 35,000 miles, Jason knew what he would dedicate his life to. He was shocked by the living conditions of most of the world’s people and was determined to make a difference in Canada.
While completing his degree in ethics and economics, Jason launched ventures that raised awareness of food security and sustainable trade on campus and used the purchasing power of the university and consumers to make an impact. Jason started Le Frigo Vert (The Green Fridge), the first local organic food co-op to support students to make responsible choices while in school. The organization still exists today, more than fifteen years later. In addition to winning the support of the student body to fund the establishment of the co-op, Jason received recognition as an “Outstanding Contributor” to student life.
Jason went on to earn his law degree, focusing on sustainable trade law and voluntary sustainability initiatives. While never practicing as a litigator, Jason considers this legal training crucial to helping him craft the infrastructure for sustainable agriculture and trade.
After launching various sustainability initiatives, including the Sustainable Commodity Initiative in partnership with the International Institute for Sustainable Development and the United Nations Conference on Trade and Development, Jason co-founded the Finance Alliance for Sustainable Trade, with other citizen organizations, buyers and financial institutions, in 2008. Although he launched the group with other individuals in a coalition, Jason co-envisioned FAST and took up the leadership mantle as the creative and entrepreneurial force behind the project early on. Jason is the only co-founder who has led the strategic direction and growth of the organization from the beginning to where it is today, helping bridge the gap between financial institutions and sustainable agricultural enterprises and steering the organization toward its leadership position for market transformation in the financial sector.