We co-organised a dialogue on Innovative Finance Partnerships at the Amsterdam Cocoa Week 2024

After three presentations highlighting the need for creating innovative mechanisms for this purpose, the representatives of companies, investors, CSOs, academia and Dutch governmental bodies had a lively discussion, highlighting different elements that should be considered in designing new or adjusting existing financial mechanisms. Here a summary of the session:

Dialogue

“Innovative finance partnerships increasing access to finance and diversification of income for smallholders in West Africa

Objective

Generate recognition of the urgency for, and a genuine interest in, the creation of finance partnerships that provide locally appropriate financial instruments, allowing cocoa farmers to diversify production and become more resilient.

The challenge

Local communities and small-scale producers and their organisations need to renovate or rehabilitate and upgrade their cocoa farms. In doing so, they face various challenges:

• Need to diversify production to reduce vulnerability of farm to adverse climate events and increasing climate variability
• Limited capacity among communities and small-scale producers to access technical knowledge and finance

Innovative Partnerships in Ghana

Several collaborative partnerships exist in Ghana, but these do not involve a representative of the financial sector. The Farmfit Fund of IDH-Invest implements partnerships with value chain companies that have a positive impact on small-scale producers but have relatively large ticket sizes. Tropenbos Ghana supports producer groups to develop business proposals but these groups lack access to finance due to small ticket size, little experience, and no track record in formal finance. South Pole proposes a mechanism, the Cocoa Landscape Investment Facility (CLIF), to bridge this gap and provide direct access to finance for communities, small-scale producers and their organisations.

The mechanism requires investments to create a sizable fund for farmer-related investments; a technical assistance branch to support the development of a pipeline among others; and a separate payment for ecosystem service-related component to finance the conservation and restoration of the natural resources in the landscape. South Pole proposes to implement a pilot in three cocoa-dominated Ghana landscapes, the Asutifi Asunafo, Juabeso-Bia, and Sefwi-Wiawso. In these latter two Tropenbos Ghana operates as well. At the same time, IDH Farmfit Fund identifies three critical components including (i) technical assistance (ii) blended finance (including first losses) and (iii) an integrated supply-chain. Is this an opportunity for collaboration?

Main take-aways from the discussions

The landscape approach is often applied as a way to create synergies between projects and potential partners and avoid operating in silos, while simultaneously investing in different community projects towards an intended goal. For many value chain actors it is also seen as a way to aggregate and work with different partners, allowing them to reach out into the landscape. In practice, jurisdictional boundaries are often used to delimit the landscape, to facilitate decision making and monitoring.

Building a financial mechanism that addresses access to finance requires collaboration between local stakeholders from the public, private and non-profit sectors, who together:

• build trust in the landscape, work with stakeholders that have presence in the landscape (cooperatives, LBCs, local banks, local CSOs)
• are prepared to share risks through different mechanisms; blended finance constructions, often linked to carbon or climate finance, play an important role in such mechanisms
• think beyond cocoa: what are the products that bring enough diversification and aggregation? That have enough margins?
• contribute to transparent trade (who earns what) and seek equative distribution of profits along the value chain (digitalization may help)
• help build more diversified markets, identifying responsible off-takers for a range of products
• identify clearly the benefits of finance in function of increased incomes (finance as an instrument to reach a goal, not as a goal by itself)
• identify the most appropriate financial instruments meeting the needs of local stakeholders; with, for example, reduced interest rates, long grace periods, different forms of disbursement, alternatives for collateral
• prepare the pathway towards long term value chain financing, considered to be more complete, creating scale, and more support across all the processes.

Experience shows that in Ghana, the COCOBOD is an all-important player that needs to be on board for any cocoa related initiative to become successful in the long run. Currently they control the cocoa-sector’s in- and outflow of money.

In landscapes such as the Juabeso-Bia and Sefwi-Wiawso, financial literacy is key to success for improving local financial systems and increasing income. Participants considered that current work with VSLAs is an important step to enhance this financial literacy and build trust in the financial system.

Several participants showed an interest in thinking along with the further development of CLIF (for example, an estimation of the financial requirement/portfolio size for piloting or implementing CLIF should be outlaid). Specifically, the representative of the Rabo Foundation indicated he would like to think along, offering to share his experiences with an agreement for on-lending to small-scale producers by companies such as Mars and Touton.

In conclusion, participants applaud the initiative for collaboration but at this moment are mainly looking forward to the implementation of the pilot.