With Root Capital, RSF Doubles Down on Impact—and Impact Measurement

After Bertha Nzabanita lost her husband in the 1994 Rwandan genocide, she was left with a dilapidated house, a young son to raise, and one field of coffee plants. Her options were limited—until she joined the Musasa coffee cooperative.

The co-op guaranteed her a fair price for her coffee cherries (as unroasted berries are called) and its leaders taught her how to get the most from her crops. The impact was life changing: Bertha increased her harvest. She built a new home and put her son through university. She also expanded her coffee holdings to four fields.

Bertha could do this because of Musasa’s long-term commitment to her and smallholder farmers like her. Musasa, in turn, could make that commitment because of more than $5.5 million in loans they’ve received over the years from Massachusetts-based Root Capital.

Root Capital is a pioneering social lender that provides capital and capacity building to small agricultural enterprises in Africa, Asia, and Latin America—95% in environmental hot spots. The nonprofit specializes in loans of $150,000 to $2 million for organizations that buy from smallholder farmers.

Since its founding 20 years ago, Root Capital has provided more than $1.4 billion in loans to some 700 agricultural enterprises and training to almost 1,400 businesses. And it’s also become an industry leader for its rigor in measuring impact in service to a larger mission.

“Root Capital is trying to create a just society,” says Carolyn Ezelino, RSF investment manager. “Smallholder farmers have been overlooked in the global economy, and Root Capital offers them dignity and respect. They highlight how important these farmers are not only to their families and communities, but also to the world.”

A relationship that does double duty

RSF has had a relationship with Root Capital almost since its beginning, and in 2017 RSF made a $1 million loan to the nonprofit from its Donor Advised Fund (DAF). Two years later, Root Capital got another loan; this time the DAF investment was for $1.5 million.

Unlike many donor-advised funds, which pay little attention to how the money is invested as it waits to be granted out, RSF is renewing its commitment to 100% impact in its DAF, which has $70 million under management. The Root Capital loans are a perfect example of RSF’s impact-first philosophy.

“We’ve doubled down by investing in those funds in ways that are really focused on impact,” says Ezelino. “This year we decided to keep Root Capital in the DAF investment portfolio—and increase the amount—because they share our commitment to impact. And we can learn from them.”

From the start, capital + tools for success

Willy Foote, a former Wall Street banker, founded Root Capital in 1999 when a journalism fellowship in southern Mexico brought him into contact with a co-op of vanilla farmers. The co-op was struggling, and at first Foote thought it was because of local drug trafficking. As he delved deeper into the story, he learned the real problems: the farmers lacked capital, market access, and business skills.

That set Root Capital’s focus on “credit plus capacity,” says Chris Engstrom, senior creative director. “We quickly figured out that many enterprises were not ready for a loan. They had accounting practices that weren’t up to par or lacked financial skills a business requires.”

“We’ve doubled down by investing in or allocating those funds in ways that are really focused on impact.” –Carolyn Ezelino, RSF investment manager

So Root Capital offered training in financial management and even agronomic practices in addition to loans. Increasingly, the nonprofit is helping enterprises equip smallholder farmers to better adapt to climate change, which threatens their livelihoods.

In 2012, Root Capital created the Women in Agriculture Initiative (WAI) to address the unique challenges and inequality that confront women in rural areas. Both of RSF’s loans to Root Capital were earmarked for the WAI. To qualify for a WAI loan, an enterprise needs to comprise at least 30% women (including farmers, artisans, and employees). If it’s a woman-led enterprise, it needs to be at least 20% women.

The need to focus on women is clear: they make up as much as 80% of the agricultural labor force in some low-income countries, but they own only a fraction of the land, are less likely than men to access essential resources like credit and training, and face greater “time poverty”: household and family duties give them little or no time to make productive investments in their farms or access training.

The initiative has made a significant impact. Root Capital increased the proportion of gender-inclusive businesses in its investment portfolio from 40% in 2014 to 48% in 2018, and reached more than twice as many women farmers, growing from 117,000 in 2014 to 246,000 in 2018.

Root Capital leads the way in assessment

Root Capital is not only one of the first social lenders to focus on agriculture, it is also pioneering rigorous impact assessment. RSF, which is deepening and strengthening its own impact measurement practices, is working closely with Root Capital to learn more.

“Looking across the impact investing landscape, it’s clear that Root Capital is one of the strongest social lenders in terms of impact—they’re a tremendous leader when it comes to rigor,” says Shu Dar Yao, RSF head of investments. “They have done a great deal of impressive work, using deep community engagement and quantitative analysis to understand what their money is doing.”

“It’s clear that Root Capital is one of the strongest social lenders in terms of impact—they’re off the charts when it comes to rigor and impact.”—Shu Dar Yao, RSF head of investments.

Root Capital is focused on impact even before they make loans. For example, to qualify, enterprises need to pass both a screen for negative impacts (such as encroaching on protected ecosystems) and a screen for positive impacts, which prioritizes practices like paying price premiums or providing agronomic training to farmers.

Then Root Capital conducts mixed-method impact studies—they have completed 30 to date—which measure not only outcomes like crop yields and income, but also impacts on stress levels, aspirations, and women’s participation. To measure its impact as rigorously as possible, Root Capital uses best-fit approaches, including experimental and quasi-experimental methodology when appropriate.

They also engage with partners to build their evidence. One is Yale University’s Innovations for Poverty Action, which helped Root Capital fine-tune its approach. And a team of external researchers concluded Root Capital’s loans not only make farmers and agricultural enterprises better off, they also make the market more efficient as a whole. The results of their rigorous study were published in a top peer-reviewed economics journal.

RSF goes deep into impact

“We’re learning a lot as we delve deep into the question, How do you use data and science to back up the claims that you’re making?” says Ezelino. “It takes more than having sophisticated marketing and emotionally charged images meant to solicit a strong response from donors—we look for the substance and evidence of impact beyond the compelling story.”

RSF’s loans have enabled Root Capital to provide capital to roughly seven gender-inclusive enterprises worldwide, empowering these businesses to make larger, more consistent purchases from thousands of women farmers. Many of them are like Rwanda’s Bertha Nzabanita, working hard to support their families.

“The money isn’t just sitting in donor accounts,” says Ezelino. “It’s getting behind some really innovative and forward-thinking organizations. Root Capital is a best-in-class organization, and they’re aligned with the impact our clients are hoping to make.”