Lending and Financing

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Micro Loans for Fair Trade Farmers

The establishment of a fair trade farming business can be difficult in the developing world because farmers are often unable to find enough capital to get started. Unfortunately, this means that millions of potential farmers are left either unemployed or less productive due to preventable limitations on capital accessibility. Fair trade lending empowers farmers to receive meaningful, long-term loans and small advances that can be used to purchase equipment, land, and materials needed to engage in farming. This lending system can also provide investors with a unique opportunity to access individuals looking to start a small business in the developing world. This article takes a look at some of the opportunities that exist in the fair trade lending industry for both farmers and lenders.

Constraints Faced by Farmers

Farmers have a difficult time acquiring capital because of hostile laws, restrictions on investment flows, and limited guarantees of repayment. Many developing nations have laws that are hostile to the finance industry, especially international finance. As a result, investors could face a difficult business climate when attempting to bring in money or other resources from abroad. Some countries may also have laws that provide limited or no guarantees for investors to ensure that their money will be returned. These factors can make loans so difficult to obtain that about 20 percent of fair trade farmers have unsatisfied demands for additional credit. Therefore, farmers usually welcome capital from investors who have the ability to provide them with money needed to start or expand operations.

Why Capital is Restricted

Investors often wonder why investments cannot be made in fair trade enterprises with the same simplicity as with domestic transactions. Unfortunately, the factors faced by farmers can make the risks too high for prospective investors to simply provide capital with a mere credit rating or application. In fact, many developing nations do not even have a credit system that international investors can access. The limitations on international lending usually affect long-term loans that can provide genuine value to farmers who need to purchase assets to succeed at their business. Therefore, payday loans are usually the only option for small fair trade farmers in many nations around the world.

The Fair Trade Solution

Fair trade capital enables investors to connect with farmers by taking down the barriers to communication between farmers, local lending agents, and international partners. Fair trade farming businesses that are part of a fair trade network can often obtain capital through their organization or by using their membership as a credential to receive outside capital. This lending solution also ensures that lenders can find enough information about a prospective farming business and its regulatory environment to justify making a real investment. Therefore, the fair trade investment solution can be effective for both lenders and farmers in today's world.

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