New Innovative Credit Line to Fund Sustainable Land-use Transitions in San Martin, Showcases how Peru can Deliver on its Sustainable Development and Climate Change Commitments in the Land-use and Forest Sector

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Agrobanco and CEDISA working in partnership with the Global Canopy Programme sign a Memorandum of Understanding to develop a new credit line of up to USD 88 million to finance the sustainable transition of seven supply chains across San Martin, Peru, in order to reduce deforestation and improve livelihoods.

Press Release – 19th September 2016, Oxford, Lima: The Global Canopy Programme, together with CEDISA (a Peruvian based non-profit working with rural communities) and Agrobanco (the Peruvian state-owned development bank) today announce the signing of a Memorandum of Understanding (MOU) to pilot a new credit line facility for up to USD88 million to enable small holders in San Martin, Peru to access competitive rates of finance and technical assistance to sustainably transition and scale up production of seven supply chains, including: coffee, cocoa, palm oil, palm hearts, rice, sacha inchi (Peruvian plant) and aquaculture. These are the main supply chains in the Department of San Martin, which together have significant impact on deforestation and environmental services.

Almost 90% of Peruvian deforestation originates in land use change caused by agricultural expansion, with 75% of annual deforestation being caused by small scale agriculture. In addition, deforestation is the largest source of Peru’s greenhouse gas emissions. Further unsustainable economic production from these industries is likely to result in an additional 7.3 million hectares of forests being cut down by 2050.

Simone Bauch, Latin America Director, Global Canopy Programme said “With Peru’s current NDC commitments requiring GHG emissions to fall by at least 20% by 2030 and government zero deforestation targets of reducing deforestation by 54 million hectares of primary forests to zero by 2021, the country’s current economic development, which is largely predicated on deforestation, will need to rapidly transition to a more sustainable landscapes approach and the Unlocking Forest Finance approach developed by GCP and its partners in San Martin provides a replicable and scalable model for doing this.”

San Martin is currently the largest producer of rice and coffee in Peru and also produces other key agricultural products which include cocoa, palm oil, palm hearts and sacha inchi. Currently in the region there is little or no access for farmers to low cost formal credit, and in addition there is little availability of any technical assistance, which is a critical component of any sustainable landscapes transition strategy. The Unlocking Forest Finance (UFF) project is funded by the International Climate Initiative (IKI) and is lead and coordinated by the Global Canopy Programme. The UFF project is a consortium of organisations that have been working in San Martin for the past 3 years to design an effective transition strategy for San Martin to implement sustainable production models for the main supply chains, restore degraded lands, conserve forests, improve rural livelihoods and reduce carbon emissions. These activities are part of an investment portfolio which has been designed to generate positive social, environmental and financial impacts.

The credit line being developed is different from existing credit lines as it aims to include all different credit elements into a single product (i.e. credit for working capital and credit for upfront capital investments). It also aims to reduce the interest rate as a mechanism to engage farmers in the transition, incorporate insurance, credit guarantees and allow for producers to pay for technical assistance as part of the credit package. Furthermore, a safeguarding framework that demonstrates the ‘greenness’ of the credit line and that links deployment of resources to environmental and social impacts on the ground will also be implemented as part of the process.

Agrobanco’s outgoing President, Enrique Diaz Ortega, stated “The bank is very excited about signing this MOU with CEDISA and the broader UFF project team. The work being undertaken in the San Martin region serves as  irrefutable proof that it is possible to fund sustainable land-use transitions and it’s also highly replicable in different locations within Peru, as well as other countries”.

Diaz Ortega also went on to say that ”Agrobanco aims to promote green production in Peru through financing for productive, environmentally-friendly activities including reforestation and agroforestry processes. We are completely engaged in the collaboration with innovative projects such as UFF, to generate a scalable pipeline of investable green projects that are attractive to both public and private sector financing in order to ensure that Peru can successfully deliver on the commitments made under the Paris Climate Agreement.”

Enrique Delgado, Head of Economic Development in the San Martin regional government, said “The Regional Government strongly supports this effort to facilitate technical assistance and integral financial resources for small producers in the main regional supply chains. The regional government supports this initiative as part of its policy to incentivise the development of these supply chains in a competitive, sustainable and environmentally friendly way.”

Cesar Villaneuva, Congressman for San Martin, also stated  ”The agreement between Agrobanco and CEDISA is an important step forwards in the design of an innovative financial product for the producers in the main supply chains for San Martin. This product will allow access to credit and technical assistance in a permanent and opportune manner”.

He goes on to say “It is important that productivity improvements are generated in a sustainable way and provide returns to farmers. Promotional interest rates are needed that do not ‘suffocate’ the producer, so that they can progressively incorporate agroforestry practices in their farms and connect to markets.”

Cesar Renfigo, CEDISA’s Executive Coordinator, concluded “I welcome the agreement with Agrobanco as it provides an excellent opportunity to continue with the progressive implementation of financial mechanisms that enable supply chains to transition to production systems that reduce pressure on forests and ecosystem services, conserve forests and improve the livelihoods of rural producers. The main challenge will be to ensure that innovate financing is put within people’s reach”.