Small producers in rural areas that have been the most impacted by armed conflict in Colombia will have access to preferential credit to build their resilience to climate change
Resources provided to Bancóldex by Blended Finance 2.0 will allow the Bank to launch a pilot line of credit to bolster the development of small business owners and producers located in PDET and ZOMAC regions (both acronyms refer to conflict-affected areas).
The line of credit for sustainable investments in climate adaptation, launched December 30, 2020, aims to improve the production practices of rural producers living in vulnerable conditions and build their capacity to adapt to the adverse effects of climate change using Ecosystem-based Adaptation strategies.
Of the line’s financial facilities, a highlight is the maximum payment period of three to seven years with grace periods of up to six months.
Bogotá, D.C., XX of January, 2021. With the support of the United Nation’s Multi-Donor Trust Fund for Sustaining Peace, hereafter the Fund, together with the United Nations Secretary-General’s Fund for Peacebuilding and the United Nations Environment Programme (UNEP), Bancóldex, the Business Development Bank of Colombia, has launched a pilot line of credit with preferential conditions and approximately $3,100,000 USD in resources with which the Bank hopes to finance some 2,000 producers in PDET and ZOMAC regions of the country.
Using a “Blended Finance” mechanism in which the Fundecooperación and Bancóldex’s own funds are combined, the line of credit will reduce existing gaps in financing for small producers living in vulnerable conditions, offering a finance solution designed according to their needs and which reaches rural small business owners, with the help of partner microfinance organizations.
With UNEP’s technical expertise, an innovative financial instrument was designed and tailored to the needs of small producers, helping to achieve various Sustainable Development Goals (SDGs), such as End Poverty (SDG 1), Zero Hunger (SDG 2), Clean Water and Sanitation (SDG 6), Climate Action (SDG 13), Life on Land (SDG 15), among others.
Fundecooperación’s resources are to be used to improve the line of credit’s financial conditions (fees or interest rates, payment periods, grace period, fee or interest rate reduction) to finance investments in sustainable and climate-adapted practices with the help of microfinance-oriented organizations. This will aid the development of small rural producers located in PDET zones, helping to increase their productivity as well as stabilize their income while mitigating the effects of climate change on their crops.
“This financial mechanism allows for financial institutions to include sustainable practices as a target for their funding and to increase the flow of credit to a market, which due to its perceived high-risk, has been historically underserved, helping to foster the creation and inclusion of new, specialized products in the financial system to increase the availability of resources for producers,” stated Javier Díaz Fajardo, president of Bancóldex.
Additionally, the project seeks to turn access to finance into a determining factor that contributes to women’s empowerment and autonomy, for which at least 25% of the line of credit’s resources will be allocated to women small business owners and will help to raise participating financial organizations’ awareness of this gender focus.
“Small rural producers are the most impacted by extreme events such as floods or droughts caused by the climate emergency. At the same time, this sector of the population has the least access to tools and financing to invest in recovering from or avoiding damages. To address this challenge, microfinance with a focus on ecosystem-based adaptation (MEbA) will empower them with tools tailored to their context. “This focus will provide solutions to facilitate the transition to sustainable and resilient production practices,” said Gustavo Máñez, climate change coordinator at UNEP. Of this credit solution’s innovative financial facilities, there are maximum payment periods of three to seven years with grace periods up to six months for those accessing this credit via microfinance mechanisms. The line of credit will be routed through intermediaries (financial organizations, banks, cooperatives, NGOs, among others) associated with Bancóldex.