What is SSME Finance?

Markets for Sustainable Trade
The term sustainable trade refers to the economic and environmentally sustainable production of commodities and other goods, such as handicrafts and textiles, across the developing world. Fairtrade (FLO), Rainforest Alliance, Utz Kapeh and certified organic production are examples of current sustainability initiatives with production programs and certification schemes. In recent years, markets for certified sustainable products experience significant growth, visible in new enterprise activities that integrate international trade, community-based development, and responsible natural resource management.

Finance and Sustainable Business Success
Finance is a key factor in determining the success of sustainable small and medium enterprise (SSME) producer participation sustainable supply chains. In addition to the traditional need for pre-harvest finance faced by SSME producers, participation in lucrative markets means administrative, training, and transition costs. Most producer capital bases are too small to cover these additional costs and the majority of SSMEs are too poor and under-capitalized to be regarded as bankable by local financial institutions.

The availability of finance for SSMEs has not kept pace with the demand and growth of markets for sustainable products. Often, the only local credit sources available are often local merchants doubling as moneylenders, known in many parts of Latin America as "coyotes" for their exploitative practices. These intermediaries use the scarcity of credit and geographical isolation to secure products at unfairly low and unsustainable prices. In the absence of viable economic alternatives, the cycle of poverty and environmental degradation worsen resulting in more land used for slash-and-burn agriculture, unregulated logging, and unsustainable cattle ranching.

Filling the Financing Gap
In recent years, the investment community has responded an emerging "financing gap". There are now more than twenty socially-focused lending institutions lending directly to producer groups in developing countries, with estimated funds of USD $250-300 million. However, the amount of finance and financial services still only scratches the demand's surface.

Despite the entry of increasing numbers of socially focused lenders and an increasing number of commercial lenders adopting social criteria, there remains a growing gap between supply and demand that risks undermining, or at the least reducing, the potential growth of the sustainable trade market. This gap is even more striking in terms of preharvest financing or long term investments in infrastructure as what financing is available tends to be solely for the period of export.

FAST is the first coordinated body to build momentum, create identity, and streamline efforts for this emerging financial  market. Through FAST's efforts, the effectiveness of social lenders who serve SSMEs is significantly improved, which in turn improves producer access to credit and financial risk management tools, and encourages local banks to better serve this local demand.