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Preparing a global credit risk policy for the NKG BLOOM initiative

Project Details

CLIENT

Neumann Kaffee Gruppe

YEAR

2018

COUNTRY / REGION

Global

EXPERTISE

Agricultural Finance

KEY TOPICS

Small Holder Loan Delivery Schemes

Agricultural Value Chain Finance

Loan & Guarantee Programme Design

CONTACT

Dörte Weidig

Neumann Kaffee Gruppe (NKG) is the largest coffee trading group in the world. NKG BLOOM is an initiative established by NKG to improve the livelihood of coffee farmers, to strengthen NKG supply chains and to ensure the healthy future of coffee.

To form the core of NKG BLOOM, NKG raised capital through a special purpose vehicle (SPV), entitled the Coffee Smallholder Livelihoods Facility, in partnership with the U.S. Agency for International Development (USAID), ABN AMRO, Rabobank, BNP Paribas, and the sustainable trade initiative, IDH. The purpose of the Coffee Smallholder Livelihoods Facility is to provide loans to farmer groups and individual farmers that are part of the NKG coffee value chain. The proposed USD 25 million SPV employs an innovative risk-sharing structure to significantly increase the portfolio of loans to smallholder farmers primarily in Uganda and Mexico, but also in Honduras, Peru, Colombia, Kenya, India and Indonesia. Such loans may be utilised by farmers for input purchases (e.g., fertiliser or seedlings), property renovation, school fees or medical emergencies.

The establishment of the SPV is specifically for managing the smallholder farmer lending portfolios. The USD 25 million facility involves leading European banks ABN AMRO, Rabobank, and BNP Paribas—all of whom share direct risks on farmer defaults—while the facility is further backed by guarantees provided by USAID and IDH.

In order to keep lending losses to an absolute minimum, NKG contracted IPC to advise on the development of a global credit risk policy and framework. Based on an understanding of the overall risk management strategy and preferences of NKG, IPC conducted a market review of lending in various countries and prepared a draft global credit risk policy for NKG, including aspects related to client protection, and environmental and social performance management.

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