Providing a reliable source of finance

We continue to support fair trade organisations through two channels: direct lending to producer groups in Africa and Latin America (producer lending) and indirect lending to fair trade wholesalers, FLO Traders, and retail businesses in the Northern Hemisphere (buyer lending), which indirectly benefits producers in Asia.

Our lending solutions encompass both short-term and medium-term options. Short-term lending includes Export Credit, Buyer Credit, and a Stock Facility (similar to working capital). These options provide upfront funding for order fulfilment and stock procurement. On the other hand, our medium-term lending, known as a Term Loan, aids in infrastructure development and equipment acquisition. Appendix 5 offers a more detailed overview of our lending products.

Export Credit and Buyer Credit are revolving lines of credit, tied to contractual agreements that are repaid as contracts are fulfilled. This approach allows us to lend over the course of a year, more than the total of our Share Capital. Stock Facilities help customers to access finance when contracts are unavailable at that point in the harvest cycle.

Term Loans are instrumental in supporting our customers' infrastructure improvement projects, enabling them to acquire necessary materials and machinery to enhance their production capacity and the construction of buildings to assist in their growth and longer term plans.  

Some of our customers manage multiple facilities, such as Export Credit and Term Loans. Globally, we currently oversee 210 facilities allocated to 173 customers (230 facilities and 185 customers in 2022). Short-term financing via Export Credit continues to be the predominant borrowing choice. This mix of facility types has remained stable throughout the year.

Currently, 22% of our total portfolio consists of debt consolidations (21%: 2022). These are accounts that have defaulted but have since been restructured over a new term. The higher number of consolidations reflects the increased default rates we have encountered over the past 24 months.

Historically, debt consolidations have primarily occurred within our African portfolio. It is crucial to recognise that we are dealing with organisations in a vulnerable state. Consequently, our plans are meticulously constructed, accounting for slim profit margins, the dedication of their members in supplying products, and securing a trusted buyer's commitment to purchase their products and offer a viable route to market. Given the market challenges described above for several of our customers we are working with, it can take some time to reach a mutually agreeable repayment plan. 

The majority of our committed lending (91%) supports producer groups, the same percentage as 2022.  We also assist buyer organisations, but this has reduced lately due to challenges in the handcraft market. Despite this, lending to buyers is crucial in fair trade, as they must provide a 50% upfront payment to producers per WFTO Fair Trade Principles. Shared Interest helps by facilitating 'recipient producer payments.'

In India, Bangladesh, Nepal, and Pakistan we are unable to lend and get our money back due to financial regulations. By offering credit to buyers, often based in Europe and North America, we indirectly help these producers access working capital, enabling buyers to pay artisans and secure raw materials for timely order fulfilment.

You can read the full Social Accounts document here.