“We want organizations to eventually become financially independent, and experience has taught us that it requires patience. When we started supporting Chetna in 2010, we thought that two or three years of soft support would be enough for the organization to stand on its own. But the market realities were different - organization had to face some major challenges, like a volatile market and the fact that commercial financiers think that smallholder farmers are too great a risk. Partnerships proved to be an important success factor, allowing Chetna to spread its risks and reinforce its financial situation. We also developed a unique guarantee product that allowed us to back up a local Indian financial institution, which in turn provided Chetna with working capital. Later on, we helped Chetna to transition to a bank offering credit at a lower cost. In parallel, buyers of Chetna cotton were also forthcoming with pre-finance which also helped Chetna to diversify its sources of finance. While commercial banks are satisfied if they bring in a new customer, we’re overjoyed that Chetna can now turn to another commercial bank for financing.”

Bram Spann and Rishabh Sood, 
Program Managers Rabo Foundation

Chetna Organic matures to 
receive independent  
local financing

The Indian Cotton Farmer Producer Company has matured to receive independent working capital finance from local Indian financial institutions. As a small cooperative with limited resources, Chetna received Credit Guarantee support from Rabo Foundation for initial cycles to leverage finance from local financial institutions. 

to the extent that the support from Rabo Foundation is not required anymore. This is a great step towards the company’s continued growth and independence.

Individual smallholder cotton farmers cannot compete with large producers on the global market. But they can improve their position immensely by combining their efforts in cooperatives. The Indian organization Chetna helps small-scale cotton producers to form such collaborative efforts. “We support 14 cooperatives”, says R. Nandakumar from Chetna. “The cooperatives are spread over three states of India. Their member farmers mainly produce cotton, but they also grow food to spread their business risk and to feed themselves. Via the cooperatives, we can eventually reach around 35,000 smallholder farmers.”

Switching to organic 
Chetna collects organic cotton from the cooperatives, provide first-level value addition (ginning and forming bales) and sells it on the global market, while also helping member farmers switch from conventional cotton farming to organic techniques. “That transition is vital”, Nandakumar explains. “In India, cotton production represents around 5 percent of the country’s total agricultural activity, but it uses half of all of the pesticides consumed in India. That has dramatic effects for both the farmer and the soil. Organic cotton production, on the other hand, uses no pesticides. Moreover, the global demand for organic cotton is growing, and parties in the chain are willing to pay extra for it. Moreover, our cotton is fair-trade certified, which allows company to earn premium with a specific purpose to build community assets." 

Convincing major brands
It is not always easy to convince farmers to produce organic crops. “It takes three to four years to get all of the chemicals out of the soil”, says Nandakumar. “During that time, farmers cannot grow any cotton, so they don’t earn any income. Fortunately, we can show that their colleagues who’ve switched to organic 

techniques have increased their production by an average of 158 percent.”
Another challenge is to build and maintain a position in the cotton value chain. “It’s a long and complicated chain, with lots of large players. Moreover, developing an organic value chain means that at no point in the value chain, the organic cotton should come in contact with conventional cotton i.e. the conventional existing infrastructure cannot be used for producing organic cotton. Luckily, over the years, Chetna has been able to foster relationships across the value chain, through strategic partnership and also investments, where it is ensured that the promise of delivering organic cotton is not compromised. We’ve become better at doing that over the past few years.”

Reinforce financial position
Funding is essential for Chetna. The organization pays farmers immediately upon delivery of their cotton, but then it needs to bridge the period between the purchase and sale of the product. That requires sufficient working capital. Since 2010, the organization has enjoyed support from Rabo Foundation, which has facilitated the required working capital in the form of a loan on very favorable terms through local financial institutions. Rabo Foundation has also offered financing to supply the farmers with an income during the transition to organic production. In 2013, Chetna found a party that was willing to invest in the cooperative, based on a guarantee of 60 percent by Rabo Foundation. That enabled Chetna to reinforce its financial position. Rabo Foundation then developed an innovative guarantee product that made it financially interesting for Yes Bank to provide a working capital loan to Chetna in 2018.

Keeping interest affordable
Nandakumar is grateful for all of the support. “Now we can get financing even without a guarantee from Rabo Foundation. Both the loan and the guarantee from Rabo Foundation were essential for our continued existence. Their support kept the interest rate affordable for us. Rabo Foundation also brought us into contact with other investors and possible buyers in the chain, which will mean a lot to us in the future.”

Over the years, Rabo Foundation helped Chetna diversify its sources of finance and also helped lowering finance cost. Now, Chetna has built a reputation and gained the trust of the financiers,  

and continue to provide good services

Being able to grow independently

Chetna

INDIA

India /Producer Organization

India /Producer Organization

Hoger inkomen
door kortere
kaneelketen

Cassia Co-op slaat een brug tussen Indonesische kaneelboeren en inkopers wereldwijd. De onderneming draagt zo bij aan een eerlijkere, kortere en efficiëntere kaneelketen.

Over the years, Rabo Foundation helped Chetna diversify its sources of finance and also helped lowering finance cost. Now, Chetna has built a reputation and gained the trust of the financiers,  

to the extent that the support from Rabo Foundation is not required anymore. This is a great step towards the company’s continued growth and independence.

Individual smallholder cotton farmers cannot compete with large producers on the global market. But they can improve their position immensely by combining their efforts in cooperatives. The Indian organization Chetna helps small-scale cotton producers to form such collaborative efforts. “We support 14 cooperatives”, says R. Nandakumar from Chetna. “The cooperatives are spread over three states of India. Their member farmers mainly produce cotton, but they also grow food to spread their business risk and to feed themselves. Via the cooperatives, we can eventually reach around 35,000 smallholder farmers.”

Switching to organic 
Chetna collects organic cotton from the cooperatives, provide first-level value addition (ginning and forming bales) and sells it on the global market, while also helping member farmers switch from conventional cotton farming to organic techniques. “That transition is vital”, Nandakumar explains. “In India, cotton production represents around 5 percent of the country’s total agricultural activity, but it uses half of all of the pesticides consumed in India. That has dramatic effects for both the farmer and the soil. Organic cotton production, on the other hand, uses no pesticides. Moreover, the global demand for organic cotton is growing, and parties in the chain are willing to pay extra for it. Moreover, our cotton is fair-trade certified, which allows company to earn premium with a specific purpose to build community assets." 

Convincing major brands
It is not always easy to convince farmers to produce organic crops. “It takes three to four years to get all of the chemicals out of the soil”, says Nandakumar. “During that time, farmers cannot grow any cotton, so they don’t earn any income. Fortunately, we can show that their colleagues who’ve switched to organic 

techniques have increased their production by an average of 158 percent.”
Another challenge is to build and maintain a position in the cotton value chain. “It’s a long and complicated chain, with lots of large players. Moreover, developing an organic value chain means that at no point in the value chain, the organic cotton should come in contact with conventional cotton i.e. the conventional existing infrastructure cannot be used for producing organic cotton. Luckily, over the years, Chetna has been able to foster relationships across the value chain, through strategic partnership and also investments, where it is ensured that the promise of delivering organic cotton is not compromised. We’ve become better at doing that over the past few years.”

Reinforce financial position
Funding is essential for Chetna. The organization pays farmers immediately upon delivery of their cotton, but then it needs to bridge the period between the purchase and sale of the product. That requires sufficient working capital. Since 2010, the organization has enjoyed support from Rabo Foundation, which has facilitated the required working capital in the form of a loan on very favorable terms through local financial institutions. Rabo Foundation has also offered financing to supply the farmers with an income during the transition to organic production. In 2013, Chetna found a party that was willing to invest in the cooperative, based on a guarantee of 60 percent by Rabo Foundation. That enabled Chetna to reinforce its financial position. Rabo Foundation then developed an innovative guarantee product that made it financially interesting for Yes Bank to provide a working capital loan to Chetna in 2018.

Keeping interest affordable
Nandakumar is grateful for all of the support. “Now we can get financing even without a guarantee from Rabo Foundation. Both the loan and the guarantee from Rabo Foundation were essential for our continued existence. Their support kept the interest rate affordable for us. Rabo Foundation also brought us into contact with other investors and possible buyers in the chain, which will mean a lot to us in the future.”

and continue to provide good services

Being able to grow independently

“We want organizations to eventually become financially independent, and experience has taught us that it requires patience. When we started supporting Chetna in 2010, we thought that two or three years of soft support would be enough for the organization to stand on its own. But the market realities were different - organization had to face some major challenges, like a volatile market and the fact that commercial financiers think that smallholder farmers are too great a risk. Partnerships proved to be an important success factor, allowing Chetna to spread its risks and reinforce its financial situation. We also developed a unique guarantee product that allowed us to back up a local Indian financial institution, which in turn provided Chetna with working capital. Later on, we helped Chetna to transition to a bank offering credit at a lower cost. In parallel, buyers of Chetna cotton were also forthcoming with pre-finance which also helped Chetna to diversify its sources of finance. While commercial banks are satisfied if they bring in a new customer, we’re overjoyed that Chetna can now turn to another commercial bank for financing.”

Bram Spann and Rishabh Sood, 
Program Managers Rabo Foundation

Chetna

INDIA