A Dutch multinational banking services company and a UK-supported, Nairobi-based non-profit is teaming up to encourage farmers to adopt climate resilient farming practices. They are doing this by providing “carbon loans” and developing a new financial instrument that can give smallholders access to the international carbon market.
The project aims to encourage and fund small-scale farmers in Africa to adopt the sustainable and climate resilient farming practice of agroforestry, interspersing their fields and pastures with plantings of woody perennials.
Through remote sensing technology the project will monitor and catalogue the “carbon removal units” (CRUs) that result from the trees storing carbon as they grow. These units can then be traded in carbon credit markets.
The collaboration between FSD Africa and Rabobank ACORN / Rabo Foundation aims to benefit between 3000 and 5000 smallholders in Kenya, Nigeria and Tanzania. Acorn – Agroforestry Carbon removal units for the Organic Restoration of Nature – has the ambition to reach 1 million farmers all over the globe by 2025.
Via local implementation partners, Acorn supports the initiation and development of agroforestry projects and facilitates the subsequent trade of the CRUs that are generated from the sequestered carbon, earning farmers an extra source of income.
The biomass created from CO2 as the trees grow will be measured on a smallholder farmer’s land with the help of remote sensing technology, such as satellite imagery.
Lending against future tree growth
FSD Africa together with Rabo Foundation will provide finance to the small-scale farmers to help them transition to sustainable agroforestry. The local implementation partners will collect the farmer data and onboard the farmers onto the Acorn platform.
The farmers will then be able to sell CRUs to corporate off-takers through Acorn’s technology-enabled marketplace. The proceeds of the CRUs will be used to pay back the loan. For FSD Africa as the financier, testing this innovative finance structure will be an important outcome of this first scale phase.
“The Acorn program has a great potential for improving farmers’ income through the sale of carbon credits and other income from the agroforestry project, commented FSD Africa chief executive officer, Mark Napier. “It will create green jobs, address vulnerability by improving food security and by all those means will lead to the poverty reduction.”
The pilot projects will see the disbursement of carbon loans to allow smallholder farmers to invest in their farms and transition towards agroforestry. The loans will be repaid by the farmers using future income generated by the revenue generated by the sale of carbon credits. From the sales revenue, 80-90% will flow back to the farmer.
In the second phase of the program will hopefully see a potential capital market instrument being set up based on the results of the pilot projects. This instrument could help the program expand and provide much-needed access to finance for small-scale farmers who want to invest in their farms to adopt sustainable agricultural practices.
“Using the proceeds of the carbon removal units for repaying the loan, we have introduced an innovative financial solution that has the potential to create a paradigm shift in financing rural development,” said Jelmer van de Mortel, Head of Acorn.