Better Cotton — a sustainability initiative that helps cotton communities survive and thrive, while protecting and restoring the environment — along with investment firm FS Impact Finance signed a Memorandum of Understanding to develop and launch a fund directed at smallholder farmers in the cotton sector.

The fund will be piloted in India, according to Better Cotton, and aims to help incentivize cotton farming communities to invest in field-level work related to gender equality and climate resilience. The fund intends to do so by eliminating traditional financing barriers.

Smallholder farmers are defined as small-scale farmers, pastoralists, forest keepers, and fishers who manage areas varying from less than one hectare to 10 hectares, according to Food and Agriculture Organization of the United Nations (FAO). The FAO states that “smallholders are characterized by family-focused motives such as favoring the stability of the farm household system, using mainly family labor for production and using part of the produce for family consumption.”

In the article shared by Better Cotton, many cotton farmers — including those in India— struggle to access adequate financial support due to their Farmer Producer Organization’s (FPOs) lack of credit history. An FPO is a legal entity formed by farmers that provides for sharing of profits/benefits among the members.

In India, there are 16,000 FPOs representing over 5.8 million farmers. Only a few larger and well-established FPOs have access to formal financial markets in the country; however, the majority don’t have the turnover and credit history to qualify for finance.

With the new fund, vetted FPOs “will be supported in the implementation of gender and climate resilience activities with the goal of fast-tracking field-level results and improving their bankability,” says Better Cotton. This will, in turn, enable less-developed FPOs to improve their credit history. They will also benefit from services to help them create growth plans.

“This collaboration with FS Impact Finance has the potential to accelerate important work already underway in India, and it will do so in an inclusive way,” says Alan McClay, CEO at Better Cotton. “Access to finance for smallholders is always a challenge and we are excited at the prospect of helping to change that.”

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