Experience has shown creation and growth of a member-owned capital base is crucial to the long-term sustainability of member owned businesses and can provide an effective savings tool and financial safety net for smallholder farmers. Information presented in the paper grew out of the results of an Equal Exchange (EE) project to introduce member equity programs in smallholder farmer businesses in 3 countries: Dominican Republic, Ecuador and Peru. The paper provides an introduction to effective investment vehicles for smallholder farmers. It is appropriate for use by
farmer cooperatives and associations as well as organizations and individuals who provide support to smallholder farmer enterprises, including developers, trainers, lenders, donors, and enterprise boards of directors and staff members.
The paper discusses the role of and necessity for member investment in a strong capital base in group-owned businesses to provide reserves for unexpected business setbacks and to support business growth and development. It identifies potential sources of capital, the difference between equity and debt capital and the importance of member contributions to capital in smallholder enterprises. It goes on to describe differences in the capital structure and member/owner benefits, control and risks in three types of businesses, investor-owned firms, producer associations
and cooperatives. Emphasis is placed on the structure of cooperative equity vehicles, allocation of funds and redemption practices.
Based on the background provided, suggestions are given for how to establish a capitalization plan with emphasis on the importance of member education, particularly for farmer members of associations and cooperatives. Suggestions include descriptions of the roles and responsibilities of the stakeholders in the capitalization effort: members, management and staff, board members and delegates, and donors and grantee organizations.
Support for positions taken in the paper is provided by 5 case studies of cooperatives and associations that were part of the Equal Exchange member equity project. Synopses of the case studies are included as well as an example of a smallholder capitalization plan based on per-unit capital retains. An example of saving/capitalization plan, sample regulations, a glossary and an extensive list of references are included in the Annex.