Fair-trade farmers like these in Ghana benefit from mid-level lending. Photo: Crankyshooter1 (flickr)

What prevents many subsistence farmers from taking their business to the next level? Access to capital.

With no real assets or market connections, subsistence farmers stand little chance of gaining the startup capital to succeed in for-profit farming. A recent New York Times blog post follows Willy Foote, a mid-level lender with a unique program aimed at helping those he considers part of the "missing middle."

This "missing middle" is comprised of the small farmers who live on $2 a day or less and thus don't qualify for traditional bank loans, but need more startup capital than microloans offer. The New York Times elaborates on the barriers that prevent the "missing middle" from making this leap:

The problem is that their businesses, even when they form associations, are too small and risky to be served by banks and too big for Grameen Bank-style microfinance. To succeed, they typically need access to loans between $10,000 and $1 million. This is a banking no-man’s land.

The key to successfully lending in this no-man's land is to get to know your borrowers, says Foote. According to the Times, Foote and his employees at Root Capital are able to quickly and wisely choose whom to grant loans to because of the personal connections they forge with their borrowers.

Root Capital provides basic loan and financial education to borrowers before approving loans -- a crucial element which is often missed in microfinance. They also take steps to protect their borrowers from volatile market fluctuations that leave many small farmers bankrupt. Fair-trade farmers are able to earn higher and more dependable wages because the sale prices of their crops are fixed with buyers ahead of time. Because these buyers are often large or thriving corporations like Starbucks, they can afford to take on some of the risk.

Mid-level lenders like Root Capital that connect farmers to global distributors have become more common in recent years. And since these lenders are repaid not by the borrower but by the distributor, this approach seems unlikely to fall into some of the traps facing microlending organizations as of late.

Foote certainly sees the potential of this currently underserved demographic. And as he explains to the New York Times, he expects the industry to grow. “I think we’re going to see the catalyzing of an entirely new industry of specialized financial institutions that are 100 percent dedicated to this market.”