The challenge

Farm expansion for grazing cattle is still the most important factor behind deforestation in Colombia. The practice drives the conversion of native ecosystems, and the associated land degradation contributes to an imbalance of ecosystems, affecting economic activities, decreasing productivity, generating food insecurity, and increasing poverty.

In Colombia, the cattle ranching sector is responsible for approximately 60% of deforestation as extensive grazing systems are run at the expense of forest cover. More than 38 million hectares are used for cattle ranching, with stocking rates that have remained low during the last decade, at an average of 0.6 animals per hectare in 2006 (FAO) and 0.7 animals per hectare in 2019 (CIAT). A transition to more efficient land management and sustainable grazing practices is fundamental, but costly. The average value to convert a single hectare to an intensive silvopastoral system can range from £800 to £2500 per hectare, outpricing most producers.

Overall, investments into this sector have not been well targeted or properly monitored, and rural financing alternatives have failed to catalyse sustainable production practices in the cattle ranching sector, inhibiting a large-scale shift.

The project

Bancolombia is the largest commercial bank and biggest lender in Colombia,with £52 billion in assets under management. The bank already has a Sustainable Credit Line (SCL) which offers lower lending rates for clients in sectors including renewable energy and sustainable transport.

Aiming to reduce the environmental impacts of traditional systems of cattle ranching, Bancolombia seeks to tailor its Sustainable Credit Line to support cattle ranchers and farmers to transition to more productive and efficient cattle systems. P4F is supporting Bancolombia to develop a new model that integrates technical assistance and monitoring for environmental impacts and offers it alongside its Sustainable Credit Line, specifically for cattle ranching activities. By supporting the governance arrangements and internal procedures of the bank to facilitate access to high-quality technical assistance and a credit offering with tailored criteria, producers have access to financial resources while supporting a systemic transition towards sustainability.

Current impact

Economic and social value:

Bancolombia expects that with a SCL and TA package embedded in its credit offering, producers will be able to increase production of meat and milk, increase profitability, guarantee the availability of food throughout the year, reduce costs of production, and increase profitability.

Bancolombia has provided around £200,000 in credits to cattle ranchers with preliminary technical guidance in Caquetá, Meta and Sucre. Moreover, the SCL has provided £500,000 worth of additional resources for investments in sustainable cattle ranching. The roadmap for consolidating the integration of technical assistance into credit is underway, with an agreement between Bancolombia and GANSO. This is for the provision of advisory services to clients – starting with financial planning and going all the way to the deployment of investments.

Environmental value:

With access to the credit line, producers will be able to increase the carrying capacity of land per hectare, improve the quality of soil and water sources, and reduce deforestation. The project aims to support 25 producers with compound credit and TA and aims to promote sustainable land use practices across 2400 ha.

P4F support

P4F has supported Bancolombia with the development of a business plan that allows technical assistance to be a cost-effective alternative embedded in the credit offering. GANSO is the project partner providing monitoring of zero-deforestation and agricultural frontier compliance for submitted credits. They are, with EII, collaborating with Bancolombia to generate environmental criteria that will become part of the risk assessment process of the SCL.

Project activities include: i) building the knowledge and the capacity of Bancolombia to implement technical assistance and monitoring alongside credit; ii) speeding up the credit submission process and SCL outreach; and iii) evaluating monitoring platforms and environmental risks to integrate into Bancolombia´s credit assessment processes.

Future potential

Developing the governance arrangements that allow collaboration and joint product offering between financial institutions and TA providers is the first step. This will work towards tackling the financing need for sustainable land management transitions with the right expertise, enabling high productivity at the farm level and increased revenue for producers, alongside forest protection.

This model provides a blueprint that can transform cattle ranching in Colombia from a destructive to regenerative industry. It also has the potential to be replicated by other banks and value chains in Colombia.