In this ‘MSME Champions’ interview, Eduardo Tugendhat of Palladium shares gems of wisdom from his 36-year career designing and executing market-led approaches to accelerate inclusive economic growth and generate employment opportunities. ‘MSME Champions’ is a series of interviews capturing the expertise and experiences of individuals and institutions supporting enterprises in the missing middle of agriculture, as part of an advocacy campaign for the International Day for Micro, Small and Medium-sized Enterprises (MSMEs) on 27 June 2024.

The International Day for Micro, Small and Medium-sized Enterprises (World MSME Day) is an opportunity to reflect on the key role of enterprises in the missing middle of agriculture. Please tell us why and how Palladium supports their growth.

As stewards of natural capital, farmers deserve recognition as Micro, Small, and Medium Enterprises (MSMEs). Incentivizing practices that benefit their bottom line, resilience, and the environment is essential for sustainable agriculture. MSMEs play a pivotal role in driving economic development, fostering job creation, and fueling innovation.

Despite their significance, these enterprises often grapple with challenges related to accessing finance, technology, markets, and capacity building. Their size and risk profile frequently hinder their ability to secure loans or investment capital.

Palladium, in collaboration with micro-finance institutions, banks, business advisory support providers (BASPs), and other local private actors, is committed to ensuring that MSMEs have adequate access to capital for growth and sustainability. Over the past decade, Palladium has successfully facilitated $1.1 billion in investments specifically in the agriculture sector. This infusion of capital has empowered agricultural MSMEs to expand their operations, adopt innovative practices, and contribute to sustainable agricultural development.

By investing in agricultural enterprises, you catalyze economic growth, food security, and poverty reduction.

Please describe some of the challenges your institution faces when lending to agricultural MSMEs. What are some of the innovative approaches you use to navigate them?

 Many MSMEs lack traditional collateral, making it challenging to secure loans. Agricultural ventures are perceived as risky due to factors like weather volatility, market fluctuations, and supply chain disruptions. Additionally, MSMEs often need support in financial management and business planning.  Our approach is data and market-driven. We meticulously analyze market dynamics, assess risks, and tailor financial solutions to meet the unique needs of MSMEs. By collaborating closely with local partners, we ensure that our interventions align with the realities on the ground. Our focus extends beyond immediate financing; we aim to build a foundation for enduring prosperity.

Key elements of our approach include:

1. Pay-for-Results Model: We align incentives with outcomes, tying financing to measurable impact. This encourages financial institutions and business advisory support providers to achieve specific goals. We employ first-loss guarantees, insurance products, and risk-sharing mechanisms to mitigate risks for lenders. Our approach promotes lending to the “missing middle” without distorting the market. It isn’t just about dollars; it’s about lives changed.
2. Risk Perception Redefined: While agricultural ventures are often perceived as risky due to factors like weather volatility, market fluctuations, and supply chain disruptions, we view these risks as opportunities. MSMEs are not just borrowers; they are innovators. Our investment goes beyond financial transactions—it’s transformative.
3. Local Tailoring: Collaboration is at the heart of our success. We partner with financial institutions, anchor firms, and business advisory service providers, tailoring solutions to meet local needs. By bridging gaps and fostering financial inclusion, we stimulate local economies and ensure capital flows where it’s most needed.
4. Compass of Impact: Our success is not merely measured in dollars. It’s measured in lives transformed, ecosystems restored, and futures secured. The missing middle is no longer a gap; it’s a bridge to sustainable development.
5. Market Linkages: The modernization of agribusiness ecosystems opens doors for specialized MSMEs to deliver services. Larger SMEs have the opportunity to help smallholder agriculture systems transition from informal, short-term structures to transparent, long-term frameworks. The success of MSMEs depends on their connections. Palladium fosters these connections and links MSMEs to other actors such as investors, training institutions, and private sector partners.

What message would you like to share with donors, commercial banks and other players that hesitate to lend to agricultural enterprises?

We need to redefine risk perception. MSMEs are engines of innovation.

At Palladium, data guides our compass, and our currency is transformation. We’re rewriting the lending playbook, unlocking the potential of agricultural MSMEs, one transaction at a time. Risk is not a barrier—it’s an opportunity for growth and innovation. Collaboration is at the heart of our success. Our partnerships enhance financial inclusion, stimulate local economies, and ensure that capital flows exactly where it’s needed. Together, we can create lasting impact and pave the way for enduring prosperity.

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About the MSME Champion

Throughout his 36-year career, Eduardo has designed and executed market-led approaches to accelerate inclusive economic growth and generate employment opportunities. He is a recognized expert in the areas of inclusive supply chain solutions and has particular expertise in crafting and managing public-private alliances. He has worked in a total of 64 countries generating private sector investments and transforming value chains across industries ranging from agriculture to financial services. Eduardo was co-founder and CEO of CARANA Corporation, now part of Palladium. Prior to Palladium and CARANA, Eduardo was a senior management consultant at Arthur D. Little. He has an AB from Harvard University and an MA from University of Wisconsin.