Agricultural Finance in Southeast Asia: Understanding the Plight of Smallholder Farmers

Around 16.5 million farmers live in Bangladesh, constituting 28% of the 170 million population. Although Bangladesh is heavily reliant on agriculture to feed its people and support its economy, the conditions of the farmers are poor. Farmers, due to a lack of expertise and education, cannot avail themselves of modern farming techniques for better crop productivity and higher yields. Furthermore, more than 70% of the farmers do not have access to formal financing, such as personal bank accounts. As a result, they have to rely on microfinance, which charges heavy interest and costs. The plight of these farmers does not end there. For distributing and transporting the produced goods, farmers seek the aid of middlemen. The middlemen buy the goods from farmers at low prices and sell them at higher prices in the markets. In the process, farmers are deprived of a huge chunk of profit. Currently, there are three types of financing available to farmers. The first type is dadon, the local lenders who charge high rates of interest on loans. Then, there are NGOs that provide loans at lower interest rates than dadon. Finally, there are the state-owned banks that provide loans at relatively lower interest rates. However, farmers face difficulty applying for loans from these banks because of complex bureaucratic practices and paperwork. The NGOs charge loans at a 31% rate of interest, an amount that is costly for the farmers. Occasionally, farmers are forced to sell land and crops at a loss to repay the loans they take from these sources. Moreover, farmers are unable to add variation to crop production, producing only high-yielding crop varieties. This practice of producing only one variety of crop decreases productivity and degrades soil quality in the long run. Farmers are selling the goods they produce at lower prices because of inefficient supply chains, poor storage facilities, inconvenient transportation, and unfavorable market infrastructure. A report stated that farmers receive less than 40% of prices offered at the consumer level, 43% goes to the pockets of sellers, and the other remaining portion is lost to transportation, storage, packaging, and other miscellaneous expenses. Frequently, farmers incur losses, let alone make profits, as their total cost of production exceeds the revenue they receive. During times of low demand and higher supply of any good, farmers are compelled to sell off their harvested crops at whatever prices the greedy middlemen offer. Events as such bring misery to farmers, and they are discouraged from producing crops in later periods. To alleviate the hardships faced by farmers, agri-fintech startups come to the rescue. Agri-Fintech is a concept in which technology and finance are blended to overcome different challenges incurred in the agricultural sector. These firms aim to help farmers who are illiterate and do not have access to financial services. The aid comes in the form of providing funds to farmers through crowdfunding, digital lending, bank loans, and angel investment. Investors are given attractive financial incentives, such as equity shares and profits. Farmers are also provided with capital in the form of agricultural inputs. Finally, the agricultural goods produced by farmers are distributed and transported efficiently in the consumer market. WeGro Global, an agricultural fintech startup based in Bangladesh, is actively collaborating with farmers across various regions and districts of the country. WeGro, by gathering investments through its own app and partnering with other investor entities, supplies agricultural inputs, including livestock, poultry, crops, and fisheries, directly to farmers. Subsequently, the agricultural products cultivated by these farmers are sold at fair market prices with the assistance of WeGro. Moreover, the startup establishes credit profiles for farmers, simplifying the process of obtaining loans from banks.

Raiyan Ishmam

11-08-2020

#Blogs

#Agriculture

#Farm

Read More

A worldwide track record from inception to completion

Southeast Asia, with its lush landscapes and fertile fields, is home to a staggering 100 million smallholder farmers. Agriculture here isn’t just a sector; it’s a way of life, supporting the livelihoods of roughly one-third of the region’s population (BV et al., 2021). Take a glance at the graph below, and you’ll see that employment in agriculture across Southeast Asia is extensive, touching the lives of many. Despite the substantial workforce involved in agriculture, there are numerous challenges that hinder the sector’s growth and threaten the income of smallholder farmers. The issues extend beyond just securing funding for the farmers; financiers themselves encounter hurdles when considering investments in agriculture. To put things into perspective, smallholder farmers in Southern and Southeast Asia require a whopping $100 billion every year to satisfy their agricultural demands. Surprisingly, just one-third of the entire amount is currently being funded (BV et al., 2021). The root of the problem lies in the limited access to efficient financial institutions. Compared to large-scale farms, smallholders often achieve yields as low as 20% of their potential. This makes them unappealing to traditional banking institutions, who are wary of lending for what they perceive to be low returns. Even when loans are granted, they are usually accompanied by high-interest rates or large collateral requirements, further trapping farmers in the debt cycle. Tackling the Input Challenge The region boasts an extensive 580 million hectares of agricultural land, but when divided among its people, it averages just 0.2 hectares per person—well below the global average of 0.6 hectares (“OECD-FAO Agricultural Outlook 2023-2032,” 2023). Consequently, fragmentation in smallholder farming across Southeast Asia presents a significant obstacle to both farmers and financial institutions. This land fragmentation limits the adoption of modern farming practices and economies of scale, which larger consolidated farms can benefit from. It also makes the sector vulnerable to climate change. Consequently, fragmented farms tend to be less productive and efficient, leading to higher perceived risks for financiers. Vietnam faces a farming landscape where only 8% of farms exceed 2 hectares, while over 70% operate on less than 0.5 hectares (World Bank Group, 2019). To tackle this fragmentation, the Vietnamese government has pioneered the development of land rental markets. This innovation permits farmers to lease land from others, enabling smallholders to consolidate their land parcels and achieve economies of scale. This consolidation has significantly boosted productivity and financial stability. Furthermore, Vietnam’s agricultural sector has witnessed remarkable growth in machine rentals. The proliferation of machines has automated processes and reduced dependence on labor, leading to increased efficiency and financial benefits for smallholder farmers (Yamauchi, 2021). With a population growth rate of 0.9% per year, the pressure on these resources is mounting. That’s why productivity gains have become a top priority. Over the past decade, Southeast Asia has seen remarkable growth in total factor productivity, exceeding the global average at 2% annually as shown in the map above, fueling its economic progress. The Collateral Conundrum Take, for instance, microfinance institutions in Myanmar, which insist on land titles as collateral for loans. This might sound reasonable, but it’s highly impractical given that in countries like Myanmar and Vietnam, all lands are government-owned. Farmers possess land-use certificates, not titles, making collateralization virtually impossible for many (Brauw, 2021). Furthermore, Indonesian and Vietnamese banks are frequently risk-conservative due to a lack of competence in screening potential creditors. As a result, lending without collateral is restricted, and banks may require collateral for loans that are not mandated by policy (Brauw, 2021). According to the IFC, the absence of collateral is an issue for the 90% of Indonesian smallholders who lack official title to their property. As a result, increasing land tenure security is critical, despite the enormous time and money necessary to accomplish this process (World Bank, 2020). However, Southeast Asian nations have begun taking steps to address the collateral challenge. One notable initiative is the Sustainable Cocoa Production Program (SCPP) in Indonesia, which provides financial and technical support to smallholder cocoa farmers. Here, farmers have a unique advantage: they can use their cocoa beans as collateral instead of the conventional land or vehicle titles. Furthermore, for smaller loans, farmers were not required to offer any collateral, making it simpler for them to get the finance they required to invest in their cocoa crops (BV et al., 2021). In addition, the Kredit Usaha Rakyat (KUR) is an exemplary initiative taken by the Indonesian government. It is a program in which the government provides commercial banks with subsidized capital in order to increase loan disbursement to SMEs (and farmers). Notably, the micro-KUR program doesn't demand collateral for loans under 50 million IDR (World Bank, 2020).

Afra Nawal

08-07-2021

#Blogs

#Agriculture

#Farm

Read More

Agricultural Finance in Southeast Asia: Understanding the Plight of Smallholder Farmers

Around 16.5 million farmers live in Bangladesh, constituting 28% of the 170 million population. Although Bangladesh is heavily reliant on agriculture to feed its people and support its economy, the conditions of the farmers are poor. Farmers, due to a lack of expertise and education, cannot avail themselves of modern farming techniques for better crop productivity and higher yields. Furthermore, more than 70% of the farmers do not have access to formal financing, such as personal bank accounts. As a result, they have to rely on microfinance, which charges heavy interest and costs. The plight of these farmers does not end there. For distributing and transporting the produced goods, farmers seek the aid of middlemen. The middlemen buy the goods from farmers at low prices and sell them at higher prices in the markets. In the process, farmers are deprived of a huge chunk of profit. Currently, there are three types of financing available to farmers. The first type is dadon, the local lenders who charge high rates of interest on loans. Then, there are NGOs that provide loans at lower interest rates than dadon. Finally, there are the state-owned banks that provide loans at relatively lower interest rates. However, farmers face difficulty applying for loans from these banks because of complex bureaucratic practices and paperwork. The NGOs charge loans at a 31% rate of interest, an amount that is costly for the farmers. Occasionally, farmers are forced to sell land and crops at a loss to repay the loans they take from these sources. Moreover, farmers are unable to add variation to crop production, producing only high-yielding crop varieties. This practice of producing only one variety of crop decreases productivity and degrades soil quality in the long run. Farmers are selling the goods they produce at lower prices because of inefficient supply chains, poor storage facilities, inconvenient transportation, and unfavorable market infrastructure. A report stated that farmers receive less than 40% of prices offered at the consumer level, 43% goes to the pockets of sellers, and the other remaining portion is lost to transportation, storage, packaging, and other miscellaneous expenses. Frequently, farmers incur losses, let alone make profits, as their total cost of production exceeds the revenue they receive. During times of low demand and higher supply of any good, farmers are compelled to sell off their harvested crops at whatever prices the greedy middlemen offer. Events as such bring misery to farmers, and they are discouraged from producing crops in later periods. To alleviate the hardships faced by farmers, agri-fintech startups come to the rescue. Agri-Fintech is a concept in which technology and finance are blended to overcome different challenges incurred in the agricultural sector. These firms aim to help farmers who are illiterate and do not have access to financial services. The aid comes in the form of providing funds to farmers through crowdfunding, digital lending, bank loans, and angel investment. Investors are given attractive financial incentives, such as equity shares and profits. Farmers are also provided with capital in the form of agricultural inputs. Finally, the agricultural goods produced by farmers are distributed and transported efficiently in the consumer market. WeGro Global, an agricultural fintech startup based in Bangladesh, is actively collaborating with farmers across various regions and districts of the country. WeGro, by gathering investments through its own app and partnering with other investor entities, supplies agricultural inputs, including livestock, poultry, crops, and fisheries, directly to farmers. Subsequently, the agricultural products cultivated by these farmers are sold at fair market prices with the assistance of WeGro. Moreover, the startup establishes credit profiles for farmers, simplifying the process of obtaining loans from banks.

Raiyan Ishmam

11-08-2020

#Blogs

#Agriculture

#Farm

Read More

A worldwide track record from inception to completion

Southeast Asia, with its lush landscapes and fertile fields, is home to a staggering 100 million smallholder farmers. Agriculture here isn’t just a sector; it’s a way of life, supporting the livelihoods of roughly one-third of the region’s population (BV et al., 2021). Take a glance at the graph below, and you’ll see that employment in agriculture across Southeast Asia is extensive, touching the lives of many. Despite the substantial workforce involved in agriculture, there are numerous challenges that hinder the sector’s growth and threaten the income of smallholder farmers. The issues extend beyond just securing funding for the farmers; financiers themselves encounter hurdles when considering investments in agriculture. To put things into perspective, smallholder farmers in Southern and Southeast Asia require a whopping $100 billion every year to satisfy their agricultural demands. Surprisingly, just one-third of the entire amount is currently being funded (BV et al., 2021). The root of the problem lies in the limited access to efficient financial institutions. Compared to large-scale farms, smallholders often achieve yields as low as 20% of their potential. This makes them unappealing to traditional banking institutions, who are wary of lending for what they perceive to be low returns. Even when loans are granted, they are usually accompanied by high-interest rates or large collateral requirements, further trapping farmers in the debt cycle. Tackling the Input Challenge The region boasts an extensive 580 million hectares of agricultural land, but when divided among its people, it averages just 0.2 hectares per person—well below the global average of 0.6 hectares (“OECD-FAO Agricultural Outlook 2023-2032,” 2023). Consequently, fragmentation in smallholder farming across Southeast Asia presents a significant obstacle to both farmers and financial institutions. This land fragmentation limits the adoption of modern farming practices and economies of scale, which larger consolidated farms can benefit from. It also makes the sector vulnerable to climate change. Consequently, fragmented farms tend to be less productive and efficient, leading to higher perceived risks for financiers. Vietnam faces a farming landscape where only 8% of farms exceed 2 hectares, while over 70% operate on less than 0.5 hectares (World Bank Group, 2019). To tackle this fragmentation, the Vietnamese government has pioneered the development of land rental markets. This innovation permits farmers to lease land from others, enabling smallholders to consolidate their land parcels and achieve economies of scale. This consolidation has significantly boosted productivity and financial stability. Furthermore, Vietnam’s agricultural sector has witnessed remarkable growth in machine rentals. The proliferation of machines has automated processes and reduced dependence on labor, leading to increased efficiency and financial benefits for smallholder farmers (Yamauchi, 2021). With a population growth rate of 0.9% per year, the pressure on these resources is mounting. That’s why productivity gains have become a top priority. Over the past decade, Southeast Asia has seen remarkable growth in total factor productivity, exceeding the global average at 2% annually as shown in the map above, fueling its economic progress. The Collateral Conundrum Take, for instance, microfinance institutions in Myanmar, which insist on land titles as collateral for loans. This might sound reasonable, but it’s highly impractical given that in countries like Myanmar and Vietnam, all lands are government-owned. Farmers possess land-use certificates, not titles, making collateralization virtually impossible for many (Brauw, 2021). Furthermore, Indonesian and Vietnamese banks are frequently risk-conservative due to a lack of competence in screening potential creditors. As a result, lending without collateral is restricted, and banks may require collateral for loans that are not mandated by policy (Brauw, 2021). According to the IFC, the absence of collateral is an issue for the 90% of Indonesian smallholders who lack official title to their property. As a result, increasing land tenure security is critical, despite the enormous time and money necessary to accomplish this process (World Bank, 2020). However, Southeast Asian nations have begun taking steps to address the collateral challenge. One notable initiative is the Sustainable Cocoa Production Program (SCPP) in Indonesia, which provides financial and technical support to smallholder cocoa farmers. Here, farmers have a unique advantage: they can use their cocoa beans as collateral instead of the conventional land or vehicle titles. Furthermore, for smaller loans, farmers were not required to offer any collateral, making it simpler for them to get the finance they required to invest in their cocoa crops (BV et al., 2021). In addition, the Kredit Usaha Rakyat (KUR) is an exemplary initiative taken by the Indonesian government. It is a program in which the government provides commercial banks with subsidized capital in order to increase loan disbursement to SMEs (and farmers). Notably, the micro-KUR program doesn't demand collateral for loans under 50 million IDR (World Bank, 2020).

Afra Nawal

08-07-2021

#Blogs

#Agriculture

#Farm

Read More

Agricultural Finance in Southeast Asia: Understanding the Plight of Smallholder Farmers

Around 16.5 million farmers live in Bangladesh, constituting 28% of the 170 million population. Although Bangladesh is heavily reliant on agriculture to feed its people and support its economy, the conditions of the farmers are poor. Farmers, due to a lack of expertise and education, cannot avail themselves of modern farming techniques for better crop productivity and higher yields. Furthermore, more than 70% of the farmers do not have access to formal financing, such as personal bank accounts. As a result, they have to rely on microfinance, which charges heavy interest and costs. The plight of these farmers does not end there. For distributing and transporting the produced goods, farmers seek the aid of middlemen. The middlemen buy the goods from farmers at low prices and sell them at higher prices in the markets. In the process, farmers are deprived of a huge chunk of profit. Currently, there are three types of financing available to farmers. The first type is dadon, the local lenders who charge high rates of interest on loans. Then, there are NGOs that provide loans at lower interest rates than dadon. Finally, there are the state-owned banks that provide loans at relatively lower interest rates. However, farmers face difficulty applying for loans from these banks because of complex bureaucratic practices and paperwork. The NGOs charge loans at a 31% rate of interest, an amount that is costly for the farmers. Occasionally, farmers are forced to sell land and crops at a loss to repay the loans they take from these sources. Moreover, farmers are unable to add variation to crop production, producing only high-yielding crop varieties. This practice of producing only one variety of crop decreases productivity and degrades soil quality in the long run. Farmers are selling the goods they produce at lower prices because of inefficient supply chains, poor storage facilities, inconvenient transportation, and unfavorable market infrastructure. A report stated that farmers receive less than 40% of prices offered at the consumer level, 43% goes to the pockets of sellers, and the other remaining portion is lost to transportation, storage, packaging, and other miscellaneous expenses. Frequently, farmers incur losses, let alone make profits, as their total cost of production exceeds the revenue they receive. During times of low demand and higher supply of any good, farmers are compelled to sell off their harvested crops at whatever prices the greedy middlemen offer. Events as such bring misery to farmers, and they are discouraged from producing crops in later periods. To alleviate the hardships faced by farmers, agri-fintech startups come to the rescue. Agri-Fintech is a concept in which technology and finance are blended to overcome different challenges incurred in the agricultural sector. These firms aim to help farmers who are illiterate and do not have access to financial services. The aid comes in the form of providing funds to farmers through crowdfunding, digital lending, bank loans, and angel investment. Investors are given attractive financial incentives, such as equity shares and profits. Farmers are also provided with capital in the form of agricultural inputs. Finally, the agricultural goods produced by farmers are distributed and transported efficiently in the consumer market. WeGro Global, an agricultural fintech startup based in Bangladesh, is actively collaborating with farmers across various regions and districts of the country. WeGro, by gathering investments through its own app and partnering with other investor entities, supplies agricultural inputs, including livestock, poultry, crops, and fisheries, directly to farmers. Subsequently, the agricultural products cultivated by these farmers are sold at fair market prices with the assistance of WeGro. Moreover, the startup establishes credit profiles for farmers, simplifying the process of obtaining loans from banks.

Raiyan Ishmam

11-08-2020

#Blogs

#Agriculture

#Farm

Read More

A worldwide track record from inception to completion

Southeast Asia, with its lush landscapes and fertile fields, is home to a staggering 100 million smallholder farmers. Agriculture here isn’t just a sector; it’s a way of life, supporting the livelihoods of roughly one-third of the region’s population (BV et al., 2021). Take a glance at the graph below, and you’ll see that employment in agriculture across Southeast Asia is extensive, touching the lives of many. Despite the substantial workforce involved in agriculture, there are numerous challenges that hinder the sector’s growth and threaten the income of smallholder farmers. The issues extend beyond just securing funding for the farmers; financiers themselves encounter hurdles when considering investments in agriculture. To put things into perspective, smallholder farmers in Southern and Southeast Asia require a whopping $100 billion every year to satisfy their agricultural demands. Surprisingly, just one-third of the entire amount is currently being funded (BV et al., 2021). The root of the problem lies in the limited access to efficient financial institutions. Compared to large-scale farms, smallholders often achieve yields as low as 20% of their potential. This makes them unappealing to traditional banking institutions, who are wary of lending for what they perceive to be low returns. Even when loans are granted, they are usually accompanied by high-interest rates or large collateral requirements, further trapping farmers in the debt cycle. Tackling the Input Challenge The region boasts an extensive 580 million hectares of agricultural land, but when divided among its people, it averages just 0.2 hectares per person—well below the global average of 0.6 hectares (“OECD-FAO Agricultural Outlook 2023-2032,” 2023). Consequently, fragmentation in smallholder farming across Southeast Asia presents a significant obstacle to both farmers and financial institutions. This land fragmentation limits the adoption of modern farming practices and economies of scale, which larger consolidated farms can benefit from. It also makes the sector vulnerable to climate change. Consequently, fragmented farms tend to be less productive and efficient, leading to higher perceived risks for financiers. Vietnam faces a farming landscape where only 8% of farms exceed 2 hectares, while over 70% operate on less than 0.5 hectares (World Bank Group, 2019). To tackle this fragmentation, the Vietnamese government has pioneered the development of land rental markets. This innovation permits farmers to lease land from others, enabling smallholders to consolidate their land parcels and achieve economies of scale. This consolidation has significantly boosted productivity and financial stability. Furthermore, Vietnam’s agricultural sector has witnessed remarkable growth in machine rentals. The proliferation of machines has automated processes and reduced dependence on labor, leading to increased efficiency and financial benefits for smallholder farmers (Yamauchi, 2021). With a population growth rate of 0.9% per year, the pressure on these resources is mounting. That’s why productivity gains have become a top priority. Over the past decade, Southeast Asia has seen remarkable growth in total factor productivity, exceeding the global average at 2% annually as shown in the map above, fueling its economic progress. The Collateral Conundrum Take, for instance, microfinance institutions in Myanmar, which insist on land titles as collateral for loans. This might sound reasonable, but it’s highly impractical given that in countries like Myanmar and Vietnam, all lands are government-owned. Farmers possess land-use certificates, not titles, making collateralization virtually impossible for many (Brauw, 2021). Furthermore, Indonesian and Vietnamese banks are frequently risk-conservative due to a lack of competence in screening potential creditors. As a result, lending without collateral is restricted, and banks may require collateral for loans that are not mandated by policy (Brauw, 2021). According to the IFC, the absence of collateral is an issue for the 90% of Indonesian smallholders who lack official title to their property. As a result, increasing land tenure security is critical, despite the enormous time and money necessary to accomplish this process (World Bank, 2020). However, Southeast Asian nations have begun taking steps to address the collateral challenge. One notable initiative is the Sustainable Cocoa Production Program (SCPP) in Indonesia, which provides financial and technical support to smallholder cocoa farmers. Here, farmers have a unique advantage: they can use their cocoa beans as collateral instead of the conventional land or vehicle titles. Furthermore, for smaller loans, farmers were not required to offer any collateral, making it simpler for them to get the finance they required to invest in their cocoa crops (BV et al., 2021). In addition, the Kredit Usaha Rakyat (KUR) is an exemplary initiative taken by the Indonesian government. It is a program in which the government provides commercial banks with subsidized capital in order to increase loan disbursement to SMEs (and farmers). Notably, the micro-KUR program doesn't demand collateral for loans under 50 million IDR (World Bank, 2020).

Afra Nawal

08-07-2021

#Blogs

#Agriculture

#Farm

Read More

Agricultural Finance in Southeast Asia: Understanding the Plight of Smallholder Farmers

Around 16.5 million farmers live in Bangladesh, constituting 28% of the 170 million population. Although Bangladesh is heavily reliant on agriculture to feed its people and support its economy, the conditions of the farmers are poor. Farmers, due to a lack of expertise and education, cannot avail themselves of modern farming techniques for better crop productivity and higher yields. Furthermore, more than 70% of the farmers do not have access to formal financing, such as personal bank accounts. As a result, they have to rely on microfinance, which charges heavy interest and costs. The plight of these farmers does not end there. For distributing and transporting the produced goods, farmers seek the aid of middlemen. The middlemen buy the goods from farmers at low prices and sell them at higher prices in the markets. In the process, farmers are deprived of a huge chunk of profit. Currently, there are three types of financing available to farmers. The first type is dadon, the local lenders who charge high rates of interest on loans. Then, there are NGOs that provide loans at lower interest rates than dadon. Finally, there are the state-owned banks that provide loans at relatively lower interest rates. However, farmers face difficulty applying for loans from these banks because of complex bureaucratic practices and paperwork. The NGOs charge loans at a 31% rate of interest, an amount that is costly for the farmers. Occasionally, farmers are forced to sell land and crops at a loss to repay the loans they take from these sources. Moreover, farmers are unable to add variation to crop production, producing only high-yielding crop varieties. This practice of producing only one variety of crop decreases productivity and degrades soil quality in the long run. Farmers are selling the goods they produce at lower prices because of inefficient supply chains, poor storage facilities, inconvenient transportation, and unfavorable market infrastructure. A report stated that farmers receive less than 40% of prices offered at the consumer level, 43% goes to the pockets of sellers, and the other remaining portion is lost to transportation, storage, packaging, and other miscellaneous expenses. Frequently, farmers incur losses, let alone make profits, as their total cost of production exceeds the revenue they receive. During times of low demand and higher supply of any good, farmers are compelled to sell off their harvested crops at whatever prices the greedy middlemen offer. Events as such bring misery to farmers, and they are discouraged from producing crops in later periods. To alleviate the hardships faced by farmers, agri-fintech startups come to the rescue. Agri-Fintech is a concept in which technology and finance are blended to overcome different challenges incurred in the agricultural sector. These firms aim to help farmers who are illiterate and do not have access to financial services. The aid comes in the form of providing funds to farmers through crowdfunding, digital lending, bank loans, and angel investment. Investors are given attractive financial incentives, such as equity shares and profits. Farmers are also provided with capital in the form of agricultural inputs. Finally, the agricultural goods produced by farmers are distributed and transported efficiently in the consumer market. WeGro Global, an agricultural fintech startup based in Bangladesh, is actively collaborating with farmers across various regions and districts of the country. WeGro, by gathering investments through its own app and partnering with other investor entities, supplies agricultural inputs, including livestock, poultry, crops, and fisheries, directly to farmers. Subsequently, the agricultural products cultivated by these farmers are sold at fair market prices with the assistance of WeGro. Moreover, the startup establishes credit profiles for farmers, simplifying the process of obtaining loans from banks.

Raiyan Ishmam

11-08-2020

#Blogs

#Agriculture

#Farm

Read More

A worldwide track record from inception to completion

Southeast Asia, with its lush landscapes and fertile fields, is home to a staggering 100 million smallholder farmers. Agriculture here isn’t just a sector; it’s a way of life, supporting the livelihoods of roughly one-third of the region’s population (BV et al., 2021). Take a glance at the graph below, and you’ll see that employment in agriculture across Southeast Asia is extensive, touching the lives of many. Despite the substantial workforce involved in agriculture, there are numerous challenges that hinder the sector’s growth and threaten the income of smallholder farmers. The issues extend beyond just securing funding for the farmers; financiers themselves encounter hurdles when considering investments in agriculture. To put things into perspective, smallholder farmers in Southern and Southeast Asia require a whopping $100 billion every year to satisfy their agricultural demands. Surprisingly, just one-third of the entire amount is currently being funded (BV et al., 2021). The root of the problem lies in the limited access to efficient financial institutions. Compared to large-scale farms, smallholders often achieve yields as low as 20% of their potential. This makes them unappealing to traditional banking institutions, who are wary of lending for what they perceive to be low returns. Even when loans are granted, they are usually accompanied by high-interest rates or large collateral requirements, further trapping farmers in the debt cycle. Tackling the Input Challenge The region boasts an extensive 580 million hectares of agricultural land, but when divided among its people, it averages just 0.2 hectares per person—well below the global average of 0.6 hectares (“OECD-FAO Agricultural Outlook 2023-2032,” 2023). Consequently, fragmentation in smallholder farming across Southeast Asia presents a significant obstacle to both farmers and financial institutions. This land fragmentation limits the adoption of modern farming practices and economies of scale, which larger consolidated farms can benefit from. It also makes the sector vulnerable to climate change. Consequently, fragmented farms tend to be less productive and efficient, leading to higher perceived risks for financiers. Vietnam faces a farming landscape where only 8% of farms exceed 2 hectares, while over 70% operate on less than 0.5 hectares (World Bank Group, 2019). To tackle this fragmentation, the Vietnamese government has pioneered the development of land rental markets. This innovation permits farmers to lease land from others, enabling smallholders to consolidate their land parcels and achieve economies of scale. This consolidation has significantly boosted productivity and financial stability. Furthermore, Vietnam’s agricultural sector has witnessed remarkable growth in machine rentals. The proliferation of machines has automated processes and reduced dependence on labor, leading to increased efficiency and financial benefits for smallholder farmers (Yamauchi, 2021). With a population growth rate of 0.9% per year, the pressure on these resources is mounting. That’s why productivity gains have become a top priority. Over the past decade, Southeast Asia has seen remarkable growth in total factor productivity, exceeding the global average at 2% annually as shown in the map above, fueling its economic progress. The Collateral Conundrum Take, for instance, microfinance institutions in Myanmar, which insist on land titles as collateral for loans. This might sound reasonable, but it’s highly impractical given that in countries like Myanmar and Vietnam, all lands are government-owned. Farmers possess land-use certificates, not titles, making collateralization virtually impossible for many (Brauw, 2021). Furthermore, Indonesian and Vietnamese banks are frequently risk-conservative due to a lack of competence in screening potential creditors. As a result, lending without collateral is restricted, and banks may require collateral for loans that are not mandated by policy (Brauw, 2021). According to the IFC, the absence of collateral is an issue for the 90% of Indonesian smallholders who lack official title to their property. As a result, increasing land tenure security is critical, despite the enormous time and money necessary to accomplish this process (World Bank, 2020). However, Southeast Asian nations have begun taking steps to address the collateral challenge. One notable initiative is the Sustainable Cocoa Production Program (SCPP) in Indonesia, which provides financial and technical support to smallholder cocoa farmers. Here, farmers have a unique advantage: they can use their cocoa beans as collateral instead of the conventional land or vehicle titles. Furthermore, for smaller loans, farmers were not required to offer any collateral, making it simpler for them to get the finance they required to invest in their cocoa crops (BV et al., 2021). In addition, the Kredit Usaha Rakyat (KUR) is an exemplary initiative taken by the Indonesian government. It is a program in which the government provides commercial banks with subsidized capital in order to increase loan disbursement to SMEs (and farmers). Notably, the micro-KUR program doesn't demand collateral for loans under 50 million IDR (World Bank, 2020).

Afra Nawal

08-07-2021

#Blogs

#Agriculture

#Farm

Read More