Innovative Financing helps Smallholder Farmers Earn More and Become Eco-friendly

Farmers Need Financing

Many smallholder farmers, each with less than 2 hectares of land, make less than US$2,000 per year and are stuck below the poverty line. Growing crops is challenging in the best of times, given the vagaries of weather and commodity prices. Climate change, which is hitting Southeast Asia harder than many other regions, is only making it worse.

With such low incomes, farmers often need to borrow just to buy the seeds and fertilizer they need to grow their crops. They often pay 25 percent or more to moneylenders, since banks are reluctant to make loans. Now, they need even more money so they can raise climate-resistant crops or use technology and infrastructure to ensure climate resilience.

The need for more and better financing is huge. While governments may say they will help, The Guardian found that farmers often don’t receive the money they need due to bureaucratic hurdles, a lack of tailored financial products and restrictive conditions like formal land title requirements.

Even GrowAsia, a platform established by the World Economic Forum and ASEAN, can meet just a small fraction of the need. Its goal is to offer new blended finance products that provide financial education, new farming skills and affordable loans to smallholders. The US$1 billion it hopes to catalyse by 2030 is a fraction of the need.

Startups are Filling the Gap

While government programmes and non-profits such as GrowAsia are helpful, a far larger and more impactful solution is likely to come from innovative small companies and startups. These firms are developing alternative financing and value-add services that address the problems and also partnerships that help them reach the farmers. Angel investors and venture capitalists have a great opportunity to get money where it is needed, have a social return through increasing farmers income and earn a financial return if the startups do well.

Several startups exemplify the solutions, which range from platforms that use data-driven solutions that make lenders more willing to provide financing to insurance services that protect farmers income or traceability that can allow farmers to sell crops to Europeans.

In Vietnam, Techcoop delivers working capital at low cost to the entire agricultural production supply chain, from farmers to agribusiness and farmer-owned cooperatives. Farmers see reduced volatility of pricing, higher productivity and lower crop costs, which can increase their incomes. The size the need, with millions of smallholder farmers in Vietnam, could lead to large volumes of business that reward investors.

While Ricult started in the US, founder Aukrit Aunahalekhaka has focused its services on his home country of Thailand as well as the broader Southeast Asia market. The platform uses satellite imagery, AI, agronomic models and weather data to inform farmers on when to irrigate and harvest. By providing price information that helps determine whether a farmer can repay a loan, it enables farmers to get access to credit. More than 500,000 farmers and other stakeholders already use its products, demonstrating traction as investor evaluate Ricult.

In Myanmar, MyFarmer goes around traditional finance and uses crowdfunding to support farmers. The platform connects individual investors with smallholder farmers who need capital for the planting season. Its AgriZay marketplace helps farmers sell their products directly to consumers or alternatively to wholesalers without going through middlemen. Moreover, it aims to improve agricultural productivity and promote support for sustainable farming practices. Its social media campaigns and influencers engage crowdfunders and also the farmers.

Another way of protecting against the impacts of climate changes is insurance. Igloo, for instance, uses data-driven solutions to make crop protection accessible in markets across the region, including Indonesia. CEO Raunak Mehta told the Fintech Times that “we see markets in the region experiencing the same climate challenges, yet very few seek insurance to protect their livelihoods and property.” Igloo fills that gap by delivering accessible and timely protection. Igloo’s Weather Index Insurance (WII) programme delivered quick financial support to 39 farming households in An Giang province in Vietnam in time for them to restart their summer crops, for example, after over 120 hectares of rice fields were submerged.

And to help farmers sell their products more widely, Indonesia-based Koltiva operates an online and offline system for crop traceability. It allows farmers to sell more broadly by enabling them to show that they comply with regulations such as the EU Deforestation Regulation. Koltiva has a ‘boots on the ground’ approach, ACV said, that employs hundreds of field agents who visit and assess farms to ensure that their cultivation processes meet stringent sustainability standards.

These startups, which exemplify the range innovation underway are just a few of many in Southeast Asia that help farmers afford the supplies they need to farm in a changing world, expand sales into other markets and protect the value of their crops. Many are small firms early in their journey, and they could face challenges along the way. Investors willing to take a risk can, though, enable better support for farmers and may receive a significant financial return.