© Fahad Ifaz

Democratizing Agriculture Financing & Supply Chain

BY: Fahad Ifaz - 23. March 2020
© Fahad Ifaz

Story highlights:

  • Two-thirds of the world’s poor work in the agricultural sector. Yet, they lack access to some critical services.
  • Making accessible services like finance and markets is all about democratization. This also contributes to revitalizing agriculture, a sector with increasing decline.
  •  iFarmer, a tech enabled platform that uses data-driven approach, is on a mission to bring onboard different players for accessible and expanding businesses and related services.

Democratization refers to make (something) accessible to everyone.  Two-thirds of the world’s poor work in the agricultural sector. There are about 570 million farmers in the world of them more than 400 million are from Asia and 80% of them are smallholder farmers. 

Due to the nature of the work Farmers in general, especially the smallholder farmers lacks access to some critical services, the most common and persistent one is lack of access to finance, followed by, lack of access to an efficient supply chain (market access), lastly access to smart technology and knowledge. 

But why should we care?

We get our food on the table and we are happy with that. So, why should we care?

Agriculture as a sector is declining, not as in the production of food but as a desirable profession. Farming and rural lifestyle is often romanticized but in reality, it is a thankless, risky, and even back-breaking job, especially as undertaken by the disadvantaged and vulnerable smallholder farmers, which is subsistence agriculture. One bad yield, whether due to rains, pests, droughts etc., and most farmers have no buffer available. This also makes farmers risk averse, with an implicit cost of capital some 50-100% (!), which is essentially one season or one year of horizon. Most are not able to undertake long-term investments, innovation, or major change.

The clearest indicator of the problems of agriculture as a profession is how there are actually shortfalls of labor in some areas, with larger farms in a lot of countries relying on imported farm laborers. The rising share of young working-age population in low and middle-income countries has the potential to increase productivity at a time when most of the advanced economies face an ageing population.

Yet, most young people perceive agriculture to be is the ‘produce-and-then-sell’. This is what they are afraid of – it’s hard work and low-paying. Younger generations don’t want to follow their parents’ footsteps in farming, migrating out of rural areas and pushing urbanization. Unfortunately, urban areas, while offering more opportunities, also relegate many to low-end jobs.

Often in countries like India, Bangladesh or even in Spain and France, farmers have no other option than to go on the streets and protest, often throwing their milk or potatoes in a show of anger to low prices. Farmer suicides in India has increasingly been a national catastrophe since the 1990s, often by drinking pesticides, due to their inability to repay loans mostly taken from local lenders and banks. More than 12,000 farmers have committed suicide in Maharashtra in India between 2015 and 2018.

Addressing governance issues, including involving farmers and citizens by more participatory means, is one way of democratizing agriculture. This fundamentally implies a shift in how smallholder farmers particularly are engaged in a more transparent and reliable way and having access to key services.  

Here’s one solution  

iFarmer is a tech enabled platform that allows farmers to get access to finance from middle income individuals. Through iFarmer website and app, individuals can securely invest in a farm. Their capital then goes to a rural farmer who uses this fund to start and complete a farm cycle. At the end of the farm cycle, farm investors get back their initial amount and returns on their investment.

iFarmer on-boards farmers by working with local input retailers and through its farm facilitators, collecting some essential data about the farm households. Once the onboarding process is complete, the farmers receive on-going training on farm management, financial management and quality input usage.

These farmers get access to quality inputs provided by companies that has partnered with iFarmer.

Once the farming cycle is complete, iFarmer uses a data-driven approach to aggregate the farm produce and facilitate the sales of the produce through a business-to-business supply chain.  This ensures a healthy return for the farmers, as well as for the farm investors.

Furthermore, farm investors can insure their investment through availing insurance services through iFarmer partner insurance companies.

In about a year, iFarmer has worked with 1,200 farmers, facilitated $500,000 in farm financing from 300 farm investors. By working with iFarmer, farmers have been able to generate $80,000 net additional income and farm investors have received an average return of 27%.

Financial inclusion is more than merely receiving loans. It is about access (physical proximity, affordability, convenience); use (financial capability, actual use — regularity, frequency, time used); and quality (adapted to client needs, provided responsibly). The key benefit for farmers has been the access to finance without high interest and in favorable terms. As the profit is shared only after their farming cycle, they also get access to knowledge and quality inputs (and can actually afford them due to the financing that iFarmer provides). Lastly, they are able to sell through iFarmer at a high price, as they do not have give their farm produce away to a local trader anymore.

As for retail investors, they are getting a high return compared to other investment instruments available. They can secure their investment through insurance, and most importantly, they have the feel-good factor of being able to contribute to the food production in the country.

From here to where?

To date, iFarmer has only been operating in Bangladesh and focused on limited agriculture commodities like livestock and fruits. iFarmer intends to add more agriculture portfolio while deepening its current portfolio of livestock and fruits. Currently, the platform is exploring agri-machinery financing, high value crops like corn, flowers and jute.

iFarmer intends to expand to Myanmar and Cambodia as well as work with institutional financing such as facilitating the banks and non-banking institutions to use the platform and iFarmer data to finance actors in the agriculture value chain including farmers and input retailers.

Since iFarmer collects more than 40 data points from farmers, farm management and supply chain, it intends to create a data driven, fully traceable agriculture finance and supply chain platform that can create wealth for the large, medium and small farmers.

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Fahad Ifaz is the CEO and co-founder of iFarmer, which he started along with a friend in 2018. Prior to that, Fahad worked in market systems and private sector led development for almost 10 years. He has designed, led and provided advisory support to multiple market systems development projects in multiple countries in Asia and has worked for organizations like the World Bank, CARE Australia, Palladium, Swisscontact and more.