Africa’s smallholder farmers provide about 80% of the food supply on the continent, and play a critical role in the value chains of multinationals. They are becoming even more important in the global food market due to population growth and rising income levels driving food demand. However, they continue to face many obstacles, including access to finance which affects their productivity.
Although there are increasing efforts in Africa to support farmers, the role of commercial banks in agricultural finance remains minimal. Reasons cited by banks include the risky nature of agriculture, low financial literacy among smallholders, and difficulty in determining their creditworthiness.
A tool to build farmer credit profiles
A Kenyan company is attempting to bridge financing gaps by improving the credit assessment of smallholder farmers using a digital bookkeeping platform. It enables farmers to track their productivity, expenses and revenues which are then analysed to reveal performance patterns. Financiers are able to use the credit profiles to arrive at lending decisions.
FarmDrive was set up last year, and its record keeping app piloted with 2,000 dairy farmers in Githunguri, Kenya. Rita Kimani, co-founder and CEO of FarmDrive, notes that clear and transparent records are vital in de-risking agricultural financing.
“Many other businesses can access loans from banks based on their records. However, most farmers do not have a credit history and rarely keep records that can speak to the health of their business operations,” says Kimani.
Hence banks cannot gauge a farmer’s ability to repay a loan. Users of FarmDrive record their activities using SMS, or a mobile app if they have a smartphone. The company is also developing a workbook that farmers can fill in and hand to the agent that signed them up, who will then store the data digitally.
Peris Bosire, co-founder and COO of FarmDrive, says their business model is to charge financiers a US$1 fee for every farmer profile they access. The company also charges farmers a transaction fee of 3% of the total loan they receive via FarmDrive.
“Financiers benefit by getting access to more clients that are fundable, while farmers have a better and more convincing case when seeking financing,” says Bosire.
She adds that farmers are also able to use the real-time data analytics to gauge their performance and use that information to improve their operations and manage risks. In turn, financiers can use the data to develop tailor-made products for farmers.
FarmDrive has partnered with one local financier and is in talks with other lenders. It recently partnered with Farm Shop, a Kenyan social enterprise that has built a network of franchisee agro-dealers. Kimani says FarmDrive will use the network of agro-dealers as a contact centre to sign up more farmers in addition to using its own agents.
Challenges and exciting moments
Kimani and Bosire both grew up in rural Kenya in farming households, and studied computer science. They decided to use their technical skills to solve some of the challenges they witnessed in the sector, but it has not been an easy ride.
“When trying to sign up farmers, the first question they ask is how many financial institutions we are working with? And when we go to a financier they want to know how many farmers we have already signed up? It has been a process just trying to manage expectations and get both sides on board because our product relies on both parties,” says Kimani.
But they have also had “exciting moments”, including getting the local financier on board after sending a cold email to the CEO.
Not one big group
Kimani says the company’s strategy is to see farmers as individuals, not just one big group. Farmers are different depending on their geographical location, the weather conditions in their areas, the crops they grow, and so forth.
“If you don’t learn these things about them and develop products around their actual needs, scaling can be hard,” says Kimani. “One shouldn’t be hard-headed with their product especially if it is new. It is better to go into the market with a learning attitude and listen to and understand the farmer to figure out what really works for them.”