How do you perceive the current state of agriculture-based lending in Bangladesh?
The agriculture-based lending could be divided into two parts, 1) lending for the corporates who are setting up agro-based industries, processing and other facilities 2) lending for smallholder farmers who are producing the raw materials or raw agri produce that gets utilized by the processing companies.
In the first instance, it is entirely bank-led financing and the challenges are minimal in getting access to financing.
However, in the second case, most banks are not able to reach the farmers, due to high search and deployment cost of the banks, lack of data and documentation on the farmers end and so on.
According to a 2019 study by the International Food Policy Research Institute (IFPRI), farmers in Bangladesh typically borrow more than 81% of loans from various private sources, including NGOs, relatives, private banks and moneylenders.
The interest rate of these loans is 19-63% while the interest rate is 9% at Krishi Bank.
But for some unknown reason, only 6% of the total loan comes from Krishi Bank.
A survey of IFPRI found that 36.4% of the total loans were borrowed from NGOs, where the farmer has to pay an interest of more than 20%.
According to IFPRI, 19% of farmers take loans from relatives. 15% from the landowner, 11.4% come from moneylenders and 3.6% from various associations and cooperatives.
Farmers get the largest share of the loan from the Krishi Bank, which is about 15%.
Large, medium and small farmers together get 36% of the total loan while marginal farmers get about 5%.
The total percentage of loan all the farmers get is 36%.
Sharecroppers, the farmers who cultivate other people's land on lease, do not get this loan.
As a result, they have to rely on loans from other sources, including NGOs.
Do you think farmers still face obstacles when applying for farm credit?
Yes, they do.
As a result, almost 80% of the farmers are relying on MFIs, local money lenders and middlemen.
The interest rate is very high and often the money comes with unfavorable repayment terms.
What can be done to simplify this entire process? Can agritech contribute to all this?
Our banking industry needs to come forwards to ease the access to financing for the smallholder farmers.
Most private banks to fulfill their agriculture lending quota set by the Bangladesh Bank are relying on micro finance institutions (MFIs), through whom they are deploying the money into rural areas.
In most cases, the burrower never becomes a client of the bank and the banks have no visibility of the end customer or burrower.
Farmers are also reluctant and not aware of who and how to approach the banks, where they can get loans at 9% interest or even less under the central banks refinancing scheme.
There is an opportunity for banks and agri techs to work together.
As agritech companies work on a tech-enabled model, it is relatively easy for them to collect relevant data of the farmers, and if the banks get access to these data, it brings down their cost of acquisition and management significantly to process a small ticket size agriculture loan.
But banks also need to have a change in mindset, where they are able to verify and trust the systems built by the agritechs and also take a bit of risk and help the agritech companies become more compliant in regards to data collection, KYC and so on.
Why do you think our agricultural industry is lagging behind despite hefty government subsidies and allocations?
The agriculture industry is lagging behind despite hefty subsidies and allocations, because we have not upgraded the system.
The system involves production techniques, farm mechanization, a robust supply chain and storage facilities.
For example, the government puts a lot of subsidies on fertilizer, but the farmers lack awareness and even the right tools to be able to apply the exact amount of fertilizer to their land.
While the cost of the subsidy is increasing for the government, on the other hand farmers are putting in excess fertilizer with the idea that "more is better" which eventually increases their cost of production.
Where does iFarmer come into all this, with the help of local financial institutions?
iFarmer has partnered up with reputed financial institutions such as banks and non-banking financial institutions (NBFis), to give farmers access to collateral-free, low-cost loan products while helping the FIs to reduce their costs, and risks and gain better visibility of the burrowers.
Thanks to iFarmers robust and dynamic data collection mechanisms, designed and built for the farming economy, iFarmer can provide visibility of the risk and return to the financial institutions (FIs), based on which they can make their decisions faster and cheaper.
iFarmer's information and database has played the most effective role in contracting with FIs.
iFarmer is collecting various personal, social, financial and transactional information and data of farmers in facilitating financing facilities.
The biggest contributing factor in this case is the startup's Sofol app.
Since its launch in 2020, this app has been collecting all the data required for disbursing loans.
Initially, iFarmer through its own field facilitators started to identify the loan seeking farmers of a particular region and try to understand their required loan amount, capacity and onboard the farmers on the platform.
During the onboarding, they took various documents from the farmers including their national identity cards.
Then the lending process would begin.
That is how the entire lending process was dependent on the experience of the field facilitators, which was time-consuming, inefficient, and often overlooked by the potential farmers due to the limitations of field facilitators.
The successful app is mainly brought to speed up the onboarding process of farmers by eliminating such problems and limitations.
Although the successful app was developed targeting farmers but since most of the farmers in Bangladesh are not tech savvy, iFarmer is mainly carrying out farmer onboarding through their field facilitators and agents.
Field agents can start the farmer onboarding process with some basic information and the app can save the information first and follow-up later, making onboarding of farmers very easy.
Meanwhile, as the government's Porichoy API has been integrated into the app, the iFarmer team in Dhaka can remotely verify the information given by the field agents.
Also, all farmer onboarding updates are available on the app in real-time, eliminating the need to manually inform field agents from the head office and making the entire process of farmer onboarding faster.
Besides, farmers can apply for loans using the successful app and get approval on the app itself.
What are the future expectations that iFarmer wishes to fulfill to cater to the farmers in terms of financial service?
iFarmer`s vision is to become a one-stop solution for the millions of smallholder farmers.
The farmers are too small in business size and do not have the bandwidth to run after different stakeholders to get finance, input, insurance, information and to sell their products.
So what iFarmer aims to do is bring all these services under one platform and serve the farmers.
While doing these, iFarmer will generate data that can help FIs, insurance companies and other stakeholders to have a better visibility of the farmers and their needs which in return can help them to design better products and services and iFarmer is there to take these services to the farmers doorstep.
iFarmer is working to centralize all their operations on the Sofol app to manage farmers in Bangladesh in the future.
With the right implementation of the app, the startup is working to reduce the dependency on agents and make it easier for farmers to onboard the platform, farm management, fund disbursements and transactions more quickly.
Besides, it is also planning to provide advice to the farmers quickly by looking at the pictures of the farm.
Apart from this, iFarmer is collecting 40 types of data including farmers' risk factors, socio-economic behavior and crop production levels to make it easier for retail investors as well as banks and non-banking institutes to lend to farmers.
Using this information collected over a period of time, the startup is working on credit scoring for farmers in the future so that banks and non-banking financial institutions can also overcome the limitations of lending to farmers based on this score.
