Enabling Data-Driven Financing for Smallholder Farmers
Today smartphones and tablets provide portable computing power en masse in many places, but rural agricultural communities have yet to tap into the near infinite resources made available by the Internet. Herein lies a tremendous opportunity to increase farm-level efficiency and empower farmers to better use and share data that is critical to their business. Importantly, mobilizing technology in this way can facilitate the provision of financial services to smallholder farmers.
So how do we get there?
First, we need to be clear about the need—to move harvest data into a format that can be efficiently analyzed by smallholder farmer organizations and by the stakeholders with whom they work, especially financial service providers. Collection stations track the quality and quantity of each individual farmer’s harvest, but when that information is tracked with pen and paper they are unable to use it to build data models for forecasting, financing, or other purposes. Smallholder farmers are issued paper receipts when dropping off coffee, cacao, and other crops at collection stations, and in theory someone enters the information from these receipts into a computer. But busy days can often preclude this task. By digitally recording individual transactions and harvest data, smallholder farmer organizations are empowered to work with financial service providers to make data-driven microloan eligibility decisions.
Despite the lack of digital information in many cases, some smallholder organizations extend pre-harvest financing to farmers that can amount to up to 20 percent of their estimated harvest. In this way, a farmer’s ability to pay back his or her loan is directly linked to their total harvest volume and quality. Currently, cooperatives examine old ledgers and receipts for information about the farmer’s past harvest production, which is a very manual process and doesn’t efficiently account for variations between harvests. By digitally recording individual harvest transactions at the point of collection, the organization is able to communicate critical information for making data-driven microfinance eligibility decisions.
Many cooperatives work with a network of lenders to secure access to financing and thus help farmers maintain liquidity between harvests. Much of this financing comes to cooperatives in the form of a working line of credit, enough to maintain operations in the short term but often insufficient for covering the costs of an annual harvest cycle or increased costs during market spikes. Digitally collecting harvest information on a daily basis enables real-time adjustments for determining in-harvest financing levels. It also allows cooperatives and their banks to assess repayment and inventory values. By collecting data daily, the organization can regularly increase or decrease their estimates, and loans can be adjusted accordingly. Instead of simply relying on last year’s total, the cooperative is empowered with the information needed to make more accurate decisions based on current conditions.
All told, these solutions hold the promise of more efficient, higher quality agricultural production—and the subsequent benefits that accrue to smallholder farmers, including access to credit and other financial services. They also serve as an important entry point for introducing further technological innovations that can yield the same positive impact for smallholder farmers as they have for their peers in more advanced economies.
That’s why Fair Trade USA, a nonprofit with more than 15 years of experience providing services for farmer organizations worldwide, has taken ownership of the Acopio platform. Acopio is a data collection tool for computers and mobile devices that was developed primarily to streamline critical organizational processes, including the collection of coffee from farmers and managing loan information. By digitizing these processes, Acopio empowers smallholders and the organizations that serve them with the means to analyze and share information that can help incentivize the wider provision of financial services.
The key is to avoid turnkey solutions in favor of ones that best meet the demonstrable needs of smallholder farmers. Fair Trade USA is working with several cooperatives in Latin America to learn what they need most from Acopio. As we use this information to further improve the platform over the coming year, we are looking forward to rolling it out on a broader basis in 2015 and to monitoring its impact on farmers’ ability to access financial services.
Great article.Much needed solution as often valuable real time data are stored in highly unstructured format. E.g. Starting from seed and fertiliser distribution. Capturing harvest data and sanitising them would go a long way to aid development of decision supporting tools. From financial inclusion point of view it will be one of invaluable for credit risk assessment.