It is widely recognised that access to finance is one of the biggest barriers to more young people becoming engaged in agriculture. Here, Varun Baker, a young Jamaican entrepreneur and winner of the CTA Pitch AgriHack 2018 contest, explains why he is convinced that blockchain technology can help to change this – and how his own start-up Farm Credibly is using the technology to improve access to finance for unbanked farmers.
Most farmers, especially younger ones, find it challenging to access credit or loans to expand their production, because financial institutions currently depend on a very collateral heavy and labour intensive process to evaluate loan applications. Also, a large volume of farming activity is conducted in cash. This adds to the difficulty of assessing loan applications, since typically there is no paper trail to validate a farmer’s economic activity. Blockchain technology can help to change all this by offering a more powerful way of storing and sharing information than we have ever had before. For the first time, we can use technology to empower farmers and tell them to just keep doing what they love to do – farming. Blockchain technology allows us to reduce the need for paperwork by recording farmers' business transactions on their behalf, in a decentralised ledger that keeps information safe and private.
So what exactly is blockchain technology anyway? Blockchain helps us to build trust. It is a version of what we traditionally think of as a database, but with many additional benefits. Highly technical people describe it as an "immutable distributed ledger", but for the rest of us, an analogy to a group chat is a more useful way to describe the value that blockchain technology provides. As blockchain educator and advisor Samson Williams puts it: “on a group text message, data (photos, memes, addresses, words, etc.) is distributed and immutable. To see this in action, try sending an inappropriate message to a group chat. It’s distributed because everyone on the group can see the photo.” And of course, participants can always scroll up to see a history of everything that took place in the past.
Painting a picture
Essentially, farmers can continue to use cash and operate exactly as they do now, but still qualify for access to financing due to blockchain technology. We are using this technology to relieve farmers from the burden of having to do any special record-keeping to access capital. Farmers can now be validated based on the strength of their own business network, and the transactions they conduct on a regular basis.
At Farm Credibly, we have developed a new method of calculating a credit score, based on forming partnerships with companies that farmers already do business with. We assess a farmer’s creditworthiness by evaluating transactions from seed and fertiliser sales (inputs), and more importantly, the agro-processors, supermarkets and hotels that farmers make sales to (outputs). This allows us to paint a credible and validated picture of a farmer’s ability to repay a loan. We will make our money by selling credit checks to lenders who, before now, had few ways of assessing unbanked and underbanked loan applicants. There are farmers out there who are productive, and would be even more so if they had access to capital, so we are in the business of helping to identify who is who, while keeping sensitive company and personal information private and secure at all times.
This idea for this project started to take shape at a blockchain hackathon held in 2017 in Kingston Jamaica where our team emerged as winners and top performers. It was sponsored by IBM and a large Jamaican commercial bank called NCB. Since then we have put together a proof of concept around our data collection tools and our credit-scoring algorithm, which is based on an established tool developed by the Frankfurt School of Finance and Management called the Agricultural Loan Evaluation System (ALES).
This has given us the confidence to run a pilot project that facilitates micro-loans through our platform. We are currently raising funds to be able to start a pilot project in 2019, where we will empower a number of farmers to expand their productivity to meet strong demand that we have identified in the market. In this pilot, we will also invest the prize money from the CTA Pitch AgriHack 2018 contest, which we won. That will help to ensure that we can include more farmers as we roll out services to them and other participants in the agricultural value chain. One of the strongest reference points that we are using is data from purchasers of farm produce. That is because often these retailers have valuable information to identify who in their network of farmers are strong performers, and who would therefore benefit by expanding their operations through access to capital.
It is still early days for us, and our company was only registered in April 2018. But we look forward to using Jamaica and the Caribbean as a testbed to prove that our technology works, so that we can provide our service on the African continent as well. To date, Farm Credibly has access to a database of more than 200,000 registered farmers, and we are embarking on an engagement with the Jamaica Manufacturers and Exporters Association, which will greatly enrich our credit scoring.
This article was created through a CTA-led process to document and share actionable knowledge on 'what works' for ACP agriculture. It capitalises on the insights, lessons and experiences of practitioners to inform and guide the implementation of agriculture for development projects.