Agritech Lending Platforms in Africa: Shape Up or Ship Out!​
March 22, 2024
Key Insights
Agritech lending platforms in Africa often fail due to limited internet access in rural areas, inadequate creditworthiness data on farmers, high-interest rates from rogue lenders, and systemic issues like political instability, poor infrastructure, and market fluctuations.
- ome successful Agritech platforms like Apollo Agriculture, AgroCenta, FarmDrive, WeFarm, and Hello Tractor have leveraged technology to provide customized financial solutions, better market access, and farming inputs, while also offering financial literacy training and equipment rental services.
- To enhance the effectiveness of Agritech P2P lending in Africa, there is a need for financial literacy programs, development of local credit scoring models, stronger regulatory frameworks, technological integration (e.g., blockchain and AI), and strategic partnerships with regional banks, regulators, and non-profits.
Primer
One of the pressing issues in Africa now is food insecurity, but is Aggrotech P2P lending really the solution we are looking for?
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It is estimated that up to 1 in 5 Africans go to bed without food. Again, 140 million people in Africa suffer from acute food insecurity, as reported in the Global Report on Food Crises 2022 Mid-Year Update. Fintech innovators have recognized the situation and developed solutions to address food insecurity. Therefore, African farmers have been bulldozed to accept the reality that technology is inevitable. It doesn’t matter anymore whether they live in the world’s remotest parts. They must gladly embrace blockchain-powered applications that intend to empower them. Thus, they can acquire investor funding by demonstrating that they have found solutions to real-life challenges in Africa.
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Don’t be fooled by oversimplified solutions, microloans alone won’t solve African farmers’ challenges.
Agritech Platforms
Let’s take a deeper dive to see what somehow successful Agritech firms are doing:
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- Apollo Agriculture leverages machine learning and satellite data to examine farmers’ risk profiles and offer customized financial solutions. It has created more value by providing high-quality farming inputs and training on modern agricultural techniques. Doing so ensures that its approach tackles underlying farming issues besides its technological offerings.
- AgroCenta in Ghana is another e-commerce platform that connects farmers with potential buyers while ensuring they get better prices for their produce. It has partnered with mobile operators MTN and Vodafone to integrate mobile money API and enable direct payments through its AgroPay platform. The partnership also includes financial literacy training for farmers.
- FarmDrive: A Kenyan-based startup launched in 2014 offers small loans to farmers via mobile technology. Its proprietary lending engine uses behavioral and agricultural data analytics to determine farmers’ creditworthiness. Thus, it can gain insight into farmers’ farm records, including expenses and revenues.
- WeFarm:Â It is a UK-based platform that allows smallholder farmers in Africa to connect. Thus, these farmers can share information regarding best farming practices. Besides, they can access micro-loans, inputs, and farming equipment.
- Hello Tractor: It is a Nigerian startup that offers tractors and other farm equipment. It also enables these farmers to access financing for equipment rental.
This is the road that Agritech lending platforms should take – creating more value besides the technology side of their applications.
Why Some Agritech Platforms Have Failed?
The Agritech platforms that have failed have ignored the obvious.
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While these platforms have positively impacted farmers’ lives, they have yet to achieve optimal outcomes for the following reasons:
- Limited Reach: Many rural African areas don’t have internet access. Digital literacy is also suboptimal. Thus, most smallholder farmers are less likely to access financing services offered within these services. Statistics show that only 6.3% of the population in Kenya engage in internet activities.Â
- Limited data on farmers’ creditworthiness: Many smallholder farmers don’t have collaterals or credit histories to secure loans. This situation causes high risks of defaults. For example, FarmDrive’s pilot project to utilize satellite data to enhance their credit-scoring models was unsuccessful. It experienced imprecise location information of farmers, which prevented the accurate mapping of satellite data at a granular level.
- High-interest rates by rogue P2P lenders: The situation of P2P lending failure in Indonesia is likely to replicate in Africa. Thus, farmers can fall into the hands of illegitimate lenders who offer overly high-interest rates.
- The common systemic challenges: Agritech platforms cannot ignore the implications of political instability, poor infrastructure, and market fluctuations. The World Bank reported that Juhudi Kilimo, an agricultural micro-lender, had to overcome challenges associated with the seasonal nature of farming and the high cost of financing to provide loans to farmers. The company faced additional risks from weather changes and market fluctuations.Â
Agritech failure has been unavoidable for some platforms. The primary reasons include poor planning with the eye only on the investor money rather than tangible impact.
Solutions to Aggrotech P2P Lending in Africa.
There is a need for holistic solutions that consider the underlying issues specific to the African continent.
- Building financial literacy:Â One of the key challenges to P2P lending in Africa is the lack of financial knowledge about P2P financing options. Financial training and development programs will help borrowers to readily understand how P2P lending can empower them.
- Developing local credit scoring models:Â Conventional credit scoring models are irrelevant in since they rely on credit history information. Alternative models should consider mobile money usage, environmental protection milestones, and social networks.
- Strengthening regulatory frameworks:Â Laws governing peer-to-peer financing in Africa are still evolving. A lack of definite legal frameworks causes uncertainty and hinder investment. By cooperating with legislators and regulators, P2P platforms can integrate more seamlessly into the financial system.
- Leveraging technology:Â Mobile technology has revolutionized micro-lending in Africa. It enables platforms to access more customers and also simplifies loan management processes. Integrating blockchain and artificial intelligence (AI) into these solutions will make them more productive, transparent, and secure.
- Creating partnerships: Agritech platforms should collaborate with regional banking institutions, state regulators, and non-profit organizations to magnify their impact. They can establish connections and access resources that will open access to financing to more farmers.
In conclusion, Agritech lending solutions that target smallholder farmers and agricultural investors must go beyond the technological offering. The new approach should have overarching implications on food security regionally and globally.Â
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