European Microfinance Week 2019

PRESENTATIONS

The moderator Frédéric HUYBRECHS opened the session by saying that the use of FinTech for promoting climate resilient agriculture is becoming a trend in the microfinance sector – combining several of the key concerns which are high on the financial inclusion agenda. The session looked into a number of innovative cases, of which the first one was Geodata for Inclusive Finance and Food (G4IFF). 

Aarno KEIJZER showed that the G4IFF programme links Financial Service Providers (FSPs) and their smallholder farmer clients to partners with knowledge on geodata such as geospace companies and scientists. The programme uses an innovator challenge to identify promising companies that use geodata for inclusive finance and food. Agri-wallet, the first of three winners, is a FinTech company giving farmers, buyers and agro-stores easier access to finance from a global network of lenders. Agri-wallet uses a mobile token currency based on blockchain technology to ensure farmers use their income for relevant costs and investments such as farm inputs and avoid loan diversion. Apollo Agriculture, the second winner, helps farmers maximise their production and profits with a solution based on agronomic machine learning and remote sensing and uses mobile phones to deliver credit, farm inputs, and advice to farmers. VanDerSat, the third winner, improves financial inclusion and contributes to solving the world’s water and food crisis. VanDerSat uses high resolution, cost-effective and information-rich water and temperature data to provide advice to farmers and provide scalable, low-cost climate-risk information and agricultural track records to financial institutions. Furthermore, NpM has set up a funds database for Agtech that currently contains 200+ funds and plans to expand this database.

Presenting the second case of this session, Davide FORCELLA explained how YAPU uses FinTech to address the specific finance needs of smallholder farmers that is created by climate change. Climate change affects the ecosystems in which the farmers operate. Farmers with their value chain partners and financial institutions must preserve this ecosystem to maintain or improve their production and their financial performance. 

Forcella illustrated how YAPU provides two main services to financial institutions: consultancy and software. The first step to improve financing of smallholder farmers using data is to carry out an institutional assessment to identify priorities and areas for improvement. Based on the results of the assessment and leveraging local knowledge of the financial institution, the partners decide on which types of data to generate. This can include data on markets, production, climate and other relevant factors. YAPU supports the financial institutions to digitalise and provides software for data integration and management of these data. He showed how the software helps the financial institutions to use the data generated for improving their understanding of climate risks and develop appropriate solutions to off-set these climate risks. The software is adapted to the needs of the financial institution.

Forcella stressed the importance of taking a step by step approach to the data-driven improvement of financial services. It is not necessary to generate and analyse all potentially relevant data immediately. Instead, financial institutions should focus on making the available set of data useful. Through the generation of new data, they can slowly expand their services.  

Andres FREIRE presented the EcoMicro project in Ecuador which is implemented by Red de Instituciones Financieras de Desarrollo , YAPU and 14 financial institutions and supports farmers to change their practices and adapt to climate change using smart data and agricultural finance. Freire explained that the project partners use different types of data, including temperatures and rainfall, but also information about crops and value chain actors. The financial institutions use the data to assess climate risks such as the effect of changes in temperatures or rainfall on crops. At the same time, experts increase the adaptive capacities of farmers by teaching them practices and technologies to reduce climate risks. For example, the farmers diversify or use compost from organic matter. In many cases, the farmers find the solutions themselves. EcoMicro uses local knowledge and adapts solutions to the local production culture.

The project has already generated a wealth of data and is currently expanding and promoting the use of the available data for the benefit of all stakeholders in the agricultural sector in Ecuador.

DISCUSSION

Huybrechs opened the discussion by asking the panellists about new possibilities that the use of data brings to the sector. Keijzer replied that the use of data brings added value to both farmers and financial service providers. Forcella confirmed the added value of data and said that digitalisation and using data are inevitable. Through digitalisation, the microfinance sector finally has the tools to go back to its initial mission and realise its dream of financing agriculture. Freire illustrated this with results of the EcoMicro programme. Participating microfinance institutions had previously identified only 15 agricultural products for export. Through participation in the programme, they identified opportunities to pioneer and enter 9 new additional markets. 

Huybrechs asked if there are important stumbling blocks for the use of data to promote climate-resilient agriculture. Freire responded that it was challenging for the EcoMicro project to get the financial institutions on board, as they had low expectations in the beginning. Freire is confident that the result of the programme will convince additional financial institutions to join. Forcella explained that it is crucial to align with the needs of the financial institutions and, in order to convince them, highlight the economic opportunities that can be created. Keijzer also raised the issue of a lack of willingness by farmers to pay for advisory services, which prevents projects from going beyond the pilot phase.

A member of the audience agreed that digitalisation can reduce transaction costs, but questioned whether or not access to more data provides a sustainable solution for investing in highly risky agriculture financing. Freire responded that access to data does not automatically make micro­finance institutions experts in climate risks. However, partners can provide the expertise to help them interpret the data, improve their understanding of climate risks and support farmers in changing their practices. With a proper understanding of the risks, the microfinance institutions can even lower their interest rates when they know that financial risks are lower. 

Another question from the audience related to the use of traditional knowledge and the promotion of client participation. Forcella recognised the importance of local knowledge and the exchange of such knowledge and data generated with the tools of the financial institution and its partners. The financial institutions must identify the relevant data to share with the target population and suitable delivery mechanisms to find sustainable solutions for the exchange of data with farmers. 

Finally, a person from the audience expressed a concern over potential abuse of farmer data by big companies that might use the data for political reasons. Keijzer confirmed that concentrated ownership of data in the future could indeed be a concern and that it would be a good idea to start anticipating such a development.