Agriculture forms the backbone of many emerging and frontier economies. The sector accounts for 60% of employment and 28% of GDP for low-income countries, but in these countries only 7% of adults have access to formal credit, and that too often is concentrated in urban centres away from agricultural heartlands. Given increasing smartphone penetration, Agri-fintechs could help fill this sizeable gap in the market. Last week, Tingo, a Nigeria-based Agritech company and smartphone supplier, announced plans to raise US$500mn (through a combination of equity and debt) to expand its geographic reach.
In this note, we highlight countries that appear most promising for the development of the Agri-fintech sector, and five companies that are working to meet the financing needs of the agriculture sector. Given the potential for better credit access to improve the livelihoods of the poorest segments of the population, investment in this sector also scans well from an ESG perspective.
Poorer countries suffer most from financial exclusion
Countries with lower per capita income tend to experience the most severe levels of financial exclusion (eg. Pakistan, Morocco, El Salvador), while individuals in higher-income countries tend to have good access to the formal financial sector.
Poorer countries also tend to be more exposed to agriculture
Low-income countries are also typically much more reliant on agriculture; in many Sub-Saharan African countries, including Uganda, Rwanda and Tanzania, the sector employs over 50% of the workforce.
Poorer individuals are disproportionately employed in the agricultural sector
In addition to the bulk of the workforce being employed in the agriculture sector, low-income countries also suffer from disproportionate distribution of income across the sectors. For our sample of EM countries, the agriculture sector accounts for a median 25% of the workforce, but only 8% of GDP. The gap is highest in Uganda, Tanzania and Rwanda.
The countries offering the biggest opportunities for agricultural finance
In the table below, we compare formal financial credit penetration versus the population that is employed by the agriculture sector, and highlight countries that could benefit from the fintech boom in the agriculture sector. These would be the markets in the lower-right quadrant, such as Tanzania, Rwanda, Ethiopia and Uganda. Pakistan, Nigeria and India also scan well.
Investment in Agri-fintech carries significant ESG benefits
In addition to meeting the unmet financing needs of the poorest individuals in the poorest countries, investment in Agri-fintech can also help address broader structural issues. For example, by providing better access to credit, fintechs can help improve storage and transport infrastructure for the agriculture sector, which could in turn help reduce food wastage. For example, in Malaysia, Nigeria and Rwanda, annual food wastage is equivalent to more than 200kg per person.
The opportunity for Agri-fintechs
Most agricultural businesses in low-income countries are small-scale in nature. Lack of access, and the low revenue potential of most clients, limits the attractiveness of this sector for traditional finance providers such as banks. But increasing smartphone penetration opens the door to fintechs.
Most Agri-fintechs focus on short-term supply chain financing for farmers and other stakeholders in the value chain, as these are areas where it is easier to manage risk. Some Agri-fintechs also offer payments and insurance services. Other major products under the broader Agritech umbrella include B2B marketplaces; various companies offer fintech and B2B products in tandem as they are naturally connected.
Five Agri-fintechs to watch
Below we profile five Agri-fintechs that operate in attractive markets and have interesting prospects.
Crowde is an Indonesian peer-to-peer lending platform founded in 2017. The company enables farmers to access credit up to IDR100mn (US$7mn). The company has served over 8k borrowers since its inception, disbursing loans worth cUS$11bn. The outstanding loan portfolio currently stands at US$2bn. The company recorded revenue of over US$400k in 2020 and earned a profit of US$180k. Crowde raised US$9mn in October 2021 in addition to US$1mn raised in 2019. The default rate for Crowde is also very low (90 days past-due loans stand at 1.2%), highlighting its strong risk management framework.
Tingo is an Agri-fintech platform and a smartphone provider to farmers. Tingo offers a one-stop solution for farmers with a marketplace that enables them to manage their commercial activities and other services like airtime top-ups, utility bill payments, insurance and microfinance.
In addition, the company offers mobile phone leasing to help farmers access smartphones. Tingo has so far sold 30mn mobile devices and has 9mn subscribers to Nwassa (its digital platform) with 8mn daily transactions. Tingo is currently based in Nigeria and is aims to become a pan-African Agritech company.
For 9M 2021, the company recorded a significant boost in its financial performance with revenues of US$100mn (compared to just US$3mn in 9M 2020) and profit after tax of US$32mn (loss of US$1mn in 9M 2020). As per recent news reports, the company aims to raise US$500mn of debt and equity to fund its geographic expansion. The firm’s shares currently trade over-the-counter in the US, with a valuation of cUS$6bn. The company has applied to list on the New York Stock Exchange.
Jai Kisan (India)
Jai Kisan, founded in 2017, is a rural-focused Indian neobank. It operates a platform, Bharat Khata, which provides credit access to rural businesses and individuals, and aims to become a one-stop solution for their financial needs. The company offers products to various players in the agriculture supply chain including farmers, traders, exporters, retailers, wholesalers and manufacturers.
Currently, the company offers two major products: 1) supply chain financing; and 2) BNPL (buy now pay later). Under supply chain financing, the company offers a flexible and collateral-free credit solution for growth-oriented businesses. In BNPL, it offers products in installments through both online and bricks-and-mortar channels. The company raised US$30mn (via a combination of debt and equity) in its Series A round completed in May 2021 and intends to use these funds to improve its technological capabilities and expand geographically.
Apollo Agriculture (Kenya)
Apollo Agriculture, founded in 2016, helps Kenyan farmers maximise their profits. It offers mobile-based solutions including working capital financing, data analysis, farming advice, insurance and market access. The company uses machine learning and satellite data to enable better credit decisions, improve cost efficiency and build scalable processes.
For its revenue model, the company generates profit on farm product sales (farms purchase fixed packages as per their requirements and the payment is due on harvest) and interest on financing products. The company is growing rapidly, with the number of borrowers tripling in 2020. It has raised US$6mn in equity funding in 2020 with an additional US$1mn in credit in 2021, mainly to invest in technology and strengthen its balance sheet.
Ricult (Pakistan and Thailand)
Ricult, which started operations in 2016, is an Agri-focused technology company headquartered in the US, with operations in Pakistan and Thailand. The company has raised US$6mn so far from investors like Bualuang Ventures in Thailand and Sojitz Corporation in Japan. The company has various products including:
Ricult Farmer App, which gives access to weather data, farm advisory information and satellite imagery.
Financial Solutions, with lending to farmers and tools that better predict farmer affordability for financial services.
RicultX, which uses machine learning and data analytics models to help farmers manage yields, sourcing, field activities etc.
Crop Scan, which uses deep learning on satellite imagery, enabling users to assess a wide geographical area in terms of farm fields, planted crops and crop growth stages.