The catch in lending
- Farmers in Indonesia looking to expand their businesses often struggle to get access to growth capital. Sadly, many end up turning to less-than-ideal solutions like loan sharks, who charge interest rates as high as 40% per annum.
- 500-backed aquaculture company eFishery turned this age-old problem into new opportunity, and began offering a pay-later program called Kabayan, 7 years after its inception. A risky move considering how many agritech companies have stumbled when offering credit.
- Kabayan provides fish farmers with credit that they can use to buy feed, fish seeds, and any other products through eFishery. Farmers pay back later during the harvest period, freeing up cash for business expansion activities such as adding more ponds and equipment.
- Lending in agritech has not had a good reputation in recent years. So, how does eFishery mitigate risks and convince their financing partners? The company does so with 4 approaches: (1) using data generated by its tech to build credit-scoring and analysis capabilities, (2) avoiding cash disbursements and providing financing as a credit limit that is utilized for purchasing items from eFishery, (3) distributing feed purchased directly through the proprietary smart feeder to avoid misuse, and (4) leveraging its offtake capability to ensure the repayment of loans.
- “Over the past few years, many agritech companies that offer pure financing models don’t do well because they offer financing without strong data and ecosystem,” explained eFishery’s CFO Dhianendra Laksmana.
- According to eFishery, Kabayan is used by close to 30,000 farmers in Indonesia, and its success has led to partnership interest from a host of peer-to-peer (P2P) players and reputable banks.
- Read the full story on Tech in Asia.