Post 2 Draft
- Ashu Sikri (Unlicensed)
In our previous post we described “Digital Farmer Networks.”
This post introduces the Funding Platform which we believe responds to an acute pain point for farmer organizations and provides a compelling incentive to capture and share data, a critical first step towards building Digital Farmer Networks.
An acute pain point
One issue raised consistently by farmer organizations is limited access to capital. This is true across the cycle from input finance, aggregation finance to bridge the gap between farmer procurement and buyer payment and capital for investments.
The reasons why smallholder farmers and farmer organizations lack access to formal credit are well studied. For our purposes, its worth acknowledging concerns from capital providers that farmer organizations are risky not only due to the inherent nature of their business but also because of a dearth of data about members, earnings and operations; after all, these are fledgling organizations with limited budget for professional management and sophisticated software systems and the relatively high transaction costs involved in capturing such data.
iIts valuable to be empathetic to the challenges formal capital providers cite in working with farmer organizations so that we can equip farmer organization with the tools and training they need to respond to these concerns.
Training Wheels
There are a plethora of government programs at a central and local level designed to help farmer organizations access capital: covering or matching members paid-in capital, interest subvention on loans, Priority Sector Lending norms, dedicated facilities providing concessionary capital.
These are fantastic initiatives but the reality is that more is needed. Raising debt capital requires a strong foundation of predictable and recurring cash flow and matching these cash flows to appropriately designed repayment terms. For many farmer organizations, it will take a few seasons of operations to establish an operating rhythm and generate the learnings and data which will enable them to access debt on decent terms.
At Digital Green, we want to help farmers groups access grant capital which can serve as training wheels until they mature to a point where they can graduate to more commercial sources of funding.
Funding Platform
Through the Spring of 2022, Digital Green hosted a series of workshops with farmer organizations in Andhra Pradesh and Odisha where these organizations shared their ambitions, funding requirements, and challenges.
We came away energized by their spirit and creativity and a realization that relatively small investments, on the order or 10 to 30 lakh INR or ~$13,000 to $40,000, would deliver an outsized role in propelling these organizations forward and delivering real value to their members. The types of investments that farmer organizations proposed include:
A program to plant native fruit trees to improve soil health, water retention and increase income
Setting up a biofertlizer lab and seed saving infrastructure which will enable members to achieve organic certification
Processing equipment for tamarind and millets so farmers can capture a greater share of value
Setting up a vegetable nursery to improve household nutrition and increase income
Over the coming months, Digital Green help fund the catalytic investment opportunities identified by farmer organizations. Being “demand driven” or led by what farmer organization members themselves identify as the most impact opportunities is critical.
[to be continued]
Stay tuned for future posts where we delve further into the design of this platform and on-ground learnings from operationalizing this idea.