Food security and the role of smallholder farmers
The world counts approximately 500 million smallholder farms, of which 200 million produce for the market and operate in an agricultural value chain. However, these same farmers struggle the most to secure affordable and appropriate finance, while having adequate access to finance is critical to success.
Why the struggle? Because financial institutions tend to see lending to agricultural operations as risky and costly and, thus, are hesitant to do so. This perceived risk is also a result of a lack of access to correct, in-depth information on the financial institution’s part, as a recent study commissioned by NpM, Platform for Inclusive Finance, showed. What’s more, achieving food security is one of the United Nations’ top priorities among its Sustainable Development Goals (SDGs) for the year 2030. As global demand for food is only going to rise, we need to address food security issues now before it's too late.
Agriculture, fintech and open innovation meet at the NpM Innovator’s Challenge
In today’s society, data represent a pivotal factor in solving problems across many industries, including the agriculture sector. Geodata are a very relevant source of information gathered by satellite sensors that assists farmers with matters like crop and yield monitoring, pest and disease management, and planning for potential droughts and other relevant weather-related phenomena.
Essentially, geodata provide additional insights to farmers to ensure that they produce as much food as possible on their plots, and, therefore, increase their yields. Just as importantly, these data also give financial service providers, like banks and microfinance institutions (MFIs) that fund smallholder farmers, important information, leading to a reduction in transaction costs and lowered risks for lenders. Therefore, geodata will give financial institutions a greater incentive to finance more farmers. This certainly plays a vital role in efforts to tackle today’s food security challenge.
The NpM Innovator's Challenge
In order to connect with tech companies that can translate geodata into relevant information for financial institutions, NpM has organized its first-ever Innovator’s Challenge, in cooperation with Accenture, Bill & Melinda Gates Foundation, FMO and Rabobank Foundation.
We sat down with Josien Sluijs, Director of NpM, to find out more. She has been active in the field of inclusive finance for over 15 years. Prior to becoming Director of NpM (Platform for Inclusive Finance), Josien held a senior position at Rabo Development, where she was responsible for restructuring rural banks in the Middle East and Asia. On the topic of her career focus, Josien says: "One of the key drivers in my work is my conviction that through financial inclusion, we can contribute to a solution for some of the world’s key challenges. I genuinely believe we are able to find innovative solutions so that people do not go hungry."
I genuinely believe we are able to find innovative solutions so that people do not go hungry.
Does this mean we have found the answer to the world’s food security issue?
"I wish we had, but we can’t make the claim that using geodata is the silver bullet. However, we do know for a fact that geodata applications improve agricultural production and lead to an increased outreach of financial services. The clock is ticking; we need to find solutions for increased food production now. We can only achieve this if geospatial information is also made available to financial service providers."
What is currently the most common issue smallholder farmers face?
"These past years, climate change has become their biggest concern. This is, in part, because it has forced them to change their routines, and they’re now often unsure when is the best time to plant and harvest crops. Geodata information provides farmers with instructions to deal with climate-related changes."
What are the tangible benefits of geodata applications for smallholder farmers?
"Farmers are able to increase their yields and have better linkages with market players. Over time, the data will allow farmers to build a track record. This should result in banks providing them with financial services."
And for financial institutions?
"Improved risk management, lower costs, well-designed products and increased outreach. Hopefully, the Innovator’s Challenge will reveal even more benefits for banks and MFIs."
Which concrete results are you hoping to see?
"We have a particular interest in new ideas that result in reduced transaction costs and lower risks for lenders, provide insights in how to incorporate digital track records of farmers’ agricultural yields, and ideas encompassing the combination of different data sources relevant for financial institutions."
The Challenge is currently underway. What have the results been so far?
"After receiving numerous proposals, we selected 17 organizations to take part in a series of workshops. Of these 17 entrants, a group of six finalists will be invited to pitch their ideas at the Accenture Innovation Summit on November 2. The three ultimate winners will have the opportunity to pilot their solution with a financial service provider in an implementation project worth €125,000."
What makes the NpM Innovator’s Challenge unique?
"The application of geodata in financial institutions is a true novelty. Currently, the combination of geospatial information with financial service providers has only been tested in a few cases, and only on a small scale. I am proud to say that the Dutch are true pioneers in this field. Many parties are very interested to see what comes out of this project. Moreover, the setup is unique too. It’s an example of applied open innovation, connecting different groups of people with the aim of solving a global social challenge."
The Challenge is an example of applied open innovation, connecting different groups of people with the aim of solving a global social challenge.
What would you consider a truly successful outcome of the challenge?
"Finding new ways to use geodata applications so that financial institutions aren’t only less hesitant to lend to smallholder farmers, but feel encouraged to do so on a larger scale. Once we achieve this, we will be well on our way towards finding a solution to reach 'Zero Hunger' by 2030."
So, what's next?
The NpM Innovator’s Challenge aims to find tech solutions that could have the following output:
- Reduced transaction costs for lenders.
- Lower risks for lenders.
- Improved agricultural performance of smallholder farmers.
- Digital track record of smallholder farmer’s agricultural production.
- Combination of different data sources relevant for financial institutions.
During the Challenge, the companies will improve their professional skills and participate in workshops. These are geared towards gaining a deeper understanding of financial service providers’ needs and the challenges they face when aiming to finance smallholder farmers.
The six finalists will pitch their prototypes at the Accenture Innovation Awards Summit, an invitation-only event for corporates, start-ups, investors and (network)partners which attracted 2,451 visitors in 2017.