Agricultural Finance in Southeast Asia: Understanding the Plight of Smallholder Farmers

Around 16.5 million farmers live in Bangladesh, constituting 28% of the 170 million population. Although Bangladesh is heavily reliant on agriculture to feed its people and support its economy, the conditions of the farmers are poor. Farmers, due to a lack of expertise and education, cannot avail themselves of modern farming techniques for better crop productivity and higher yields. Furthermore, more than 70% of the farmers do not have access to formal financing, such as personal bank accounts. As a result, they have to rely on microfinance, which charges heavy interest and costs. The plight of these farmers does not end there. For distributing and transporting the produced goods, farmers seek the aid of middlemen. The middlemen buy the goods from farmers at low prices and sell them at higher prices in the markets. In the process, farmers are deprived of a huge chunk of profit. Currently, there are three types of financing available to farmers. The first type is dadon, the local lenders who charge high rates of interest on loans. Then, there are NGOs that provide loans at lower interest rates than dadon. Finally, there are the state-owned banks that provide loans at relatively lower interest rates. However, farmers face difficulty applying for loans from these banks because of complex bureaucratic practices and paperwork. The NGOs charge loans at a 31% rate of interest, an amount that is costly for the farmers. Occasionally, farmers are forced to sell land and crops at a loss to repay the loans they take from these sources. Moreover, farmers are unable to add variation to crop production, producing only high-yielding crop varieties. This practice of producing only one variety of crop decreases productivity and degrades soil quality in the long run. Farmers are selling the goods they produce at lower prices because of inefficient supply chains, poor storage facilities, inconvenient transportation, and unfavorable market infrastructure. A report stated that farmers receive less than 40% of prices offered at the consumer level, 43% goes to the pockets of sellers, and the other remaining portion is lost to transportation, storage, packaging, and other miscellaneous expenses. Frequently, farmers incur losses, let alone make profits, as their total cost of production exceeds the revenue they receive. During times of low demand and higher supply of any good, farmers are compelled to sell off their harvested crops at whatever prices the greedy middlemen offer. Events as such bring misery to farmers, and they are discouraged from producing crops in later periods. To alleviate the hardships faced by farmers, agri-fintech startups come to the rescue. Agri-Fintech is a concept in which technology and finance are blended to overcome different challenges incurred in the agricultural sector. These firms aim to help farmers who are illiterate and do not have access to financial services. The aid comes in the form of providing funds to farmers through crowdfunding, digital lending, bank loans, and angel investment. Investors are given attractive financial incentives, such as equity shares and profits. Farmers are also provided with capital in the form of agricultural inputs. Finally, the agricultural goods produced by farmers are distributed and transported efficiently in the consumer market. WeGro Global, an agricultural fintech startup based in Bangladesh, is actively collaborating with farmers across various regions and districts of the country. WeGro, by gathering investments through its own app and partnering with other investor entities, supplies agricultural inputs, including livestock, poultry, crops, and fisheries, directly to farmers. Subsequently, the agricultural products cultivated by these farmers are sold at fair market prices with the assistance of WeGro. Moreover, the startup establishes credit profiles for farmers, simplifying the process of obtaining loans from banks.