By Espie Angelica A. de Leon
Where farming is concerned, the Philippines is a picture of irony.
The country has a land area of 30 million hectares, 47% of which are agricultural lands planted to rice, corn, coconut, bananas, pineapple, sugarcane, mangoes, and other crops. It is even one of the world?s major rice importers.
Yet, two out of three Filipino farmers are poor. Eleven million of them subsist on P100 a day (about $1.9) or around P2,000 a month — a pitiful amount for land cultivation and daily expenses. Thus, many of them end up with little or no savings at all.
And so they turn to credit. But barely have they started knocking on credit?s door that new problems begin piling up. To begin with, they have no acceptable collateral to offer. Next, they realize that the banks and financial institutions are far from their villages.
And then they learn there?s too much paperwork. When they do get their foot on the door, they come face-to-face with the enormity of the interest rates: up to 120% per cropping cycle of six months.
Under these conditions, life for most farmers in the Philippines whose average age is 57 years old, may well be as dry and barren as the lands that fell victim to drought.
However, for Mario delos Reyes (not his real name) life has been a ?bumper crop?.
Like other farmers, he also receives formal loans. But with his credit, Mario was able to expand his fingerling and petsay (Chinese white cabbage) businesses. He also supported two fellow farmers, Buboy and Felimon (not their real names) who later became his laborers.
Eventually, Buboy and Felimon saved enough money to buy motorcycles and homes for their families.
So what is Mario up to that most other farmers in the Philippines are not?
Credit via fintech
For the past three cropping cycles, Mario has been on Cropital, a peer-to-peer (P2P) lending platform for smalholder farmers or those cultivating small land sizes.
The biggest of its kind in the Philippines, Cropital has pruned the prospects for farmers, weeding out the challenges and removing the ?pests? which make the borrowing and lending process difficult for them.
First of all, it connects them with private lenders offering reasonable rates and companies with good service. It is also collateral free.
Cropital?s CEO and founder Ruel Amparo explained, ?Cropital does this by developing technologies and tools that can assess and reduce risk, and reduce the administrative cost of lending to small farmers. Cropital being able to prove its economics would be vital to opening up more fund sources that will be willing to lend to farmers.?
The fintech platform also does not involve paperwork as everything is digitized. Cropital?s community managers have their own tablets and use these to interview the farmers, collect their information and requirements.
The system begins with a vetting process for farmers. Amparo and his co-founders Rachel de Villa, who is also chief technical officer, and Lester Wayne Pile, participate in farmers? conventions around the country to introduce the lending platform to leaders of farmer groups recommended by either the local government unit or partner organizations. The aim is to get the farmer leaders interested in bringing their members onboard Cropital.
The next step is to undertake credit scoring. Under this process, information gathered from application forms and requirements are analyzed and scored.
The farmers who pass the credit scoring process are then matched with lenders on the platform, most of whom are young individuals working overseas or in Manila. These individual lenders deposit a minimum amount of P5,000 into their Cropital account and then select the farmer(s) whom they shall lend funds to every cropping cycle. The minimum amount they can lend is P5,000 while the maximum is P50,000.
They are not required to lend every cropping cycle. But according to Amparo, many of these lenders shell out money in increasing amounts.
Meanwhile, some of the farmers receive the loans via check or remittances. The rest get theirs in the form of agricultural input packages which include seeds, fertilizer, and crop protection products delivered to them by Cropital?s partner stores.
Interest rate is between 8% to 12%, which is 90% cheaper than current rates. Of this, about 3.5% interest is given to the lenders while the rest flows back to Cropital as revenue.
Companies, organizations, and foundations also get to support the farmers in specific regions via Cropital by putting up rice value financing schemes in these places.
Aside from funding, farmers receive other forms of support. Among others, Cropital pre-identifies buyers of their products at reasonable prices in order for the farmers to seal the deal and secure good profits.
The P2P lending platform also helps them access free government crop insurance under the Philippine Crop Insurance Corporation.
Lastly, they are provided with information on the best farming technologies and practices by partner companies like Bayer and Norwegian chemical company Yara International.
?Our farmers are guided by technicians on what are the best inputs to use, when to use them, and at what quantity,? Amparo shared. ?Following these well-researched practices tends to increase the yield of the farmers.?
One of the first farmers to join Cropital was Arsenio Pimentel (not his real name), 67. A farmer since the age of 15, Arsenio is cultivating a 1.5-hectare land in Tuba, Benguet. The man was in debt when he started with the fintech platform. But now, it has helped ease his financial difficulties tremendously.
Farmers are allowed to borrow every cropping cycle, said Amparo. ?We, however, hope that they will reach a point [where] they can sustain their own capital. It is actually our goal for our farmers to stop getting loans, not only from Cropital but also from different lenders.?
Some of the farmers have indeed stopped requesting for loans. Currently, the platform has around 80% retention rate on farmer borrowers. In Bohol, retention rate fell after just one cycle since some farmers? crop yield spiked from 6 tons to 9 tons. This development was further bolstered by the very high price of palay or rice come harvest time.
Targeting more farmers
Amparo himself is no stranger to the plight of farmers. Having come from a family of farmers, the young man from Bulacan saw his own grandparents? struggles.
?I have seen how my family [would] borrow capital every season at 5% interest per month, and never miss a payment. Instead of having more profit, the interest payment could eat up the already low income of the farmers,? he lamented. ?I realized that this is both a problem and an opportunity, ripe for a new solution.?
This solution now has 4,000 active lenders and has distributed 800 loans worth P35 million to more than 500 farmers in 22 communities across seven provinces.
These provinces are Pangasinan, Bulacan, Pampanga, Batangas, Laguna, Leyte and Bohol. Among the many communities it serves are Rice Up Floridablanca, Rice Up Lubao, Padre Garcia, Santamasi Irrigator’s Association, and others.
Cropital, which achieved operational break even in 2018, also has a record of 94% on-time payment of loans.
Though Cropital has made remarkable strides since its establishment in 2015, its CEO admits 11 million small farmers in the Philippines still need their assistance.
Unlike Mario, this lot of 11 million do not have a ?bumper crop? of good fortune and great opportunities on their side. Instead, they continue to struggle with their finances, fall prey to predatory loans, and thus fail to secure a bright future for their families.
?By 2030, hopefully, we?ll be able to reduce the number of predatory loans that are existing. With our mission to continually provide an ecosystem where farmers could actually thrive and stop being dependent on loans, this is actually the one that we want [every farmer and willing lender] to join,? Amparo said.
For now, however, farmers onboard Cropital are truly harvesting the benefits offered by the fintech platform. And as it continues to reach out to more small farmers in the country, it is also proving itself as a ripe solution to their problems which helped characterize Philippine agriculture for a long time.