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Mayada El-Zoghbi of the Center for Financial Inclusion leads a panel discussion between entrepreneurs and investors to discover how financial solutions can help combat and mitigate climate risks for the world’s most vulnerable populations.
Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Amee Parbhoo (00:11):
Hi everyone, and happy New Year. Welcome back to FinTech for the People. I'm Amee Parbhoo managing partner of Accion Venture Lab and I'm excited to continue this exclusive season. As an early stage investor in FinTech startups, Accion Venture Lab has spent the last decade investing in over 60 companies across Africa, Latin America, Asia, and the US. And we believe in the power of FinTech to reach those who have been left behind.
(00:38):
If you're tuning in for the first time, FinTech for the People brings you the stories behind the work we do and the people who are driving truly inclusive FinTech innovation in every corner of the world. In this special season, we've been sharing discussions that happened during our FinTech for Inclusion Global Summit late last year. The summit brought together over 250 people in the inclusive FinTech community and it was an incredible space to share what we all are seeing and working on across the globe. We wanted to share some of those learnings and conversations with you all.
(01:09):
Today's discussion was an engaging panel on an important topic many of us in inclusive FinTech are thinking more about, how financial solutions can help combat and mitigate climate risk for the most vulnerable, particularly smallholder farmers. Thank you to my colleague Mayada El-Zoghbi, managing director of the Center for Financial Inclusion for moderating this panel. She was joined by a fantastic group. So thanks to Nick Hughes of 4R Digital, Ricardo Salinas of the US International Development Finance Corporation, Yoga Anindito of Semaai, and Maurice Scheepens of FMO. I hope you enjoy this conversation.
Mayada El-Zoghbi (01:51):
Wonderful to have you guys join today's session. So as you can see, this session is called Agricultural Finance as a Tool to Combat and Mitigate Climate Risks. So we have a phenomenal panel, which I'll have them introduce themselves in just a minute, but I don't think I need to make the case for why this matters for why climate risks matter for smallholder farmers, for agriculture in general. But I think we all know that climate change affects low-income people much more so than it affects those who created the problem we're facing.
(02:28):
One data point that I just wanted to share is that the poorest 50% of people produce only 1% of global emissions, but obviously, are much, much more at risk for how climate change affects them. And why agriculture matters more to everybody is, of course, it affects the food supply. So we care about the agricultural system adapting and evolving to enable kind of the world to eat in the future. So we need farmers to adapt to the new realities of this world.
(02:58):
So today, we have two FinTechs who are very much getting involved in this topic in different ways, and then we have two investors who have a portfolio of investing companies involved in agriculture and trying to address climate impacts. I'm going to let them each introduce themselves. Why don't we start to my left with Nick Hughes who is a FinTech founder?
Nick Hughes (03:21):
Yep. Great. Hello, good morning. Yeah, you won't have heard of company, 4R Digital, we're a new company, but my background is digital finance M-PESA and M-KOPA. So we're doing some work with some support from FCDO and FSD Africa to look at how we can use digital tools and digital payments especially to get finance from carbon credit sales all the way down to smallholder farmers and other clean projects on the ground. Now, at the moment, those of you who are familiar with the carbon market, it's a lovely economic idea but it doesn't actually work. It's broken.
(03:53):
I speak from experience. We took M-KOPA, my previous business, through the gold standard verification. We sold our credits to Microsoft. It took us two years, cost us about $180,000. I mean, that's crazy. We only did it because M-KOPA was quite big. And it just opened my eyes to, "There's got to be a better way to allow smaller projects in to that climate finance market and get most of the money from carbon credit sales down to the small holders."
(04:19):
At the moment, somewhere between 40 and 60% of sales, proceeds from sales, go out to middlemen and auditors and standards. I can see some nodding heads. I think some of you may have experienced trying to go through these verification routes at the moment. It's just broken and it's a sort of an old-world model. We think we can use remote monitoring digital activity on the ground, we can couple it up with micropayments. So I genuinely know that farmer's planted a hundred trees, I can monitor the growth of those trees, I can trigger small payments to reward that farmer for taking climate-positive action, i.e., locking up carbon in trees.
(04:53):
So I'm here for the day if someone wants to come have a look at this platform, I'm very happy to share it. But we're quite excited that we're addressing a massive need in the marketplace.
Mayada El-Zoghbi (05:04):
Thank you, Nick. We'll have a lot more engagement on the platform and other topics. I'll go to my right.
Ricardo Salinas (05:10):
Ricardo Salinas. I'm an investment officer with the International Development Finance Corporation, the DFC. We are the US government's development finance institution, and our mandate really is to partner with the private sector and catalyzing investment, moving capital towards solutions to some of the more intractable problems in the developing world. I also have a role as a portfolio manager for the Portfolio for Impact and Innovation, which is our window for engaging growth stage, high-impact, highly-scalable opportunities. Some of those companies from our portfolio are represented here.
(05:46):
And I think just from the lens of how DFC looks at the topic of the panel today, there's several intersecting themes. The first, I think food security is a major theme for DFC. To that point, we've committed to mobilizing a billion dollars of capital over the next five years as part of our roadmap to impact. We also have our 2X Challenge initiative, which is on gender equity, and shorthand, I think a lot of folks here are aware of the disproportionate impacts on women in climate impacts and where they exist in vulnerable populations and what those impacts can look like. And then lastly, on the climate finance front. So climate finance is of paramount importance to DFC and the US government. We're part of a whole-government initiative to try to funnel more capital to climate finance solutions. And to that end, starting this year, DFC is mandated to commit one out of every three transactions to climate finance.
(06:44):
But what we still recognize is there's a gap between climate mitigation and climate adaptation. And there's many statistics, I'm sure folks are familiar, but one all cite from the recent Convergence Blended Finance Report is that only 7% of capital in climate finance went to climate adaptation, and of that, 2% was from the private sector. So there's a significant gap there. But on that front, we're still very excited to try to rise to that challenge upcoming as COP 27. And in the coming weeks, stay tuned potentially for more opportunities for DFC to try to address climate adaptation and working with the private sector.
Mayada El-Zoghbi (07:23):
Fabulous. Next, Maurice.
Maurice Scheepens (07:25):
It's a pleasure to be on this panel. My name's Maurice. I work for FMO at Dutch Development Bank. I started off my career in inclusive finance space, a space that many of you are familiar with, microfinance, small business banks. And over time, I gravitated more and more towards rural areas and finding out that urban areas is already a challenge but relatively easy to address if you compare it to rural areas, which faces far more challenges. Over time, I've been active in supporting large-scale agricultural transactions that did more and more deals on the farmer financing side, looking for solutions to help smallholder farmers.
(07:56):
Basically, traveling the world, I noted that a lot of these pilots, often were pilots, not often really projects themselves yet, were very impactful from a social point of view. But the financial side was always a challenge. Too costly, difficult to run, high OpEx, difficult to work and make it actually a commercial-viable business proposition. And then technology came about. Technology really allows us to come up with solutions that are helping to reduce these costs, expand our reach in these rural areas. And I'm not talking about high tech but I'm talking more about tech-enabled type of models.
(08:29):
We learned that these tech-enabled models often came from small companies, young companies, entrepreneurs with aspiring ideas, but still loss making, early days, unproven business cases. So we set up the Ventures Program as FMO, and the Ventures Program allows us to make investments directly in early-stage companies across FinTech of grid energy and agritech. Now obviously, the world is not as black and white as FinTech here and agritech there. There's always an intersection between these places. So we like to look at embedded finance, basically. What kind of solutions can we come up with for farmers that include finance, that includes other kinds of services like knowledge transfer or maybe inputs and seeds, what have you?
(09:07):
What is also important, and of course, it's the topic of today's panel, is about climate change. As you mentioned earlier, most vulnerable people are ones in emerging markets in rural areas. So how can we help them with solutions that are both climate mitigation but also climate adaptation? The solutions that I look at, embedded finance, a wide range of services while taking into account climate changes, that's at the forefront of our activities and very much something I would like to allude on later during this panel.
Mayada El-Zoghbi (09:34):
Perfect. I think next we have Yoga, who has a FinTech in Indonesia.
Yoga Anindito (09:39):
Thanks for having me here. My name is Yoga Anindito. I work on a company called Samaai. We started out as a B2B platform for agri inputs, as in seeds, fertilizer, pesticides and everything. We aim to digitize the whole supply chain in Indonesia because, as probably some of you already know, Indonesia is a big agricultural market. The agriculture sector is there $100 billion worth, so it's a huge market. But then again, because there's just so many people and so traditional, the market is very segmented.
(10:18):
Fertilizer prices, for example, on a farmer level is very high. This is due to so many middlemen in between. Why do you have so many middlemen? It's because there's been no technology to tackle that. You can't do business traditionally with for example, 1,000 customers, whereas us, and we started in August last year and up until now, we can serve up to 5,000 MSMEs in just one province. So we've been able to prove that we can cut the prices on the farmer level and then help the farmers get more cheaper materials for their farms.
(11:00):
And then also, later on, we are also looking to go toward getting more buy-in from farmers directly, so that we can market access to the farmers that we are going. And then also, we aim to give some sort of financing options to farmers and MSMEs because we work with MSMEs, not farmers directly, because it's just too much dealing with farmers, it's a logistics, nightmare. But we are working with MSMEs and then help the MSMEs to help the farmers, so this is our approach. Also embedded financing, as Maurice mentioned, I think it's the way it is to go in this current market and it has proven to be very effective and farmers like it.
Mayada El-Zoghbi (11:44):
Thank you. I should introduce myself and I forgot to do that. So my name is Mayada El-Zoghbi, and I'm the managing director of the Center for Financial Inclusion, which is the think tank arm of Accion. So we wanted to ask you guys a question. How confident are you that FinTechs can help address the pain points of small holders or we can broaden it out to farmers in general, caused by climate change? Would love to get you a reaction. Should we start with you, Nick?
Nick Hughes (12:11):
Yeah, sure. I'm an optimist. I think if you look at the tools we've now got to... Well, there are three things in my mind that let me step into building the carbon value exchange platform we're working on. First of all, we know how to monitor things remotely at very low cost. We've got satellite imagery, we've got machines-to-machine technology, we've got IoT, internet of things, all sorts of proprietary networks. So if somebody does something on the ground virtually anywhere in the world, we can observe it and monitor it and capture the data. That's the first step. I can see something happening on the ground remotely and at quite low cost.
(12:45):
Secondly, we've got digital payments. Of course, we've all spent the last 15, 20 years building this. I know how move $10 down to an M-PESA account, put 10,000 shillings in an account and I can do that at very low cost. So I've got remote monitoring ability, I've got the ability to move small amounts of money around. And then in the last couple of years, we've seen this carbon market mature. Many, many organizations are now setting net zero commitments. Those net zero commitments are out there at 2035, 2040 following the whole IPC. We're actually at COP 27 next week. We're starting to see the rules for these carbon markets firm up.
(13:20):
Now, you put all of that together, and I think we've got an opportunity to find a much more equitable way to get buyers of carbon credits, the big corporations in the world, but just also the medium-sized businesses, we can take their money because they're committing money into the voluntary markets to hit their net zero targets, we can get that money down to clean projects on the ground in sub-Saharan Africa and in Asia, the global south, generally, and we know how to do that. So we've got all the bits of the jigsaw.
(13:49):
So I am an optimist. Of course, other things get in the way, politics, humans, all this sort of stuff. But look, I am an optimist and I think we've got some really exciting opportunities in front of us, but we've got to step in. We have to make these things happen.
Mayada El-Zoghbi (14:04):
Anybody else want to comment maybe less enthusiastic about this?
Maurice Scheepens (14:08):
I'm enthusiastic but I just don't put on the devil's advocate hat here. I think it's extremely important that it's the right way of financing. If it is going to be financing for farmers and they just do the way things have been doing for centuries, it's not going to work. We have to face the realities, climate is changing and we have to be mindful of climate changes and the development of new challenges that are to be confronted with these farmers. So the finance that is going to be made available should result in climate resilience, making resilient farmers. If that's not the case, we shall not do it. So just try to be a bit more nuanced here-
Mayada El-Zoghbi (14:43):
You're already shifting to the idea of results, so achieving results. And that was actually my next question and I was going to start with the FinTechs. And Yoga, I'm going to start with you next, which is you've been operating now for I think over a year, and I'd love to hear more about what you're seeing on the ground in terms of results with the farmers and anything else you want to highlight about your model.
Yoga Anindito (15:05):
So basically, I'm going to start with something very simple. So farmers, smallholder farmers, they don't have money. They don't have money to think about what they eat next month, their buffer is only probably maximum a week. So that's how bad it is, because I used to be a farmer myself, not that kind of poor farmer, but even as a middle-income farmer, so to say, I don't have that much money. Yeah, I guess by getting cheaper stuff and then flexibility of payment. We're not even offering pay later or a BNP or whatever it is, credit to farmers yet.
(15:43):
But just by offering farmers slightly point-something percent cheaper stuff, they will like it. I mean, for them, it's a blessing. Well, not to mention if you can give them something more, like a pay later or anything, I mean, definitely. If you want farmers to think about sustainability, the environment, trying to get them to use more organ organic stuff, try to get them to use better GAP, good agricultural practice and everything, definitely, we need to support them with some kind of a financial flexibility. I guess it is also very important to give-
Mayada El-Zoghbi (16:22):
Do you offer specific incentives to get that kind of behavior change? Do you offer specific incentives to the businesses and then in turn the farmers?
Yoga Anindito (16:31):
No, I have not really.
Mayada El-Zoghbi (16:32):
Not yet.
Yoga Anindito (16:32):
I have not really, but well, demands are there. They're looking for it. But just by giving them exactly timely surface, just you can show empathy or whatever, but you can just give them better pricing and then faster delivery to their surface. It's a lot for these farmers because-
Mayada El-Zoghbi (16:53):
So you're starting off with really information as the key kind of-
Yoga Anindito (16:56):
Exactly, exactly. To get to the financing part.
Mayada El-Zoghbi (17:00):
And Nick, I think you're hoping to actually give them money in their hands. Can you talk a little bit more about that? I know you are not yet at the kind of we're in implementation stage.
Nick Hughes (17:08):
Yeah, that's right. We're in pilot phase now. When we think back again to net zero goals 2035, 2040, that's a goal which is far enough away for us to start planning quite sophisticated financial products. So if I'm a smallholder farm and I plant a hundred trees, we're going to try monetize future value of that carbon lockup over 15 years. So you've got a timeline on the buy side of that platform, 15 years, which is good. They can make a commitment now at a certain price today, sort of hedge their risk, so they're not scrambling around buying credits in 2030 when the carbon price might be much higher. All the pundits are saying it's going to be much higher.
(17:53):
But we can think smartly about how we package that delivery down to the smallholder farmer who's got to protect those trees, we've got to make sure that the above ground biomass is locking up, but we can front load some cash. I think we can also think about giving them credit for agri inputs to their farm, maybe it comes in a form of fertilizers or seeds or even training. And that can all be part of the deal. We've seen this happening in other use cases. We know how to structure good financial products for farmers, let's do it on a 15-year timeframe. And again, I'm sort of massively over oversimplifying what is a very complex situation, but I think we can do it. I think-
Mayada El-Zoghbi (18:32):
Can you talk specifics? Which markets are you looking at? And do you already have companies that are making commitments?
Nick Hughes (18:39):
Yeah. So look, I'm a big believer in the power of demonstration. If we thought too hard about M-PESA before we launched it, I would've never done it, because you just have to get out with something. And some of you know the history of M-PESA. We actually built the wrong thing. We built a loan repayment system, looked at people using it, and so actually it's P2P. "Let's turn all of that complexity off and launch it, send money home," this was the start. So we have to do the same thing here.
(19:04):
We have to step in, build a demonstration version and then we'll learn how to do this better over time and we can layer in more sophistication as we get into it. But we're right at the MVP stage, so we're working with a energy company in the UK called Octopus Energy. We're working with four or five projects on the ground in Africa and we're just building the demo version now. We're demoing, we're actually, we're taking it to COP 27 to show people there.
Mayada El-Zoghbi (19:29):
And expected launch date?
Nick Hughes (19:31):
Well, we're going to go into a live money real data in Q1, and then we'll probably try and get live within six months.
Mayada El-Zoghbi (19:39):
Fabulous. So our two investors, maybe we start with you. Tell us a little bit more about the kinds of investments you're making, the kinds of results you're seeing, and anything else you'd like to share about your portfolio.
Ricardo Salinas (19:52):
To sort of freestyle on the question a bit and getting back to outcomes, I think that's a very important framing for us in the way that we look at solutions in this space and in general across our portfolio for impact. When there is a financial service involved, recognizing that financial services are conduits for some sort of other financial activity and what commercial activity is being enabled by that, is that valuable to the end user and is there more value being created from that individual or that individual then to the financial service provider itself?
(20:21):
And I think sometimes that gets lost in the discussion and having sort of a customer-centric credit to the work of many folks with... One I'm a fan of that's present is 60 Decibels, and really amplifying customer voice. So we definitely look at opportunities through that lens and then also through the lens of how are these companies adapting to some really complex market structures, issues that we're constantly battling against that are more structural in nature, and the fact that smallholder farmers are small, that they're very diffused, they're all really distributed, so scalability is a big question.
(20:57):
And I think two examples of both of those, there were two great examples on the last panel with Pula and Apollo that I think integrated that. But from the DFC portfolio, we funded a blended finance vehicle, the Ensure Resilience Fund managed by Blue Orchard. We're using debt and equity to try to provide climate insurance in the value chain, working with partners, microfinance institutions, the Apollos of the world, as well, in trying to provide climate insurance sort of packaged into the customer journey.
(21:25):
The other example would be DeHaat, which I think is very similar to the work that you're doing. They're looking at an end-to-end solution for small holder farmers providing access to high-quality agriculture inputs, which I think also involves a climate lens. They are also private providing advice and they are expanding to other categories as well with financing and insurance in India. So those are I think two illustrative examples of how we've brought that to the fore, and there's definitely others, but I'll leave it at that.
Mayada El-Zoghbi (21:57):
That's great. And then Maurice, you started talking about how a lot of the ag programs that you saw were not sustainable. Maybe you could build on what you started and say what you're doing now. What are the kinds of results you're seeing both in terms of the kind of results and reach to farmers? And then also in terms of the financial side, be curious whether you're seeing some improved outcomes from a business model side?
Maurice Scheepens (22:22):
Yeah, perfect. Maybe to provide some context first, agritech is a relatively new space in the larger venture space. Decade ago, maybe less than three billion was invested globally, that's increased substantially, but still less than 50 billion. Globally, in the venture space, that's a niche market. If you then look into this money being invested mostly in the European Union, it's in the US, and it's mostly downstream. So folks on consumers, nothing to do with farmers, nothing do with climate. So what we do as FMO, we try to look at the upstream side, more farmer centric,
(22:54):
And looking at solutions obviously in emerging markets. I think one of the great examples of a company indeed is actually DeHaat, would like to build on this example, because it's a digital marketplace. So what are the key challenges most farmers face? It's access to input, it's access to knowledge, it's linkages to markets, and it's about finance, access to finance. And having a digital marketplace out there, and they reach about 1.3 million farmers in India, talking about numbers. Northern India started off in Bihar, which is one of the poorest states within the larger India, let's say subcontinent, if you may call it like that.
(23:27):
And they are offering all kinds of services that are really nicely fitting in our climate agenda. It's about advice. What kind of crops should you cultivate given the local context, given your soil, given the climate changes that you will be facing? It's also about access to the right quality of inputs. You can talk about seeds and all kinds of other biostimulants and fertilizers, but you need to have access to good quality. That's what they offer. And then you need to also provide them with the new markets, because if you, as a small farmer, little purchasing power, are going to be investing in your lands, you need to be certain that you can actually sell it for a premium, because otherwise, it's going to be a poverty trap for the farmer. You extend loans but they will not be benefiting from it. So very important to also look at the market side.
(24:11):
So on the finance side, this is a new pilot. As FMO, we support DeHaat in a pilot in establishing a loan program. So about 500 farmers received a loan up to $180 per farmer. And when we talk about smallholders, say between two and five acres, and we've just got the outcome. And that's been quite interesting because the outcome shows that firstly, farmers, of course, they increase their purchasing power, that means they get more access to inputs. It's not just fertilizer they buy. With the advice of DeHaat, they just not look at MPKs, which is the macronutrients, but they also to get micronutrients specific for their plot, what is needed to grow better quality and with a higher-yield type of crops.
(24:52):
We also saw that there was a difference in the crop mix. So instead of just buying maize or wheat, which is a more cheaper, say, seeds, we started to invest in potatoes, which is a higher-value crop, very exciting to see. And then lastly, the price utilization, because of better quality food, higher yields, and higher margin crops, they were able to almost double their income in a single season. And those are results we believe are very amazing. And it builds to climate adaption because you get seeds that are adapted to the new environment, maybe with a certain coating so that you can have drought-resistant seeds, for example. We have biostimulants that really look at specific threats here, from pests, for example. But it's also mitigation because it's training in regenerative agriculture, for example, how to use the environment more to your benefit as a farmer, living in harmony with the environment.
(25:42):
So I think those are examples of an intervention with a partner like DeHaat that shows really promising results. And we have similar clients, we have Farmerline in West Africa, they work with like 75,000 farmers. Vehicles, another partner of FMO, over 100,000 farmers in the southern part of India, training them with pilot farms, about applying all kinds of regenerative agricultural practices. It's really not difficult, but it is new to a lot of farmers because they're basically doing what their father did, what their parents did and their grandparents. It's showing new techniques and really help them improve their resilience overall.
(26:19):
And lastly, I would just say just on the equipment side, it's not just advice and input, but a lot of farmers in Africa, for example, are still cultivating on the rain-fed approach. It's very difficult, and particularly with the new erratic rain patterns, you're vulnerable. So if we can help them with for example solar power water pumps that are then linked to a drip irrigation system, you can really increase their income and build resilience. You cannot pay that, because as you mentioned earlier, farmers are not rich, so a $1,000 unit is too expensive. So if you don't come up with a pay-as-you-go structure, for example, and you have to be paid in let's say 24, 36 months, then suddenly it becomes accessible to these farmers. So these are the types of innovations that we like to support.
Mayada El-Zoghbi (27:02):
No, that's wonderful. Ricardo, did you want to jump in?
Ricardo Salinas (27:03):
Yeah, no, the only thing that I would just add to just accentuate is, and I think going back to the example from the panel discussed before, is that all of these solutions focused on the outcome of driving income, improve livelihoods, and how we actually sort of get to measure that. So it's not just the design and the intricacy, and the full stack of services and pulling all these things together, which is incredibly complex. It's actually seeing, is that, in the end increasing farmer's income and increasing their resilience. It comes back to the customer voice. Do they perceive that value? Are they recognizing that or are there other ways to tweak as we go? So sometimes it's a question of innovating and introducing new solutions versus the actual low-hanging fruit. What's going to make the most difference in the smallholder farmer's perspective?
Mayada El-Zoghbi (27:51):
So just a follow-up to both of you. So you're finding interesting innovations, you're seeing real results. Why not scale? Is there enough pipeline of these kinds of innovations? Can you talk a little bit more about that?
Maurice Scheepens (28:04):
I think our CEO, Michael Jongeneel, earlier mentioned the market creation strategy of FMO, because we do see there are interesting solutions out there, but we still believe that the number of bankable projects is relatively limited. So we try to support in multiple ways. And with our agritech strategy, for example, we have teamed up with Endeavor. Endeavor as an accelerator that's operating across the world. And together with Endeavor, we set up a program to accelerate specifically companies in Africa that are focusing on agritech, helping them in a 12-month period improve simple things, that's fine, in very important things, HR, marketing, pitching, valuation. So those are programs that we support as FMO and that will hopefully help drive the creation of new bankable projects and help them scale as well.
Ricardo Salinas (28:49):
Yeah, I mean, going back to the question about optimism, I'm definitely in the category of optimist, but I also would just want to address the elephant in the room, that there's a massive shift in the global market in terms of liquidity in the cost of capital, liquidity dropping significantly, cost of capital going up. So while I have a lot of faith in these solutions, there aren't a ton of bankable scalable projects available, we're still kind of early innings. But we're sort of in a tough environment now where, I don't know if it's necessarily hit us all yet, maybe it has, maybe people aren't talking about it, but there's definitely an increased role for more blended finance, a higher risk appetite, longer-term patient capital from actors like FMO, DFC.
(29:35):
And I think we're making all of the work that FMO's doing in terms of creating innovations, the FMO ventures, all the support that you're providing these entities. On the DFC side, looking at this climate mandate, introducing programs like the Portfolio for Impact, and really scaling that in recent years. But we need to find other ways to really rise to the challenge because the size of the challenge is so significant and yet the private sector has not yet caught up, and so it's going to be much more difficult in the coming time.
Mayada El-Zoghbi (30:02):
Yeah, I'm just wondering, Yoga and Nick, you guys have solutions. What support are you getting? Are you getting the right kind of support? And in terms of the capital that you need, are you finding that, and what are the challenges you're experiencing? A new question that I just added. Yoga, you want to...
Yoga Anindito (30:23):
We've been to a lot of talks with the investors. I mean, you're right, everybody's looking into this embedded finance thing. And then also, what we need to also understand is that working with farmers, they require a lot of hand holding. So what we do basically is to, we digitize the agents. Maybe if you were in the previous session with Pula, for example, they're digitizing the agents. We also do that and that's proven to be very, very effective. So it's just in agri, it all takes time. What I'm trying to say is that it takes time, but it's possible because we know that in Indonesia also, a friend of mine is a CEO of a fishery startup, started out in like 2013 or 2014 and hasn't been able to... Weren't able to raise fund for what, five years, six years?
(31:21):
And then when they did, they scaled up to now a unicorn worth more than $1 billion, and they're profitable. What's their approach? It's one farmer at a time. One farmer at a time. What are they digitizing? They're digitizing the agents, they're digitizing how the aggregators... Here's the key, you have to have the aggregators. The aggregators have to be digitized and streamlined so that they work more efficiently. I think, in a way, they work exactly like DeHaat, albeit in a slightly different sector, but so, selling inputs and then off-taking from the fish farmers and then giving advisories and all, so closed loop. But the key is in the digitizing the agents.
Nick Hughes (32:08):
Just to add a little, it's always that, the hard bit is the first couple of years to get out the door and we've been fortunate enough to get a little bit of funding from FCDO to prove this platform could work, but the scale will come... The carbon markets are unusual in that we've got corporations around the world setting these goals and they've got money to spend. We've got lots and lots of organizations on the ground already in touch with the smallholder farmers or selling clean cook stoves or putting pay-as-you-go irrigation in. We can couple with organizations that have already got presence on the ground.
(32:40):
So we're really just building the bit in the middle. We're joining up those corporations with those clean projects on the ground. But you still, somebody's got to be brave enough to step in and build that and show that we can do it a different way. And we've got seed funding now, but I do worry what'll happen, and I've seen this many times, is as we were trying to get M-KOPA off the ground, you sort of go in and people say to you, "Well, what are you? Are you a tech business? Are you an energy business? Are you a digital player?"
(33:07):
And unless you've got a really nice answer for them, you tend to see them go, "Oh, now you're not in my mandate. My mandate is digital technology." And if you're saying, "Well look, I'm using digital technology to solve a massive problem." I think we're getting better at it globally, the royal we, but I still think we've got to try and think more broadly about how technology can deliver end results, and I think there are some great examples here, and then be brave enough to get out there and not be frightened of failure as well. Because often, I think some of the impact world, they're more cautious of failure than the sort of hardcore VCs.
Mayada El-Zoghbi (33:47):
I'm hearing a little bit of a call to action for the investors to also kind of understand this business. And obviously, you guys have been doing it for a while, maybe you are the exception, not the rule. So FinTechs are well positioned to track the effects of their investments on small holders, climate mitigation, resilience and adaptation results. Do you agree with this? What do you think? And shall we start with you, Yoga, because you're kind of, say, the closest to the farmers?
Yoga Anindito (34:18):
I believe that we need an aggregator, as you said before, someone who's actually giving the embedded financing or something like that, directly dealing with the farmers. As I mentioned before, farmers don't have money to think of all of these things. So I don't know, maybe some carbon economy and all, but this is all too complicated for the farmers, at least. So you need someone in the middle who's smart enough to think about carbon capture or anything like that. Yeah.
(34:47):
But in terms of financing, this is where the FinTech play should come in because, I mean, I just want to share a little bit of my story because I usually go, travel to the field to meet my field guys in central Java. And then as you fly over with the plane from central Java to Jakarta, and you see a lot of, especially during the dry season where post-harvest everybody's burning the leftover of the rice, you can't do anything about it. Right?
(35:18):
I mean, well, some agri expert would just say, "Why don't you make a fertilizer out of it, ferment it or anything?" But the logistics of doing that, it's a lot. So this is where the FinTech play, or maybe people like us or anyone else, should come in. Maybe if you want to tackle climate change, then we should collaborate with the NGOs or the other FinTech companies and then let's do, let's reduce this. This is a real problem. If you fly over the plain, it's all smoke coming from the paddy fields. This is concerning for me. So that's my thing, at least.
Mayada El-Zoghbi (35:59):
That's great. And then Nick, I think your model, you actually can get the kind of data-
Nick Hughes (36:04):
Yeah. But again, I'm at risk of oversimplifying, but it is possible now to monitor things remotely. It's a really good point about complexity. Cost is sort of trending down on connectivity. Elon Musk has his way with his low orbit satellites, so the networks are there, they're getting cheaper, they're getting better quality. But we have to be careful about the complexity thing because that that's a really good point. And so, I do get a bit frustrated in the climate space and the carbon markets where people are starting to introduce, "Oh, we're going to put it all on the chain, we're going to tokenize it, we're going to create a little crypto." That's nonsense.
(36:40):
I mean, it's already a hard place. Why are we trying to build unnecessary digital technology that nobody can really give you a very good answer why you need to tokenize something on a fully distributed chain? Sorry for any blockchain enthusiasts in the room. Of course, you need good digital engineering, you need good ledgers, you need to find a very simple way of collecting that data in. But we can do that and we don't need to use anything other than digital fee or currencies. We don't need to create new currencies. So I think there's risk of it.
(37:10):
We all get excited about technology and we're going to pile into this super complex stuff. But I think that's a really good point. Keep it simple, do what we can remotely without too much human interaction. But you're still always going to need people on the ground going out, educating, gathering some good, old-fashioned analog data, for sure. I don't see the end of that quickly, but I think there's a blend. There's something we can use the tech but still use the presence of people on the ground, agents or trainers, or-
Mayada El-Zoghbi (37:39):
That's great. That's great. So Maurice, in the example that you gave and the actual results that you captured, how did you capture that? Did the FinTech report on that data or did you guys support them? Could you talk a little bit more?
Maurice Scheepens (37:51):
Well, that's a good question, actually. We also used the service of TechnoServe to help them actually with the establishment of the pilot, looking at different structures of the loan. You want to make sure that the loan repayment cycle is actually in alignment with the type of crops that they are cultivating. So we use a third party. Of course, over time, we need to come up with solution that are integrated in the company's own MIS systems. But I really want to underline the fact that it's very complicated to track farmers.
(38:18):
It's not just simply registration of farmer one, it's about where is his plot, the exact size of the plot, what is he doing, what kind of inputs are they using? So that's far more, let's say, complex than people might tend to think. Then, to your point, actually, what are you registering? Is it just yields and maybe market price or are you also looking at what kind of farmland is on a sustainable land management? Are you looking at water saved? Are you looking at food wastage or food losses prevented? Are you looking at avoided GHGs? And if you start going into these questions, it becomes quite easily rather complex.
Ricardo Salinas (38:56):
I mean, there's been so many great points on this, and the only thing I would say, again, just from what we talked about before, is a lot of this is outputs and we also still have to focus on outcomes. And I think that looking at the customer perspective is a key portion of that. So we very highly value that perspective as well. Are the farmers feeling the resilience improvement? Are they feeling benefits from this? And I think that's actually also a proxy for what's commercially scalable and sustainable. Because if they don't value it, then you're kind of swimming upstream the entire way, but just to sort of tack that on as well.
Mayada El-Zoghbi (39:29):
No, that's great. So you've kind of moved into, we're going to close out the session now, and I just wanted one kind of comment or ask that you have to any stakeholder. And I think you've already started with the government taking more of a lead in some of this, but I don't know if you have another ask that you want to share, and then we'll just go down the line and each one of you just a closing comment about what it is that you want others to know or want others to do.
Yoga Anindito (39:55):
Well, I just stated that the government plays a very important role in this. So for now, in Indonesia, if you ask about data transparency, the government doesn't even have data. So we have more data than the government, I mean, to be blatant. But they have the power to give subsidies and then make government programs or anything like that. So I think my ask would be for the investors here, or government agencies and everyone, we need to collaborate in a systematic manner with the startups, with the FinTechs, with the agritechs, with everyone. And we need to look into what the government has to say about this. And then, do we make a solution that makes everyone happy? Not just the startups, not just the FinTechs, not just the investors, but also the government and the farmers. Don't forget the farmers here.
Maurice Scheepens (40:49):
I think on the one hand, we have very smart people that come up with new ideas. We have people that are willing to invest in these companies. But a crucial point that's often missing is, in particular with digital marketplaces, is working capital. So early-stage companies facing it very difficult or having it very difficult to get access to local currency often, working capital so that they can actually procure the inputs that they want to push on through to the farmers. I think if someone can come up with a good solution for affordable local currency working capital facilities for these marketplaces, for example, or these other agritech-type of innovations, then that would be a game-changer.
Mayada El-Zoghbi (41:27):
Ricardo.
Ricardo Salinas (41:28):
That was a great answer. I'm just going to tweak my answer a little bit. Yeah, maybe something just to reemphasize again, I think that having the lodestar really be on customer voice and what's actually happening at the unit level is really key because I think a lot of the other questions kind of fall apart if that relationship isn't established. So having more third-party evaluators, more value in the industry on customer voice as not just the basis for measuring the impact, but also for the commercial case, for the case for scalability, for making the opportunities more investible to a greater range of stakeholders is really important. So I'll just reemphasize that.
Mayada El-Zoghbi (42:08):
Fabulous, Nick?
Nick Hughes (42:09):
Yeah, I think it's a really good challenge on the need for collaboration. Just as a general point, look at how the world's responded when COVID appeared and the vaccinations were... We shortened the development time for vaccinations from decades literally to months. So we can do these things. There's more and more evidence that we don't have a lot. The rate at which climate change is happening is quite scary to most scientists out there in the world.
(42:33):
So I think we can do it if we collaborate and we get the right brains around the table. You've got government support, but you need private sector in there as well. You need the bigger players in the private sector to come in and you need people on the ground do doing stuff at the sharp end. I'll just come back to my one point, and for me, it's about the power of demonstration. I like this idea. Let's find one area, let's find one region and really go at it and prove that we can introduce these new models and these new services, blended finance into the actual value chains. And so, if we can show it somewhere, then I think we'll get some more momentum behind it.
Mayada El-Zoghbi (43:08):
So fabulous. I hope you guys are even more convinced than you were before you came that there are real solutions, but there are challenges, and that I think what we've seen here is what investors can do towards that. We recognize though that investors are not enough in this ecosystem and will need donors to step in and help set and pay for some of the collaboration required, some of the subsidies. We will also need governments to step in and use their power, the power that they do have. So I think I am leaving optimistic with a little bit more clarity about what we can do to move this agenda forward. Thank you so much for joining, and a big hand for...
Amee Parbhoo (43:51):
Join us next week for the final episode of this season. We share the conversation I had with TS Anil, global CEO of Monzo Bank. TS goes into his personal and professional journey, as well as his perspectives on building FinTech for the future.