Crowdfunding is springboard for bank customers of tomorrow

Crowdfunding has the potential to turn smallholder farmers into the bank customers of tomorrow, helping them grow to the stage at which they are able to tap traditional finance, delegates to the Fin4Ag conference in Nairobi heard Thursday (July 17).

By connecting farmers and small agricultural companies with individual investors across the world, crowdfunding creates a new financing opportunity for the sector.

At frontrunner Kiva, loans can be as small as $25 and carry no interest rate. The platform has so far facilitated the disbursement of 700,000 loans with a combined value of $590 million in over 77 countries, according to David Kitusa, its regional representative for Anglophone Africa.

Individual ivestors are prepared to lend at no interest because instead of financial return, they seek social return, he says.

Crowdfunding “empowers the bottom of the pyramid” by financing individuals and projects that banks and other lenders perceive as high risk, says Kitusa. It helps farmers “prove their concept” while they reinvest for growth to the point where they are able to attract other debt or equity investors.

The model also demonstrates that the sector is less risky than believed. Kiva’s repayment rate ranges from 98% to 99%.

A Kiva loan could, for example, be used to buy a pregnant dairy cow. By the time the loan is due for repayment, the cow is producing milk that the borrower can sell to repay it, Kitusa explains.

CTA also launched this February a crowdfunding pilot through Kiva that has so far provided finance to 60 farmers, according to its ICT4D programme coordinator Ken Lohento.

The initiative lends through community groups and relies on technical support to reduce repayment risk. In each group, for example, five guarantors are appointed to ensure that individuals repay their loans. Five member farmers are also appointed to provide extension services to help the borrower’s project or crop succeed.

“Finance is one of the key elements farmers need to transit from subsistence to commercial,” Lohento says. To this end, CTA also stipulates that all money lent is reinvested in farming and conducts due diligence to check on this.