Smallholder farmers in Kenya are overwhelmingly denied access to traditional financial services, stunting the growth of the country’s agricultural industry. FarmDrive is an innovative startup that connects this unbanked population to new capital flows. So far, FarmDrive has facilitated 400 loans that amount to over $125,000.
There are 50 million smallholder farmers in Kenya, but less than 10 percent of this population has their economic needs fulfilled by traditional lenders. The agricultural sector makes up 32 percent of Africa’s GDP and employs 65 percent of its population, but less than 1 percent of bank lending goes to agriculture. Worldwide, there is an estimated $450 billion agricultural lending gap.
African smallholder farmers face barriers to traditional lending because they are labeled high-risk borrowers by financial institutions. Traditional banks use credit scores and bank statements to determine a loan applicant’s riskiness. However, the average farmer in Africa cultivates fewer than five acres of land and owns no collateral or financial records.
Limited credit availability leaves this population unable to improve their farming practices. Without access to capital, these farmers must forgo yield-increasing technology like fertilizer or irrigation systems.
FarmDrive combats this lack of financial visibility by calculating alternative credit scores for Kenyan smallholder farmers. The startup requires users to input their expenses, revenue and yield via SMS and creates a platform for farmers to record business activity. FarmDrive then uses a complex algorithm to combine individual financial information with additional factors like the climate in the farmer’s region. These outside inputs both verify farmer’s self-reported information and provide context for these records. For example, farmers living within arid zones will likely have smaller crop yields.
By accruing farmer data, FarmDrive eliminates some of the risk for banks. FarmDrive has partnered with African financial firms who accept their alternative credit scores and determine appropriate loans for smallholder farmers. Lending institutions thus consider both the self-reported financial history of farmers as well as exogenous variables that will affect their crop yields.
To gain access to remote farmers, FarmDrive depends on aid organizations, like USAID, and private firms that operate in the agricultural industry. FarmDrive is expanding its data collection through new partnerships with Planet, a satellite company, and The Impact Lab, a data analytics group, to potentially incorporate climate information gathered via satellite imagery into its algorithm.
Though the startup operates solely in Kenya, the founders would ultimately like to serve all 450 million smallholder farmers and 500 financial institutions in Africa. By linking unbanked farmers to needed capital, FarmDrive has the potential to revitalize Africa’s agricultural industry.
– Katherine Parks