Although agriculture is the core of the Nigerian economy —contributing about 26% of the country’s GDP and being the source of livelihood for 66% of the country’s workforce— about 72% of Nigeria’s smallholder farmers live below the poverty line ($2/day), according to a recent GMSA report: AgriTech In Nigeria – Investment Opportunities and Challenges.
The report found that while other sectors in Nigeria are witnessing growth in institutional investments attracted by fast-rising technology startups, Nigeria’s agric sector faces unique funding challenges including “limited availability of local capital, a lack of institutional investors investing in agritech and an inability to attract big-ticket investments.”
“Institutional investors offering higher investment ticket sizes, such as impact investors, development finance institutions (DFIs), venture capital and private equity firms, have so far refrained from investing in agritech. Instead, these investors are largely concentrated in sectors such as energy, fintech and education,” the GSMA said.
“The problem is that agriculture is not attractive enough for people holding the capital [i.e. institutional investors]. The holder of the capital determines what to do with it, and they don’t see agriculture as safe enough for investment,” Michael Ogundare, Co-founder of Crop2Cash, explains in a recent interview with Space in Africa.
Nigerian startup Crop2Cash has set out to solve this challenge by building a technology platform and network to give the banks the confidence to lend to farmers. The startup is addressing informality in the agric sector and digitalising supply chain processes aimed at helping smallholder farmers become credit-worthy and investment-ready.
Founded in 2018 by Michael Ogundare, Emem Essien and Seyi Alabi, the Ibadan-based startup pivoted from its flagship Supply Base product, a supply chain management platform for players within the farm-food value chain, to an all-in-one platform providing financial services to farmers.
“Crop2Cash started up as a supply chain management system, typically digitizing the supply chain for food processors. It was tough for the farmers that supply the processors to get access to credit and financial services. Based on the insight gained from the data of our customers, Crop2Cash started exploiting how to make financial services available to farmers early,” Ogundare said.
Crop2Cash runs an ecosystem of farmers on one end and multistakeholder service providers on the other end, including banks, insurance providers, agro-processors and government. Typically, the startup provides cash-in cash-out services, access to credit and resources to farmers within its network through direct offerings from its partner financial institutions.
“Crop2Cash is not exactly offering the services directly, but collaborates with banks to make the services easily accessible to the farmers,” Ogundare said.
Financial service providers directly interface with farmers and manage their portfolio services leveraging readily-available insight such as farmers’ credit-worthiness and growth potentials.
Ogundare says, although they do not directly charge the farmers, it is the farmers’ success that leads to eventual revenue for the startup.
“If the farmers are doing well and growing sales, that means more people along the value chain will keep coming back to Crop2Cash to support the farmers in expansion,” he adds. When banks lend to farmers, processors would want to buy more from farmers, and Crop2Cash gains, since their technology is powering the whole ecosystem.
The startup generates revenue by charging service providers platform fees and commission on sales of agricultural services on its platform.
Some of the top service providers currently offering services to farmers on the Crop2Cash platform include First City Monument Bank (FCMB), Royal Exchange General Insurance and Traxi Continental.
The startup has plans to onboard more financial institutions and service providers unto their platform. Ogundare believes that judging by their ongoing efforts, a partner bank on their platform would be able to offer loans worth up to one billion naira to framers, starting in 2021.
“If the bank has that confidence, Crop2Cash can enable that for five, ten banks, by the next twelve to eighteen months for the farmers. It will be a fantastic milestone, where farmers do not need to fill out lengthy forms or provide collateral for a billion naira loan,” Ogundare said.
“With the data and analysis crop2cash has, banks can lend up to one billion naira loan to the farmers, and would be able to get their money back; that is the milestone Crop2Cash wants to achieve in the coming months.”
With a small team of software engineers, credit rate managers, extension personnel and field agents, Crop2Cash relies significantly on technology and field enquiry to gather invaluable insights on farmlands and farmers’ credit rating.
Ogundare says the Africa4Future Aerospace Acclerelator has exposed his team to an avalanche of opportunities and the application of remote sensing data in Crop2Cash’s offering.
“How we can easily connect remote sensing satellite data powered by Airbus technology and Up42 to create value additions for our existing product is something that we find very valuable when we got into the accelerator,” he said