A pioneer digital platform in Vietnam dedicated to agricultural financing: the case of Kilimo Finance
Kilimo Finance is one of the first fintech startups in Vietnam that focuses specifically on the agricultural sector. Established in early 2019, Kilimo Finance first launched a digital marketplace (accessible through a mobile app) where Vietnamese farmers can buy farm inputs (e.g. seeds, fertilizers), crop protection, and agricultural equipment from a network of registered suppliers, selecting the products they prefer according to brand, price, and quality.
Aside from the digital marketplace solution, Kilimo Finance also seeks to connect small- and medium-scale agricultural actors to commercial banks through its mobile app, to enable them (and smallholders in particular) to access formal credit from these institutions. The market potential in filling the gap of agricultural financing is enormous in a context such as that of Vietnam, where the agricultural sector contributes for almost 20 percent to the national GDP. The time for innovations such as Kilimo Finance is particularly ripe, when considering that a) 69 percent of Vietnamese adults were unbanked as of 2018; b) 45 percent of the population actively used a smartphone as of 2019, and c) the government has made strong efforts recently to foster the expansion of mobile money services in the country.
Kilimo Finance provides banks with an automatized credit scoring and loan origination software, which can be used by these financial institutions to make informed decisions on farmers’ loan applications made through the app. As explained by the company’s founder, Arnold Tijdens: “Farmers and agro-dealers can be a very interesting target group for banks, provided that banks give them loans that match their cash cycle. A flower farm has a different cycle as a fish farm, and that should be reflected in the tenor of the loan. Farmers can be a very reliable target group if you give them the right loans and the right interest rates”. Various data points related to various aspects of the farmer’s profile (e.g., the farmer’s own inputs, data from suppliers and buyers, data on the farmer’s household, media reports) are leveraged by the credit scoring software to support the commercial bank in assessing the appropriate loan amount for each farmer and the likelihood of reimbursement. According to Kilimo Finance, commercial banks can leverage the software to start providing loans to farmers through the app in less than two weeks’ time.
The app leverages supply chain data provided by the platform, that can be used by banks to design tailored credit products for farmers, as well as assess their potential for reimbursement. In the words of Mr. Tijdens: “Obviously, most farmers don’t have proper financial records the bank can rely on. However, every farmer acts in a so-called value chain, so they are known to large input suppliers as well as large off-takers like coffee exporters. This is an important source of data we use to calculate how much finance farmers need.” This “big data” approach allows to reduce the information asymmetries that keep commercial banks disengaged from the agricultural sector (especially when it comes to lending to small-scale actors), as well as reduce the transaction and operational costs they incur when seeking to develop an agricultural lending portfolio.
In 2019, Kilimo Finance won the first prize in the “early-stage startup” category at the Fintech Challenge organized by the State Bank of Vietnam and the Asian Development Bank. At the start of 2020, the company also won the Innovation Challenge of the Asia Financial Institutions Forum in Bangkok. Currently, the company has plans to expand its services to Indonesia and the Philippines, given the enormous potential for filling the credit gap in small-scale agriculture that these two countries hold.