Crowdfunding for smallholder-led projects the case of TaniFund
A farmer planting rice in the inundated areas near Keude Blang on Aceh's east coast
TaniFund is a Fintech company that seeks to enable small-scale farmers in Indonesia to tap into alternative sources of financing through digital crowdfunding. Through its online platform, Tanifund allows farmers to raise capital from individuals and entities to finance specific agri-related projects. This represents a critical innovation in a context such as that of Indonesia where access to quality loans for smallholders represents a major bottleneck, due to the scarcity of collateral, the absence of credit history, a bias against agricultural lending on the part of formal financial institutions, and many other factors. As a result, Indonesian smallholders are often forced to borrow from middlemen, with predatory interest rates of up to 200% per annum. Nevertheless, the untapped potential of filling the agricultural credit gap in the country is enormous: 85% of Indonesian farmers are smallholders, with agriculture representing the main source of income for 33 million people – contributing to 13% of the gross domestic product and 33% of employment.
The TaniFund platform allows investors to filter and select the projects they are most interested in, providing essential information for each project such amount of capital required; estimation of returns; and calculations regarding production and harvest costs. Projects must be proposed by group of farmers, not individuals, to ensure that group pressure plays a role in keeping farmers motivated towards advancing the initiative. Some projects might seek capital to market and sell agricultural produce, others might look for funding to establish new plantations from scratch. Once a specific project manages to obtain financing, the funds are provided to farmers on a weekly basis, both in form of cash, as well as in-kind assets (e.g. fertilizers, seeds, farming equipment). TaniFund applies a profit-sharing model to its projects by which investors, farmers and TaniFund share the profits on a 40:40:20 basis. Returns are distributed monthly or annually depending on the project, while the initial capital investment is disbursed when the project ends. TaniFund mitigates investment risk by only allowing farmers on the platform that have a proven trading track record with TaniHub (see below), as well as closely monitoring the advancement of each funded project. The TaniFund team carries out feasibility studies for the proposed business plans, and supports farmers in preparing the prospectus of the investment to upload on the platform.
TaniFund is a sister company to TaniHub, an e-commerce platform founded in 2016 that seeks to link together farmers and buyers (both individual and corporate). The objective of TaniHub is to streamline the distribution channels that link together farmers and buyers (such as restaurants, hotels, supermarket chains, grocery stores), reducing the overall dependency on middlemen and allowing farmers to earn more for their crops. When the harvest of a project financed through TaniFund has been completed, the agricultural produce is distributed and sold through the TaniHub’s platform, which ensures that there are already established market channels to reap a profit from the project (a considerable risk mitigation factor for investors). There is also another associated company called TaniSupply, a logistics platform that operates six warehouses and processing facilities where harvested produce can be washed, sorted and packed rapidly, and then delivered to buyers by TaniHub’s couriers or external logistics companies.
Together, these three companies compose the TaniHub Group, whose mission is to provide integrated solutions that can help Indonesian agriculture move beyond its current supply chain model, characterized by multiple layers of middlemen, low transparency, and considerable mismatches between supply and demand, which generate substantial market inefficiencies. As of 2021, the Group had a network of more than 45 000 farmers and 350 000 buyers (both individuals and corporate). Its gross revenue has grown by more than 600% in 2020, due in part to the increase in demand for home-delivered fresh produce. In 2021, the Group also raised more than USD 65 million in an investment round that saw the participation of various venture capital funds, which showcases the growing awareness on the part of international investors of the still untapped market potential of Indonesian small-scale agriculture.
Source: The World Bank
The digital credit scoring system employed by TaniFund is based on three years of performance, the company’s agricultural value chain expertise, and partnerships with various financial institutions. As explained by Pamitra Wineka, CEO of TaniHub: “More than 100 data points are considered when doing the credit risk assessment. For example, for cultivation financing products, TaniFund tailors each credit scoring based on agriculture risks and market risk of each commodity, on top of the typical borrower E-KYC scoring and process. Beyond credit scoring, having TaniSupply and TaniHub as a standby buyer within the ecosystem also helps to mitigate risk of each loan. TaniFund aims to further boost its credit scoring system with smarter data processing and better machine learning models.”
Between 2017 and 2021 TaniFund helped farmers raise more than USD 22 million in financing, provided by more than 10 000 individual and corporate lenders. Farmers financed through the platform reported increases of over 30% to their average incomes and 30% increases in yields. In 2021, the company obtained a license from the Indonesian Financial Services Authority (OKJ) to act as a certified provider of peer-to-peer (P2P) digital credit. This would make TaniFund the only fintech company in the country, among the 68 which were granted a license by the OKJ, to provide P2P lending specifically to agricultural actors. This passage is expected to further cement the company’s reliability as a financial provider and overall customer trust.