Agriculture is key to the livelihoods of many Indonesians, especially those who live in rural areas. Despite the sector’s importance, most farmers in Indonesia live under the poverty line. To change that situation and alleviate poverty, farmers need access to new capital.
Yohanes Sugihtono was a horticulture farmer before he and his colleague, Muhammad Risyad Ganis, established Crowde in 2015. Sugihtono felt how stressed and difficult it is for people who grow food, mainly due to the lack of access to cash. To address that problem, Sugihtono and Ganis created Crowde, a peer-to-peer (P2P) lending platform, to channel capital toward farmers in agriculture, aquaculture, and livestock farming.
“Nine out of ten farmers were not receiving appropriate funding. Banks did not service them well [due to credit risks]. Mostly, they get funding from middlemen or loan sharks who charge very high interest,” Sugihtono told KrASIA in a recent interview.
However, there were snags in the process that Crowde had set up. Sugihtono realized that some farmers pooled funds for their private use rather than developing their farming business. “They did not see it as aid, but as an additional source for consumption. Some simply took the money, or exploited it to buy new motorcycles or pay for weddings,” he said.
Therefore, Crowde adjusted its system. The P2P lending firm cooperated with farm supply stores to deliver assistance in the form of fertilizer, seeds, animal feed—but not cash.
Better farm yields brought about a new problem, one that was good to have. The farmers didn’t have buyers to absorb their extra crops. Crowde then connected the farmers with distributors and agents, who transferred payment to Crowde. After settling the farmers’ loans, the rest is transferred of the balance is transferred to the farmers’ bank accounts.
With this system, Sugihtono claimed, Crowde created a cashless network for farmers in Indonesia. It not only functions as a financial platform, but also provides a link between the farmers, suppliers, and buyers, establishing new infrastructure for the farming industry.
“We build the funding system for farmers, and the inventory system through local farm shops. We also frame education channels, so the farmers can become more knowledgeable about the farming industry,” he said.
On its website, Crowde says it has distributed IDR 81 billion (USD 6 million) in loans to more than 17,000 farmers since 2015. More than 31,000 lenders have pitched in on the platform. They are mostly retail lenders, but several institutions are also involved. For instance, the state-owned Bank Mandiri and local lenders subsidize microcredit. The platform has a 97% success rate for repayment within 90 days.
There are two options for farmers to settle their loans. One is a simple repayment with interest. The other is to set up a profit-sharing scheme, meaning the farmers and lenders each get a chunk of revenue from crop sales.
“For farmers who are unbankable, interest repayment is burdensome. They prefer profit-sharing, so whether they suffer losses or not, they share the result with the lenders. However, for farmers who already have a healthy cash flow, they usually prefer paying back interest, so the profit isn’t shared,” said Mirza Adhyatma, vice president of product at Crowde.
Last September, Crowde raised pre-Series A funding worth USD 1 million in an investment round led by Mandiri Capital, the corporate venture capital arm of state-lender PT Bank Mandiri Tbk. Besides investing in Crowde, Mandiri Bank is also one of the institutional lenders on the platform. Moreover, Crowde is also backed by Gree Ventures, which was an early investor that provided seed funding for the startup.
Building trust
As a newcomer in rural communities, Crowde has to earn the local population’s confidence. To do this, the company hires local figures to champion their service when they approach farmers. Sugihtono said Crowde links up with new clients in different ways according to local customs.
“We help people to have a circumcision event, wedding, or hold a dangdut [a type of folk music] performance. We cannot directly introduce ourselves as Crowde, but we get closer with the community until they are comfortable with us. It usually takes two weeks on average to establish trust,” the co-founder explained.
At the moment, Crowde has expanded across all provinces in Indonesia except Papua. However, it is more focused on Java and Sumatra. Sugihtono admitted that one of the big challenges for Crowde and other agritech startups is gaining farmers’ trust, showing farmers that their platform is useful in the long run. Another is the culture gap; Indonesia consists of various cultures, so the company needs to tailor its plans for client outreach in each area.
Looking ahead, Crowde aims to have 100,000 farmers on its platform in 2020. The business remains solely in Indonesia, where there are more than 26 million farmers. With a massive potential client base, Sugihtono expects more lenders to be signing on as well.
This article is part of KrASIA’s “Startup Stories” series, where the writers of KrASIA speak with founders of tech companies in South and Southeast Asia.