One of the main problems that Arnold Tijdens noticed in his long career as a banker, is that farmers in many countries have a hard time getting loans. That’s because it’s costly for the banks to reach out to smallholder farmers who live far away and only get paid several times a year, depending on the harvest schedule. They also often don’t have the collateral to reduce their risk.
In Vietnam, smallholder farmers make up a large part of the agricultural sector, which accounts for nearly 20% of the country’s GDP. Many farmers who don’t receive financing from banks will resort to the shadow market.
Originally from the Netherlands, Tijdens has over 18 years of banking experience in Europe, Africa, and Asia. As a banker, he supported commercial banks by developing tailored loan and credit products for the agricultural sector. In November 2018, following a stint as an agriculture finance consultant at Yoma Bank in Myanmar, Tijdens came to Vietnam to found Kilimo Finance.
Matching farmers and banks
“Farmers and agro-dealers can be a very interesting target group for banks, provided that banks give them loans that match their cash cycle,” Tijdens says. “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.”
Last year, his company won the first prize in the early-stage startup category at the State Bank of Vietnam’s Fintech Challenge. More recently, in January, the firm walked out of the Asia Financial Institutions Forum in Bangkok as the champion of the event’s Innovation Challenge.
Kilimo Finance acts as a lending platform that connects farmers to banks through its app. Banks can finance farmers using the automated credit scoring and loan origination software, which can target specific products. Tijdens says that the app analyzes supply chain data that can be used to design custom loan products for farmers and evaluate their potential to pay them off.
“Obviously, most farmers don’t have proper financial records the bank can rely on,” he says. “However, every farmer acts in a so-called value chain, so they are known to large input suppliers as well as large offtakers like coffee exporters. This is an important source of data we use to calculate how much finance farmers need.”
Kilimo claims that within just two weeks, banks can start offering loan products for small and medium agricultural businesses. Through the app, the banks can also disburse the loan directly to farmers.
What helps is that a growing number of farmers in Vietnam are using smartphones. According to the report “The State of Mobile in Rural Vietnam 2018–2019,” which was conducted by Google and the Mobile Marketing Association, 68% of mobile phones in rural Vietnam are smartphones.
The adoption of new digital solutions can initially require a lot of effort from all participants, Tijdens recognizes. “Our idea is to introduce the product through lead farmers first. They can then act as an example for surrounding farmers.”
Going forward, Kilimo plans to team up with large agricultural input suppliers. It has already signed partnerships with the IDH Farmfit Fund and USAID, who will guarantee loans by up to 50%. For now, the firm focuses on supply chain finance for crops and livestock production.
The post-pandemic perspective
The widespread effects of COVID-19 will surely impact Vietnam’s economic growth in 2020, but Tijdens is confident that digital solutions such as those offered by Kilimo Finance will have a role to play in the post-pandemic environment.
“Anybody can develop an app, but not everybody understands what kind of loan products farmers need,” he says. “In the short term, most banks will be busy adapting to the new situation, but soon they will realize that digital solutions like ours will be very useful to target clients in times of social distancing and thereafter.”
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.