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Hot startup of the month: Nigerian farmer financing platform Crop2Cash

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Farmers, especially smallholder farmers, have always had trouble accessing financing, and therefore purchasing resources, as banks are wary of fund mismanagement. Nigerian startup Crop2Cash is addressing this by making formal financing a transparent process while providing much-needed capital to responsible farmers.

Founded in 2018 by Michael Ogundare, Seyi Alabi and Emem Essien, Crop2Cash has built a channel that enables payments both to farmers and by farmers. Banks and other formal lenders are able to sign in to the platform, find groups of vetted farmers that are ready to receive credit for a season, and fund them directly.

Banks can manage the portfolio of loans directly on the platform, and track the usage of the credit, with Crop2Cash having managed lending programs for banks and state governments in Nigeria while closing partnerships with organizations including First City Monument Bank (FCMB), GIZ, Royal Exchange General Insurance, Ignitia, Airbus and Traxi Continental.

Farmers use Crop2Cash to access not only financing but also other necessary agricultural resources.

"Through us, farmers can get access to one-click insurance, mechanization, seeds, chemicals and, most importantly, credit," Ogundare explains.

The startup then makes money by charging banks a platform fee, as well as commission on sales of agricultural services through the platform.

Crop2Cash's co-founder, Michael Ogundare
Crop2Cash's co-founder, Michael Ogundare

In 2019, less than 4% of total bank lending in Nigeria went into agriculture, according to Ogundare.

"Due to fragmented agricultural value chains, lack of monitoring data and payment channels, banks have been shying away from agricultural lending, and with only 7% of over 38 million farmers in Nigeria having access to credit, there's a lot of productivity that can be unlocked if someone can solve this," Ogundare said.

A popular approach to solving this thus far has been crowdfunding, with companies like Farmcrowdy and Thrive Agric active in this space, but Ogundare believes this approach has its limitations.

"There is only so much you can crowdfund if you want to improve agriculture and smallholders' operations. Crowdfunding quickly reaches its limitation when trying to scale and serve thousands of farmers," he explained.

That is exactly what Crop2Cash is trying to do. Thousands of farmers in Northern and South West Nigeria have already created accounts, while the startup has just under 100 active agents serving these farmers, aggregating demand and performing cash-in/cash-out services for them in rural communities.

"Through our banking partners, we have turned the agricultural lending process that takes weeks and cost banks a lot of money into a 24-hour decision," Ogundare said.

"In the past year, we have built a mobile money channel that makes it possible for farmers to pay and get paid from any bank in Nigeria. Farmers can open an account in less than five minutes and can accept payments from their customers that previously had challenges paying them with cash."

Crop2Cash has also launched what Ogundare calls its "super-app" for extension agents – called Gather.

"Extension agents can aggregate the demand for agricultural services such as mechanization, seeds, chemicals and insurance, and they also serve as mobile money agents helping farmers with cash-in/cash-out,” he said.

"This has been particularly useful during the COVID-19 pandemic as it means that our farmers' needs are easily communicated to us and our partners through these agents."

A crucial sector
African agriculture is a big deal and could potentially be even bigger. Smallholder farms in Sub-Saharan Africa number around 33 million, represent 80% of all farms in the region, and contribute up to 90% of food production in some Sub-Saharan African countries.

The continent, meanwhile, is home to 25% of the world's agricultural land. With global food production failing to keep pace with population growth, and the world needing to produce 70% more food by 2050, the value of this land is clear. Yet this 25% is relatively unproductive, producing just 10% of the world's food.

The reason for this is often that farmers face significant agri-specific finance gaps – around US$17 billion in short-term financing and US$19 billion in long-term financing. In Nigeria, Africa's largest economy, 73% of smallholder farmers live below the poverty line.

According to the GSMA, these financing gaps are created at various pain points along the value chain. These include discrepancies between what was collected at the farm gate and what was delivered by a contracted collection agent to the aggregator and middlemen interference, problems which are being fixed by startups across the continent, including Twiga Foods and Virtual City.

There is also a lack of transparency, clarity and communication during the procurement process, and issues around payments, both of which Crop2Cash is addressing. Yet challenges exist for startups in this space as well, who face financing gaps of their own.

A group of Crop2Cash agents
A group of Crop2Cash agents

A recent GSMA report, entitled: AgriTech in Nigeria – Investment opportunities and challenges, looked at the funding opportunities and gaps for agritech companies in the country. Though it found that funding was available at the early stages from a mixture of local and foreign sources, funding beyond the seed phase was harder to source.

"In Nigeria, we found that agritechs faced three types of funding gaps – limited sources of local capital beyond the pre-seed stage; low availability of institutional investors; and an inability to attract big-ticket investments," said the GSMA.

"However, we found local incubators and accelerators had played a pivotal role in enabling startups to receive their first institutional investment."

This is borne out by the data, with the annual African Tech Startups Funding Report released by Disrupt Africa placing agritech as one of the fastest-growing spaces for investment on the continent over the last five years. Investor appetite is increasing, unsurprisingly given the scale of the opportunity, and startups like Crop2Cash based in major markets like Nigeria will be the first to benefit.

To help it continue to grow, Crop2Cash raised a US$100,000 pre-seed funding round last year, and is in the process of raising its seed round. Ogundare believes the investment will continue to flow, given the vital service Crop2Cash is providing, and international expansion is on the agenda.

"We are currently focused on the Nigerian market. The challenge we are solving is experienced all over Africa and that gives us the opportunity to take our learnings from Nigeria to other markets in the future," he said.

— Tom Jackson, co-founder of Disrupt Africa, special to Connecting Africa

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