How Crowde creates a cashless network for farmers in Indonesia

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 experienced the stress and difficulty people who grow food go through mainly because of a lack of access to cash. To address that problem, he and Ganis created Crowde, a peer-to-peer lending platform, to channel capital toward farmers in agriculture, aquaculture, and livestock farming.

Photo credit: nguyenkhacqui

“Nine out of 10 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 personal use rather than the development of 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 farming supply stores to deliver assistance in the form of fertilizers, seeds, and animal feeds – but not cash.

Better farm yields brought about a new problem – a good one. The farmers didn’t have buyers to absorb their extra crops, so Crowde connected them with distributors and agents, who transferred payment to Crowde. After settling the farmers’ loans, the rest of the balance is transferred to the farmers’ bank accounts.

With this system, Crowde was able to create a cashless network for farmers in Indonesia, Sugihtono claimed. 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 81 billion rupiah (US$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 US$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.