Agriculture is one of the oldest and most essential industries in the world, generating 20% of global GDP, with half of the population depending on it for earnings and providing the world’s food supplies. It is also one of the fastest-growing sectors in terms of technology adoption rates and investment opportunities in modern assets, both for innovative commodities and equipment.
But despite the sector’s technological advances, many farmers continue to face challenges when it comes to accessing capital, which largely remains a paper-based manual process.
However, a new way of financing, led by fintech companies, is starting to disrupt the agricultural sector by allowing farmers to access more flexible finance options seamlessly, such as giving them access to credit through the buy now, pay later (BNPL) model.
What is BNPL at harvest?
BNPL is helping to swiftly fund upfront operational costs with a payment option aligned to the harvest season, when most farmers generate revenue. The BNPL model is a short-term financing option that allows end-users to make instant purchases and pay for them later in low or interest-free installments.
Applied to the agricultural industry, farmers can purchase much-needed equipment and supplies out of season through BNPL, allowing them to make large purchases without having to pay for them all at once.
A true game-changer, it is an innovative way that is servicing a need in an incredibly competitive global industry, giving farmers an edge as they can access more capital year-round than they would otherwise be able to obtain. This large and essential market should now start to see seamless lending practices.
Why is BNPL in agriculture important?
Agriculture is a $5 trillion global industry that’s growing at a rate of 5 percent per year, according to research by McKinsey. And it’s expected to grow even more rapidly to reach $10 trillion by 2025. According to the United States Department of Agriculture, the US farm sector spends more than $170 billion on equipment, assets and capital needs each year.
To that end, farmers can use BNPL to finance anything from equipment to animal health products, seeds, and fertilizers, among others, to keep operations running, particularly during bad crop years, or to offset black-swan climate events such as droughts and flooding.
It also offers opportunities for farmers who need immediate cash flow during the traditionally slow out-of-season months, when sales are low and costs are high, such as expenses related to land maintenance.
Improved cash and debt management
Additionally, BNPL helps farmers manage their debts better by providing an alternative source of financing outside of traditional bank loans or credit cards; it also allows them to access capital during periods when banks may be reluctant or unable to lend money due to financial constraints, such as during recessions.
And that is where innovative and digital lending, including BNPL, enters the picture, as it recognizes that these types of financing solutions would allow more farmers to buy what they need to quickly solve supply chain blockers.
Innovative lending practices help farmers avoid missing out on critical equipment upgrades that could increase productivity and profitability in their businesses. It also helps them avoid having to wait until tax season or other financial milestones when lenders may be more willing to lend money at higher interest rates, resulting in an increase in costs.
Leading players in BNPL financing
Globally, various fintech firms, captives and specialized lenders are implementing forms of BNPL financing in agriculture. Tarfin is one such fintech, focusing on the agricultural sector by providing loans to farmers in Turkey and Eastern Europe through its online platform. Similar to AgroLend in Brazil and ProducePay in Mexico, its goal is to make it easier for small-scale farmers to access capital needed to grow their businesses by providing them with short-term financing options at relatively low-interest rates.
Emerging economies are poised to boost the growth and popularity of BNPL financing in agriculture, with farmers seeking to improve their agricultural practices with modern equipment.
Thanks to the rise of smartphones and other connected devices, it means that fintechs can reach farmers in more remote areas, as they are increasingly able to use mobile applications as part of their financial management strategy. These apps allow them to monitor weather forecasts, track crop growth rates and prices in real-time from their phones or tablets, as well as apply for microfinance through fintech platforms to fund their businesses.
Future of agricultural finance
Currently, the agriculture finance market is a multibillion-dollar opportunity. But to serve their customers better, all lenders, captives and financing companies will need to increase their digital finance offerings in agricultural finance.
While the microfinancing BNPL concept in agriculture is still in its early stages, farmers are already seeing the positive effects it is having through the implementation of improved cash flow practices, by providing access to capital and bringing transparency and efficiency into an industry that has historically been slow-moving.
There is no doubt that fintechs are changing the face of agricultural finance in ways that haven’t been seen before. This will continue to change for years to come, and all stakeholders in the lending chain, including wholesale financing, need to make sure they are prepared for the digital future that lies ahead.
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