Op-Ed: How blockchain can help farmers get access to finance

By Tahmid Hasan

Moving the livestock market into the future

Lack of formal identification, collateral, and credit histories; difficulties in contract enforcement; and the high cost of serving geographically dispersed smallholder farmers are just a few of the many obstacles standing between smallholders and formal financial inclusion.

The inability to access formal financial services affects the efficient functioning of agricultural value chains because farmers may be unable to maximize their yields and buyers may struggle to ensure an adequate supply and ensured quality of agricultural commodities.

More than 70% of rural households in Bangladesh are engaged in livestock-related production and businesses through which smallholders and many landless households earn a livelihood.

Most of the farmers in Bangladesh have little or no access to formal credit, limiting their capacity to invest in technologies and inputs which include livestock farmers. The traditional microfinance support faces a number of challenges, including high interest rates, overlapping loans, insufficient repayment periods, and lack of support services such as advisory and access to appropriate markets.

Formal financial institutions show little interest in financing small farmers because of higher operational costs in rural areas compared to urban areas, and the risks such as untimely repayment of loans by farmers.

Livestock is not recognized as collateral by banks and financing services because of the absence of information in regards to ownership and verified systems that are able to translate livestock into concrete value, resulting in no legally recognized collateral.

Livestock tokenization for cattle financing

Unlike traditional centralized systems, blockchain technologies are designed to decentralize the control of data across a network of participants. This means transactions carried out by any parties on the blockchain are immutable even from the creator of the transactions, or the network itself. As a result, network participants are able to issue digital tokens which can be safely traded on the blockchain, by delegating trust to the network’s algorithm or protocol.

Sentinel Chain, a blockchain network that is developed by InfoCorp, is designed to facilitate cross-border financing of tokenized livestock asset in addressing financial inclusion. Each livestock token on the blockchain is securely linked to an animal in the real-world via a tamper-proof RFID animal tag.

The livestock tokens can then be used for traceability and provenance while unlocking liquidity from alternative channels such as the crypto world using Sentinel Chain tokens (SENC).
iFarmer and InfoCorp are collaborating on a pilot to connect iFarmer’s farm funding platform onto Sentinel Chain.

Furthermore, a simple mobile app, iFarmer, will be used by farmers and farm facilitators to collect farmer profiles, update farm information and so on. The main outcomes of the pilot, broken down to four pillars, namely:

Digital identity

Farmers (by themselves or through the help of iFarmer Farm Facilitators), are able to easily register and create a profile by providing key basic information and are provided with a unique digital identification number. This allows each farmer to be recognized as a key player in the supply chain, with better access to financial services, insurance providers, logistics and other services.

Asset digitization

Assets (like cattle) can be digitized through tokenization, which creates liquidity, supports peer-to-peer trade, and increases the value of agricultural commodity markets through the participation of key members.
Immutable data

Built on distributed ledger technology (DLT), the platform provides immutability to the stored information. This creates trust, transparency, and traceability throughout the whole value chain.

Record-keeping and access to financial services

Farmers can use their digitized ledger for better record-keeping and proof of income. This makes it easy for farmers to access supply chain finance, loans, and other financial services. They can prove income as well as expected future profits.
Overall this partnership between iFarmer and InfoCorp will provide the transparency and trust that has been missing in the past, providing farm funders and lenders the ability to access all the information needed to make a valid funding decision.
This information pertains to the health, legitimacy, ownership of the livestock and whether the livestock has been collateralized for other loans, among other things. The government will be incentivized by this huge market that opens up, in terms of supporting the eco-system with adoption and regulation, as farmers obtaining financing will in turn, increase output and growth.

About Sentinel Chain

Sentinel Chain is a blockchain-based international marketplace for cross-border financial services and the world’s first platform to accept the use of livestock as collateral. Taking a unique approach to the last mile problem of financial inclusion, the Sentinel Chain model establishes livestock provenance through the creation of livestock insurance on blockchain — the registration of livestock provenance on blockchain provides the unbanked with a new opportunity: The real possibility of accepting livestock as collateral for loans. Sentinel Chain is a project by InfoCorp Technologies.

Tahmid Hasan works in the agri-tech industry. iFarmer is an agro-tech company founded in 2018, that helps smallholder farmers to get access to farm capital for inputs, advisory services and to sell their produce at a better price.

The article originally appeared in Dhaka Tribune

Copyright 2020 @ Dhaka Tribune

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