M-vendr is one of two fintechs that are enabling Dala to be transacted with over 100,000 merchants across Africa © M-vendr
The complex challenges farmers face in tapping finance require a multi-pronged, pan-African response. This was the conclusion reached 3 years ago by Hirander Misra, CEO of UK tech company GMEX Group, when the firm was helping Malawi’s Agricultural Commodity Exchange for Africa build an integrated trade platform. From this experience, FinComEco was born, a fintech (financial technology company) whose mission is to build what Misra describes as a farmer-centred ecosystem across Africa to open new financing channels for rural communities.
FinComEco’s initial plan was to support the development of commodity exchanges and warehouse receipt finance in multiple African markets, tapping funds from development finance institutions (DFIs) such as the African Development Bank and the UK’s Department for International Development. It found, however, that meeting DFIs’ funding criteria would be slow-going for an initiative involved in numerous jurisdictions – FinComEco is already engaging with more than 20 countries – and early-stage projects.
Through a partnership formed in late 2017 with Blockchain Commodities – a blockchain-focused commodities trader – FinComEco decided that fast-developing blockchain technology, and the coins and tokens developed out of that (see box), could provide a fast, low-cost alternative to traditional finance. Together with other partners, the two companies are now working to deploy three separate but interchangeable crypto-tokens that they say will each boost rural economies and farmer livelihoods in different ways.
In March 2018, FinComEco and Blockchain Commodities teamed up with Wala, a South Africa blockchain-powered financial services platform. Together they will provide loans to farmers denominated in Dala – an established crypto-token already in use across Africa – allowing them to buy fertiliser at much lower interest rates than are available via traditional financial institutions. Dala can currently be transacted with over 100,000 merchants across Africa, via M-vendr, a mobile point-of-sale service for small merchants, and Spazapp, an ecommerce management platform.
From early autumn 2018, the firms will pilot the scheme in Uganda, lending 100 million Dala tokens – the equivalent of €8.56 million – to 50,000 smallholder farmers that the Ugandan government is now helping them select. The loans, which will be repaid post-harvest, will have an interest rate of around 14%, compared with the 45% that commercial banks in Uganda typically charge for farmer input loans. If the pilot is successful, the partners plan to expand the initiative and roll out similar pilots in Malawi, the Republic of Congo, South Africa, Zambia and Zimbabwe.
In May 2018, blockchain-based capital markets platform Swarm Fund announced that it was teaming up with FinComEco and Block Commodities to launch a sale of tokens that will be used initially to facilitate warehouse receipt financing for farmers in Africa. Under the model, farmers who deposit produce at an approved warehouse will be offered a loan of ‘FarmCoins’ that can be used to buy certified seeds, fertiliser or even education services at discounted rates. Deposited crops will be aggregated and sold via a FinComEco-facilitated commodities exchange. Once they are sold, the initial loan plus warehouse fees and interest – expected to be more than 50% lower than rates currently available from banks – will be deducted from the total sale price. Farmers will then be repaid any surplus with FarmCoins or with one of the other crypto-tokens used by FinComEco. While farmers will be able to convert their tokens to Fiat currencies (see box), the aim is to bypass traditional currencies and financial institutions, enabling farmers to fund infrastructure and purchase goods and services from a wide range of merchants.
Sale of FarmCoins will launch in mid-2018, with an initial target of attracting €38.5 million of investment from a mix of private investors across the globe. Misra expects the initiative to be disbursing its first loans by the end of 2018. With time, funds raised via FarmCoin could be invested in technology that boosts the efficiency of agricultural infrastructure, for example the use of smart pallets in warehouses or drones for crop spraying, says Block Commodities executive chairman Chris Cleverly.
Philipp Pieper, CEO and co-founder of Swarm, says the model allows for a more direct transfer of capital from investors to a project or people being financed, cutting out the fees traditionally charged by banks and other middle men. It will allow FinComEco and partners to tap into a growing community of smaller investors who have built up capital – often through cryptocurrency investments – and are keen to make a social impact. For some investors, FarmCoin also represents an opportunity to de-risk by enabling them to invest in tokens that have real assets behind them – such as farm produce stored in warehouses, Pieper adds. Creating a channel that competes with bank finance may also encourage banks to improve their terms when working with initiatives like FinComEco, he believes.
Another initiative, announced in May 2018, envisions Block Commodities, FinComEco and new strategic partner OST, a Berlin-based software company, launching a third token that they say farmers will be able to use to buy everything from biscuits to medical care from local ecommerce vendors and service providers. The firms are now working to build a network of ecommerce partners that will accept the so-called FACES (Feed Africa Commodities Eco-system) tokens and offer discounts or special deals when farmers pay with them, encouraging farmers to spend more of their income and stimulate the local economy.
As with Dala and FarmCoins, FACES are created on the Ethereum blockchain (see box) and meet its ERC20 standards. This means that although the relative value of the three will change, they can be exchanged with each other or, if preferred, sold for cash.
How do tokens work?
Blockchain is a decentralised technology that allows digital information to be documented via a public ledger that records and validates all transactions, agreements and contracts. Although it has many applications (see Spore article Digital innovation: blockchain’s disruptive potential in ACP value chains), such as in trade and logistics, it is perhaps best known as the foundation upon which cryptocurrencies are built.
A token is a special kind of cryptocurrency that represents a real asset – such as an agricultural commodity or even a loyalty point – that is freely traded and interchangeable with other assets of its type. They can be created using a standard template on a blockchain platform such as Ethereum and are sold to the public through an Initial Coin Offering – a process that is similar to crowdfunding.
As with ‘Fiat’ currencies – that have been declared legal tender by a government – the value of crypto-tokens can fluctuate. Because of the real asset they represent, however, tokens are considered lower risk than pure cryptocurrencies like Bitcoin, whose value can be very volatile. Tokens can also be sold for Fiat currency or exchanged with other tokens that are created on the same platform.