One Acre Venture is a value chain finance option that is bringing economic and social capital for India’s largely ignored 96 million smallholder farmers.
Globally, there are 450 million smallholder farmers (with land sizes less than 2ha), out of which 96 million are in India. Smallholder farmers occupy an increasingly important segment of the global agricultural value chain. Multinational buyers rely on smallholders to secure their supply of agricultural commodities and to help satisfy consumer preferences.
The smallholder farmers are a linchpin in poverty-reduction strategies because more than two billion of the world’s poorest live in households that depend on agriculture for their livelihood. These smallholder farmers also preserve their natural resources and food security.
“Capital is required for the development of poor communities, and if you come to see not many financial institutions are coming forward to give financial assistance to the farmers, keeping this into consideration we planned to provide financial assistance to small and marginal farmers,” says Suvankar Mishra of eKutir, a for-profit social business that develops innovative products and services for people at the Base of Pyramid (BoP) to improve their livelihoods.
But smallholder production, which generally occurs on plots of less than two hectares, is characterized by low yields, low quality, poor linkages, high risks, and little access to finance. At an estimated size of $450 billion, the global demand for smallholder agricultural finance is large and largely unmet. Impact driven smallholder agricultural lenders such as root Capital, Oikocredit, and Triodos and local state sources currently satisfy less than 2% of the demand.
Value chain finance is critical to secure the smallholder farmer by bringing in different stakeholders such as input suppliers and buyers. Most of the smallholders, ~ 90 percent, are not a part of the value chain finance due to non-presence of formal groups or producer organizations. These farmers with high risk who are mostly unorganized need to be reached out either through formation of producer groups or by innovating in financial product design. “Now we have a way of bringing these farmers to participate in market activities with the support of crowdfundng. This is a one of its kind fund in the world,” says Mishra.
Through “ONE Acre Venture (OAV)”, e-Kutir creates farmer groups, brings in input suppliers and buyers, and raises finance that is crop-specific. The value chain approach reduces risks and the crowdfunding platform fosters transparency and sustainability, where a funder can invest either partially or fully in a farmer group. Because of the value chain approach, where an input supplier meets the needs of the farmer and the buyer procures the final produce, the pilferages are mitigated to a larger extent.
OAV not only addresses to the economic need but also to the social need of farming households. These are basic needs such as access to clean water, safe sanitation, children’s education, skill-building, and preventive healthcare services etc. These are potent needs, which OAV addresses by raising funds for each one of these and achieving social objectives and impact.
“There are two types of financing that is available to these farmers currently, one is from formal financial structures but their default rate is quite high and they don’t lend to poor. Another way is through informal lenders but their interest rate is very high, none of these methods are affordable for the farmers” says Mishra.
The ‘economic capital’ supports the farmer in productivity asset whereas the social capital supports the human asset for the farmer and farming household, all facilitated by OAV.
“We want to spread it across India and globe,” Mishra said.
The pilot was initiated, post launch of the ONE Acre Venture platform on October 14, 2013 in Odisha.
The Alternative is an online media publication focused on sustainable living and social impact.