Wednesday, November 14, 2018 / 03:02 PM / AFEX Nigeria
Access to finance in Agriculture has always remained critical to the success of farm businesses whether in production, improving post-harvest practices or in household cash flow. It is needed to get better access to markets which in turn promotes better management of risks. It also plays an important role in climate adaptation and resilience of agriculture to climate change, thus contributing to longer term food security.
Blockchain technology - which is based on a shared ledger or DLT (Distributed Ledger Technology) - contains features that make it possible for networks such as farmers, consumers, retailers, producers, investors to not only transact but also source and supply financing. All the information about the entire cycle of agricultural events can be put onto blockchain to enable a transparent and trusted source of information for the players.
Farmers can get instant data related to the seed quality, soil moisture, climate & environment related data before cultivation, payments, demand and sale price, etc. all in one platform. The technology will help in establishing direct link between farmers and consumers/retailers. It will empower smallholder farmers better to organize themselves and get together to access the market without interference from middlemen. This will reduce the problems of low income, as blockchain will give transparency in supply chain, enabling farmers get fair price for their produce.
On the back of these benefits, AFEX Commodities Exchange Limited (AFEX), alongside Binkabi in partnership with Sterling Bank will begin using Blockchain Technology to streamline the process of financing agriculture to Smallholder farmers and other players in the commodities markets. The partnership recognizes the importance of Agricultural finance as the provision of multiple types of services dedicated to supporting both on- and off-farm agricultural activities and the important roles AFEX’s Warehouse Receipts System (e-WRS), Binkabi’s Blockchain Technology and Sterling Bank’s access to credit plays in leading the creation of a reliable source for financing in agriculture for the country.
AFEX, an Exchange registered by the Securities & Exchanges Commission is pioneering this initiative on the backdrop of absence of finance to smallholder farmers. Without access to credit, most smallholders are restricted to farming practices that result in low levels of productivity. The provision of credit in rural areas are high risk translating to low returns and are generally unattractive to Financial Institutions & Investors. The traditional alternative of money lending is costly as the loans are charged at very high rates contributing to the increased challenge of indebtedness and poverty. This Initiative would bring the much needed change to the lives of these farmers and the Nigerian economy.
The Partnership will leverage blockchain technology to solve the issue of financing and international trade, while unlocking financing through the warehouse receipt system which would lead to the creation of new opportunities and relationships for players in the commodities markets. Blockchain does not require physical branches since it is operated on a distributed network. It would create alternative financial structures, Liberating farmers from the inefficiencies of the existing financial system. This partnership would empower smallholder farmers, create a tokenized system and develop smart agriculture.