COVID-19 Rapid Response Grant

Eyes on the ground for agricultural microcredit

India

COVID-19 is an existential threat for microfinance, which traditionally operates through face-to-face group meetings. During a lockdown, this model fails and microfinance for the world’s poorest has started drying up. But what if lenders could monitor loans remotely, without having to visit their clients? With that in mind, this project aims to unlock agricultural microcredit to farmers in Odisha, India, by enabling a microfinance lender to monitor loans using satellite and smartphone imagery.

Smallholder farmers often lack collateral to access formal agricultural credit and hence rely on microcredit to finance agricultural production. Microcredit traditionally operates through in-person meetings with jointly liable groups, in which individual clients are held responsible for full group loan repayment. Group lending encourages clients to screen their peers, so that only good borrowers join the group, and to monitor each other’s investments, maximizing loan repayment. Recent lockdowns and physical distancing highlight a key vulnerability of this model: microcredit is drying up because microfinance agents can no longer visit credit groups, and lenders need to shift towards a contactless method of providing and monitoring credit.

The original project, Seeing is Believing: Using smartphone camera data, was focused on using images to monitor crop growth and health in order to strengthen bundled insurance-advisory services. This ‘picture-based insurance’ was proposed as a solution to address information asymmetries between farmers and insurance providers and to reduce the costs of monitoring crops to settle insurance claims and of customizing advisories for small and marginal farmers. Similar problems prevent smallholder farmers from accessing formal agricultural credit, where collateral in the form of land is often used to minimize problems around information asymmetries. This Rapid Response project seeks to address a similar problem for a different application – to provide microcredits instead of insurance and advisories.

Inspire Challenge Team:

About the Rapid Response Grants

In response to the food security issues brought about by the COVID-19 pandemic, the Platform  made funding available for agile, big-data enabled projects working to tackle food system challenges. The Inspire Challenge Rapid Response Grants, totaling up to USD100,000, were available to current or previous Inspire Challenge winners.

The partnership

Team members

Mr. Sanjay Mansabdar
Dvara E-Registry, Director

Dr. Berber Kramer
IFPRI, Research Fellow

TBC
Vector Finance

The project will leverage IFPRI’s experience with smartphone-based crop monitoring, along with Dvara E-Registry’s capability to take this approach further by integrating it into its “KhetScore” model, a credit scoring system for farmers that uses artificial intelligence, remote sensing, and emerging technologies to predict yield and repayment potential using historical farm-based data.

Dvara Trust has an MoU with the Government of Odisha to fulfil the joint vision of leveraging science and technology for harnessing the potential of Odisha’s agricultural sector and expand small and marginal farmers’ access to credit. In this context, Vector Finance—with the capabilities of providing microfinance to the poor—has agreed to issue and monitor crop loans based on the reports generated by “KhetScore”.

IFPRI’s knowledge on the intersection of gender, agriculture, rural finance and impact evaluation will be leveraged to map impact pathways, inform program design and disseminate findings and lessons learned.

Gender dimension

Loans will be monitored based on a combination of data from georeferenced smartphone pictures and satellite imagery for the same plots. Recognizing that in rural Odisha smartphone access is limited, and even more so for women, the project will provide clients with smartphones and training on how to use the phone, to ensure that all clients, including women, have access to the tools that Dvara E-Registry and the lender need to monitor loans.

Farming in many communities, like Odisha, can often be stereotypically seen as a male activity. These stereotypes discourage women from taking out agricultural loans, even though women are often responsible for the cultivation of crops. This project, however, recognizes the potential of women as being an important entry point for agricultural credit because of their high participation in microfinance groups. This project will target women directly, and study in detail how to address gender norms that likely prevent them from participating in agricultural credit solutions.

Project timeline

COVID-related lockdowns and physical distancing guidelines have reduced access to agricultural microcredit, while many small and marginal farmers fall outside the purview of the formal credit sector because they lack access to land as collateral. This project sees an opportunity here to fill a gap and provide these farmers with a digital agricultural credit solution that relies on remote monitoring so that in the future, farmers can be reached at low cost with more targeted products, and services continuing even in the presence of future lockdowns or mobility restrictions.

15-30 June 2020

Project set-up: Vector Finance will collect data on prospective beneficiaries, provide them with information about agricultural credit, and identify interested clients.

Jun-Nov 2020

IFPRI will provide technical assistance in the design and implementation of the intervention, the gender strategy, and monitoring & evaluation, including survey design and analyses.

1-15 July 2020

Dvara E-Registry trains farmers on how to use smartphones to send in georeferenced images of their crops for credit purposes. This will be the only activity that will require an in-person visit, and this will be done with small groups of farmers, following local guidelines related to COVID-19 containment. As a result, the number of group meetings is reduced significantly relative to a traditional microcredit model whereby groups meet on a weekly or bi-weekly basis year-round.

Target: 500 farmers trained (10 per village).

1-15 July 2020

Dvara E-Registry​ uses submitted smartphone pictures along with historical and current satellite imagery to identify plot locations, verify the type of crop, estimate plot size, and predict yield potential.

15-30 July 2020

Vector Finance will issue all farmers with the first tranche of financing, with loan amounts based on predicted yield potential. The team will de-risk this activity by establishing a 10% loan guarantee fund of US$ 40 per US$ 400 loan. The remaining 90% of the default risk will be retained by Vector Finance.

Target: 450 farmers receiving a loan (9 per village).

Aug-Oct 2020

Additional tranches are potentially disbursed to finance subsequent production stages; but factoring in predicted yield potential and information from recent satellite/smartphone images. In principle, this stage will be managed remotely. Dvara E-Registry field staff will be monitoring incoming data and be stand-by for in case there are issues with the smartphone application.

Sep 2020

Survey in treatment and control to compare gender-disaggregated data on credit access, use, indebtedness and repayment; agricultural investment, production and productivity. A decision will be made in August, taking into consideration local COVID-19 and research ethics guidelines whether this will be a face-to-face survey or a phone survey.

Remote sensing, repayment and smartphone camera data from previous seasons are used to update credit scores for future seasons.