How Data Can Empower Unbanked Farmers In Asia
Recently, I had the opportunity to represent Sentinel Chain in the Grow Asia Hackathon which focused on ideating solutions for smallholder farmers in Indonesia. Numbering at roughly 20 million, almost all these smallholder farmers are unbanked. Banks are unwilling to extend loans to them as they do not possess formal land titles, and to obtain formal land titles these smallholder farmers must provide traceability data on the palm oil fruits that they produce. Instead, they rely on informal lenders who charge high interest rates.
It is a chicken-and-egg problem — these farmers require capital for palm oil tree cultivation that is acceptable for certification, but they need certification to have access to the capital to do so. It is not easy to break out of this cycle.
On 25th April, I did an AMA on Sentinel Chain Telegram where I took questions from our community about data, unbanked farmers and all things related to Sentinel Chain. Thank you for joining me in my AMA and asking really good, really challenging and really cheeky questions! We’ll be sharing some of the best questions (and my best answers) on Twitter and Reddit.
Sentinel Chain and smallholder farmers
As mentioned, one big problem plaguing smallholder farmers is the fact that they lack palm oil certification. Without this certification, not only does it make it much harder to obtain bank loans, they cannot take sell their goods in the international palm oil market which fetches a premium price per tonne. One of the many requirements for certification is traceability of the palm oil that they produce. It is challenging because the current process is very manual and cumbersome, involving a lot of paperwork.
In theory, blockchain technology can be very powerful to solve these farmers’ problems, addressing the cumbersome process. In a way, the palm oil certification is very similar to bank collateral in the sense that both are needed to obtain bank loans. Does it sound familiar? That is what Sentinel Chain is doing for the unbanked — numbering at 420 million across South East Asia, by enpowering them to use their livestock as collateral.
For livestock tagging, a tamper-proof tag is used to tag the livestock. Analogously, in the smallholder farmers’ case, a tamper-proof tree tag can be used on trees that demarcate a smallholder farmer’s territory instead, embedded with highly accurate and high-resolution geolocation data. Being able to geolocate the smallholder farmers’ palm trees provide traceability and provenance data that can be used towards obtaining loans by formal financial institutions.
Sentinel Chain and alternative credit scoring
Besides the absence of collateral, it is hard for banks to lend to these farmers due to a lack of credit history. Banks do want to lend to these farmers, but it is hard to quantify the risks. It is a win-win for both banks and farmers if there was some way to perform credit scoring for these farmers. To address this gap, numerous alternative credit scoring models have emerged. For example, prepaid cell phone purchase patterns, psychometric tests administered via SMS, and social media behaviour are some of the data used to calculate alternative credit scores for the unbanked. For a more direct metric, loan risks can be calculated using crop cycle data, along with weather forecasts for the season.
…prepaid cell phone purchase patterns, psychometric tests administered via SMS, and social media behaviour are some of the data used to calculate alternative credit scores for the unbanked.
As part of the Sentinel Chain, the CrossPay Platform enables farmers to conduct mobile payments within the community (we wrote about it here recently). Over time, the farmers’ purchase patterns are immutably recorded on the CrossPay Blockchain, providing each individual farmers’ transaction habits. Using this data, we can then construct an alternative credit score of the farmers. While other alternative credit scoring models use indirect ways, Sentinel Chain brings financial services to the unbanked and bridges the gap between them and traditional banking system (if they so choose to).
Conclusion
The two ways mentioned above are the more obvious ways of utilizing data to empower the unbanked. We are confident that these two are achievable within a reasonable time frame, and I sincerely look forward to a future where all farmers do not have to struggle with access to financial services.
Thank you for taking the time to read this piece about the power of data, and we hope you realise how powerful Sentinel Chain can be for the unbanked in the future.
If you haven’t already, please join our Telegram group for the latest updates and announcements. Let’s revolutionize financial inclusion together!
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
Website: https://sentinel-chain.org
Medium: https://medium.com/sentinelchain
Twitter: https://twitter.com/sentinelchain
Reddit: https://www.reddit.com/r/SentinelChain/
Telegram: https://t.me/sentinelchain
Announcements: https://t.me/sentinel_ANN
