Agriculture Value Chain Financing in Indonesia

agriculture fintech
Senior Advisor
Harry Dhavilla
+6 281 5929 6088
harry.dhavilla@businessfinland.fi
The majority of Indonesian people living in rural areas are traditional small farmers. Because of an historical lack of access to a formal banking system, small farmers have had to rely on traditional methods, which usually means borrowing from private financers or from crop traders.
One of the means to resolve this situation is to open the Access to Finance Among Rice Farmers through “Value Chain Financing” (VCF). The VCF is a micro-finance model for agriculture industry that involves all actors in the value chain in order to share and mitigate the risk for the farmers.
 
Stakeholders in the VCF will consist of the various government institutions such as the National Planning Board/Ministry, Ministry of Agriculture, Ministry of Village, Ministry of Economy, the Financial Services Institutions, and The Bank of Indonesia (Central Bank). Together they formulate generic financing models and schemes.
 
This is part of the Indonesian government’s program to increase the welfare of traditional small farmers throughout Indonesia. The responsibility lies with the Ministry of Agriculture and the Ministry of Underdeveloped Villages and Disadvantaged Regions. The government urges all parties including private sector to participate where possible to support the program.
 
The estimated number of Fintech users in small farmers in Indonesia is very small and mostly concentrated in Java (approximately 45%). In Java, the estimated transaction value through Fintech systems is estimated to reach 40% of the total transaction volume in one agriculture cycle.
 
The Indonesian government is encouraging fintech companies, which can provide technologies that can make it easier for the small farmers to do their transactions with the formal banking or other formal financial systems.
 
Indonesia is the world’s fourth most populous country. 140 million out of the country's total population of 260 million are active internet users and 17 % have borrowed money from financial institution. The Indonesian Fintech market is growing considerably. This is encouraging new entrants and completion. The demand is from farmers and agro-processors is expected to be high.
 
The Financial Services Authority will be launching new Fintech regulations in August 2018.