Fintech, smallholders and sustainable agriculture in Southeast Asia

However, smallholders face challenges in accessing traditional banking systems, hindering their ability to scale production and adopt sustainable agricultural practices. Fintech has emerged as a potential solution, providing alternative and automated models to facilitate smallholder-focused lending and channel private sector investments. Research has identified key technologies for reaching smallholders with financial services, including payments, loans, and insurance. Fintech business models that have the most promise for facilitating investment in sustainable agricultural practices at scale among smallholders include peer-to-peer lending, mobile payments, and digital insurance. However, the limitations of emergent technology, such as limited access to data and lack of trust among smallholders, pose significant challenges to wider adoption. Southeast Asia's agri-food companies are supporting the adoption of intercropping by smallholder farmers in the supply chain, but integration is limited and small scale. The substantial costs associated with scaling up intercropping, particularly due to the addition of a second crop, have prevented agri-food companies from implementing it widely. Risk considerations, such as commodity cycle risks and loan default, have been the primary barrier to private financing of sustainable agriculture. Industry is evolving strategies to overcome the hurdles to scaling up, including passing costs to consumers, standardised certification, de-risked finance, and multi-stakeholder partnerships. Emergent technologies may improve efficiency throughout the supply chain, including financing, and enable wider adoption of intercropping and other models of sustainable agriculture. The region's mobile connectivity is robust, but lacks depth outside of core markets. Public finance is widely available at below-market rates, but tends to crowd out private lending while leaving sustainability goals unmet. Government loan programs to farmers have a long history in these markets, but often feature a more traditional range of services offered to the mass market, not leveraging technologies to cater to the specific needs of sustainable agriculture. In Thailand, public institutions have been central in expanding financial services since the Asian Financial crisis. However, in practice, loans are not limited for sustainable agriculture or even agriculture in general. In Vietnam, poverty alleviation is the priority, with the current focus being widening access to financial services instead of driving sustainability. In Indonesia, government-backed public lenders have a huge lead in geographical reach and offer below-market interest rates, but a general lack of understanding of the particular demand patterns in the agricultural sector exists. Limited access to technology has dampened the adoption of fintech among smallholders. Despite growing smartphone penetration across the region, mobile phone ownership among farmers is still limited. Farmers are an older demographic and face a steep learning curve for digital adoption. They typically use only calls or messaging apps, with very little awareness of mobile finance platforms. Smallholders lack traditional credit information and collateral, and alternative data often require the physical presence of field staff to impute. Micro-lending is insufficient for agri-financing needs and, when unsecured, risky for lenders. Term lengths of less than 1 year allow growth of rice but not crops like cacao or coffee with longer harvest periods that are suited for intercropping. Insurance premiums are unaffordable because of farmers' meagre incomes, and consistent claims for damage to crops remain complicated.