Category: innovation

Pioneer Facility invests in Agros to expand solar irrigation access for smallholder farmers​

Pioneer Facility invests in Agros to expand solar irrigation access for smallholder farmers

Phnom Penh, November 14, 2022 – The Pioneer Facility, an impact investment fund managed by Nexus for Development, signs an agreement with Agros, a social enterprise specialized in providing solar-powered irrigation systems. Agros bundles technologies, inputs, advisory, and financing to support farmers to adopt regenerative agriculture practices that increase their profits and reduce carbon emissions. The Pioneer Facility loan of USD 500,000 will finance inventory and working capital needs to accelerate the deployment of their activity in Cambodia and Myanmar.

From conventional to regenerative farming

Agros Pte Ltd (‘Agros’) was launched at the intersection of sustainable agriculture and climate change. About 500 million smallholder farmers produce 80% of the world’s food yet they don’t have access to affordable energy and productive appliances. Across Southeast Asia, millions of smallholder farmers face three main problems: low yields, low income and financial exclusion. Smallholder farmers in particular are subject to the inevitable risks of market volatility as fuel and fertilizer prices continue to increase in the region, which has significant implications on their livelihoods. Fuel prices have more than doubled/tripled in certain parts of Myanmar and Cambodia since earlier this year. Many farmers in Southeast Asia have not adopted a solar irrigation system due to market awareness and affordability challenges.

Under current market volatility, Agros strives to solve three main barriers to adopting a solar irrigation system: affordability, performance and distribution. They design, distribute, and provide financing for solar water pumps in Myanmar and Cambodia, with a mission to double the income of hundreds of thousands of farmers while abating millions of tons of carbon emissions by 2030. The company is also building a platform combining multiple farming technologies, services, and financing to support farmers to transition from conventional to regenerative farming.

Climate change is a major threat to our environment, society, and economy. We’re glad to have found with Nexus a partner who shares our belief that a prosperous, inclusive, and low-carbon world is possible. The Pioneer Facility will contribute strongly to our 3x growth projected for 2023 by financing our working capital needs.

Max Nelen, Agros’ Founder & CEO

In early 2022, Agros entered the Cambodia market and currently has 3 operating hubs in Cambodia and 7 in Myanmar. They are poised for further hub expansion in both countries and are scoping a third market for 2023.

Farming decarbonisation

Agros is seeking to decarbonise the farmers’ whole journey, from input to market. This implies launching soil and crop management solutions such as biological fertilizer, high-quality seeds, solar milling machinery, solar cold rooms, zero-carbon certification and access to a premium marketplace. The environmental impacts could evolve to be much more as the product offerings grow. The next product Agros is launching, Agrosoil, seeks to restore degraded soil, increase yields and reduce expenses on synthetic fertilizers.

By replacing fuel-based energy consumption with a renewable energy source, the solar irrigation systems already being installed reduce carbon emissions. Based on surveys of current fuel usage for each customer, it is estimated that each solar pump will reduce on average 4 tons of CO2 emissions per year, meaning 80,000 tons of annual CO2 emissions reduction by 2026 based on 20,000 units installed. Nexus for Development is engaged to develop a carbon finance project and early calculations support the emission reduction estimation.

Improving livelihoods

Agros’ social objective is to revolutionise agriculture across Southeast Asia, offering millions of farmers the technologies, services, financing and accessibility they need to transition to long-term profitable farming. The goal is to boost income from fuel savings and extra crop cycles (additional irrigated land).

So far, more than 900 households in Myanmar and more than 100 households in Cambodia have benefited from Agros’ solar irrigation technology, with total beneficiaries reaching over 3,550. Agros’ current beneficiaries spend up to 30% of their income on fuel to enable irrigation of their crops; importantly, installation of Agros’ solar irrigation system results in monthly fuel savings of up to $45 per pump on average, with a payback period between 12-24 months.

Further, Agros has gradually improved its gender strategies to engage with women beneficiaries and plans to do more in the coming years. The company created about 20 jobs for women in one year, including sales agents to engage with women farmers.

Nexus has been working with Agros since 2021 and provided a small working capital loan in January 2021 to fuel their early expansion in Myanmar. Today, the Pioneer Facility loan supports Agros at a critical time in its growth trajectory by funding their inventory purchases to meet increasing sales.

Agros has done tremendously over the past few years in Myanmar, despite the political and economic turmoil. We are delighted to continue supporting Agros’ new market entries, bringing sustainable solutions to farmers who are facing immense challenges.

Selina Yang, Nexus’ Investment Analyst

About Pioneer Facility

Pioneer Facility is an innovative fund that provides scale-up capital, via working capital or capex loans, to enterprises that offer sustainable energy and clean water solutions to underserved populations in Southeast Asia.

For more information please contact: pioneerfacility@nexusfordevelopment.org

About Nexus for Development

Nexus for Development is an international not-for-profit organization founded on the principles of sustainable development. We drive access to finance in developing economies across Southeast Asia to increase sustainable energy and water resource development, advance low-carbon solutions, and scale local implementers.

For more information please contact: contact@nexusfordevelopment.org

Social Innovation Podcast

Max Nelen – Founder & CEO at Agros

“Close Your Eyes. Make the Jump and See Where You Land.”

The Social Innovation Podcast spoke to Max Nelen, the CEO and Founder of Agros about all things farming and agriculture.

Listen here: Creating Impact and Profit Through Social Innovation – Conversations with the global leaders in Impact Investing and Social Innovation

How to Provide Cambodian Smallholder Farmers with a Gateway to Financial Services

Smallholder farmers are the backbone of agriculture – a key sector in Cambodia’s sustainable development. As more and more new technological innovations help improve farms’ efficiency and productivity, the agricultural sector will continue to develop. 

However, most smallholder farmers cannot pay for these technologies out of pocket, so they turn to their local banks for loans. Banks consider agriculture a risky business, so they require loan collateral that is far beyond the reach of smallholder farmers. This leads to farmers’ loan applications being rejected because farmers cannot provide said collateral for loans. When farmers cannot obtain bank loans, they resort to high-interest credit from other sources.

This challenge and the barriers smallholder farmers face when pursuing external financing, brings to light the question, how can we fill the financing gap to integrate smallholder farmers?      

In this blog, Agrosolar shares their solution to  filling the financing gap. 

Why do you offer solar-powered irrigation systems?

Agrosolar believes that renewable energy is one of the solutions to reduce global warming, as climate change is challenging the fact that food production needs to double by 2050 to continue to feed the planet. Across Southeast Asia, millions of smallholder farmers face three main problems: low yields, low profitability, and financial exclusion. The good news is that all of those can be solved with one solution: affordable and sustainable solar irrigation systems. This allows them to save on fuel monthly and irrigate more of their landholding at zero operational cost. We have new customers monthly, showing that smallholder farmers are willing to replace their conventional fuel pumps, especially during times of global crisis [like] fuel shortages and higher fuel prices.

What end-user financing product/model do you offer?

[A couple of different] financing products are offered to our farmers. Our first entry point is to calculate the fuel savings and the payback period based on those savings. Once the payback period is attractive, we will try to sell the product in cash. 

However, [if] the farmer doesn’t have the cash on hand but still can afford to pay it off quickly, then Agrosolar offers a “Pay After Harvest” plan. [T]here is a partial payment at the moment of installation, and the remaining amount is paid after the next harvest, within 4 months. If the farmers still struggle to pay the remaining amount within the next 4 months, we work with local microfinance institutions (MFIs) and non-banking financial institutions (NBFIs) to provide loans or leasing plans for up to 18 months. Depending on the farmer’s future cash flows, these can be paid monthly or per season.

What end-user financing product/model do you offer?

[A couple of different] financing products are offered to our farmers. Our first entry point is to calculate the fuel savings and the payback period based on those savings. Once the payback period is attractive, we will try to sell the product in cash. 

However, [if] the farmer doesn’t have the cash on hand but still can afford to pay it off quickly, then Agrosolar offers a “Pay After Harvest” plan. [T]here is a partial payment at the moment of installation, and the remaining amount is paid after the next harvest, within 4 months. 

Farmer using Agrosolar water pump

If the farmers still struggle to pay the remaining amount within the next 4 months, we work with local microfinance institutions (MFIs) and non-banking financial institutions (NBFIs) to provide loans or leasing plans for up to 18 months. Depending on the farmer’s future cash flows, these can be paid monthly or per season.

Was there a need to be innovative in designing/implementing your end-user financing model?

The innovation is found in two main aspects of the end-user financing model: (1) [the] structuring [of] payment terms to align with farmers’ seasonal income, and (2) the developing [of] automated underwriting systems to align with the nature of our business and clients. 

The products must be affordable and reliable, so our target customers may purchase the system at reasonable prices. To reduce the risk and cost of financing, we must broaden the financing options by providing internal financing rather than relying on external loans or MFIs, which will undoubtedly assist farmers in purchasing the system at a lower cost and in a shorter period of time. 

[Our customer-focused innovation] doesn’t end there. On a daily basis, the team talks to farmers and sees how to improve our finance offering. The key is to match it to [farmers’] cash flows to guarantee affordability and high repayment rates. The advantage of financing productive use appliances is that there is an increased income, which can be used – and almost guaranteed – to repay the financing [product]. This makes it very attractive to launch these financing plans, even in developing countries.

Why did you decide to create a partnership?

Forming partnership for commercial and end-user financing with external organizations is beneficial for both parties. With a commercial partnership, we can reach out and serve those customer segments which are not under the coverage areas due to logistical, geographical, or operational constraints. The same goes with financial partners, such as consumer loan organizations or MFIs,[as it provides] a long-term financing scheme [for businesses/operations that have] limited resources, internal financing systems, and manpower for the cash collection. [T]he partnership is essential for the long run and to fulfill the requirements of [base of the pyramid] customers and smallholder farmers. 

A member of the Agrosolar team advising a farmer on product and financing options.

What sort of complementary value was brought in by the partner to implement the end-user financing model?

Having [our] partner implement the end-user financing model brought us better coverage and capacities over existing market segments by providing longer-term payments to those farmers who need the financing. Sales traction and market penetration have increased through the qualified leads, and [it]is easy to launch new operations with low start-up costs. Also, farmers can take advantage of income savings and invest more in the lands. Getting the sales team up and running in minimum time helps to ensure t[that we start to profit from the partnership and get a head start in boosting sales and marketing. This will effectively reduce the workloads on extensive credit assessment and follow on payment risk. Meanwhile, we can focus on improving after-sale service and product development to meet the market requirement.

Agrosolar smart meter

Agrosolar provides products and services that enable farmers to double their income and reduce their carbon footprint to zero. Agrosolar is the pioneer in providing affordable, reliable and customizable solar solutions that allow farmers to continue producing food for the growing population. In addition, their last-mile distribution ecosystem tackles climate change and alleviates energy poverty in developing countries in Southeast Asia.

Article: Water and Energy for Food (WE4F), S/SEA