Rice Resilience Bond

Our Organization

AgriG8 Pte. Ltd.

What is the name of your solution?

Rice Resilience Bond

Provide a one-line summary of your solution.

An agronomy-backed financial instrument enabling affordable smallholder farmer financing while empowering them to adopt sustainable agriculture

In what city, town, or region is your solution team headquartered?

In what country is your solution team headquartered?

• Singapore

What type of organization is your solution team?

For-profit, including B-Corp or similar models

What specific problem are you solving?

Smallholder farmers, numbering over 450 million in Asia, are central to the food system. Asia's vulnerability to climate change underscores the need for a transition to sustainable agriculture practices. Rice, a staple food, is both a major contributor to methane emissions and a vital sector for potential climate mitigation. While emissions-reducing rice cultivation practices have been scientifically established, the challenge lies in equipping the farmers with the capacity and capabilities required to execute these practices in reality. The key barrier between the translation of findings from lab to field is the lack of financing infrastructure that will empower farmers to risk adopting new practices, which will negligibly impact yield, but are critical for the sector’s sustainable transition.

Rice is not a sustainable crop, from all dimensions:

1. Rice is the second largest emitter of greenhouse gases in the agriculture sector, accounting for 10% of global methane emissions. In Southeast Asia, it can account for up to 25-33% of the region’s methane emissions. Due to the short atmospheric lifetime (12 years compared to estimated 100 years for CO2) and greater Global Warming Potential (GWP) of methane, it has the most potential to contribute to the immediate mitigation of global warming – preventing the world from exceeding the planetary boundary of 1.5°C.
2. An estimated 100 million of these farmers operate 46 million hectares of rice fields in SEA, with the majority living below the poverty line, making this a poverty alleviation issue. 
3. Rice cultivation consumes 24-30% of our global freshwater supplies, water that will inevitably run out in the near future.

Today, the promotion of sustainable rice farming is largely through donor-funded projects with very little commercial involvement, which translates to a lack of financial sustainability and farmers reverting to non-sustainable practices once donor funding runs dry. Farmers, due to life circumstances, are unwilling to take on more risks than what they already undertake. To drive behavioural change, incentives and alignment of interest are critical. According to a global study by the Mastercard Foundation, only 30% of smallholder farmers’ financing needs are fulfilled. The primary factor is that commercial financiers (e.g. banks) are unable to price the risk they are taking with farmers when they use traditional credit assessment methods, driving the interest rates to a level which is unaffordable to the farmers. With farmers turning to other less-formal sources of financing, most existing financial products available to them have:

1. High or opaque interest rates, especially those in the form of input financing
2. Payment schedules do not fit the revenue cycles, forcing farmers to borrow from informal sources to keep up with payment. Inevitably farmers prioritise the return of informal loans
3. Loan amounts do not match the requirements, once again encouraging informal loans

What is your solution?

AgriG8’s solutions propose a change of narrative. Instead of positioning sustainable agri as a climate mitigation tool with an uncertain chance of increasing revenue, AgriG8 presents it as a tool for accessing affordable finance that would tangibly help farmers at the beginning of the season. The Rice Resilience Bond (RRB) aims to use the proceeds of the bond sales to lend directly to farmers, eliminating the need to involve an intermediary, which would inevitably increase the cost of funds to the farmers. We embrace a step-down approach where the borrowers are rewarded with a discount on their loans for their extra efforts to adopt sustainable practices. 

The RRB does not naively ignore the challenges and danger of lending to the farmers directly; instead, AgriG8’s solution framework of risk management mechanisms will quantify and mitigate the risks. This framework was designed with three core enablers in mind - technology, programme design, and a human-centric approach. The solution comprises three main stages:

1. Access: Lower the cost of customer acquisition for FIs
2. Appraise: Provide an alternative credit assessment based on agronomic potential
3. Assure: Provide an in-season risk mitigation system to increase repayment capability. 

Beyond financial inclusion, the RRB provides an alternate, commercially viable approach towards incentivising smallholder rice farmers to adopt sustainable practices such as alternate-wet-dry (AWD). AWD is the main method in our instrument to reduce methane emissions, with the potential to generate carbon credits. Loan rebates are offered to farmers who carry out AWD and are able to provide real-time, accurate records of their water management practices for verification. Data collection and analysis are performed via AgriG8’s CropPal app. This availability of high-quality data allows a better price for the carbon credits. Investors of the instrument will enjoy the first right of refusal at a discount for the carbon credits generated, allowing them to meet their internal sustainability targets, satisfy compliance requirements, and/or trade the credits at a profit. The discounts given to farmers who performed AWD are justified by the additional earnings/savings investors make from receiving carbon credits at a discounted price, thus making this a win-win solution for all. Proceeds from carbon credit will further offset the farmers' loans.

The RRB draws inspiration from impact-linked bonds such as those issued by the World Bank and Citi to support clean water projects and those who adhere to similar structures such as the ones set out by the FMO.

Who does your solution serve, and in what ways will the solution impact their lives?

AgriG8’s target audience is split into two distinct groups - financial institutions as our paying customers, and smallholder rice farmers as the ultimate beneficiary.

AgriG8’s solution helps commercial financial institutions more appropriately assess the risk of lending to smallholder farmers, lowering their costs and opening up new market segments which were previously inaccessible to them. It will also help them meet their sustainability mandate, through the access of carbon credits at a rebate.

Complementarily, the RRB serves to meet the financing needs of smallholder rice farmers, especially in Southeast Asia, who lack access to financing and are living below the poverty line (statistics/figures were stated in previous questions). 

To illustrate the size of the target beneficiaries in Southeast Asia, it is estimated that 26% of all rice fields, amounting to 12 million hectares, are managed by smallholders. This translates to a production value of USD17 billion from the main end product (head rice), with an additional USD4 billion (and growing) from by-products (e.g. broken rice and husk for biochar), presenting a total market value of more than USD21 billion. This production value is generated from the farmers’ working capital of USD1,000 per hectare annually (simplified estimation as the cost and activities vary from country to country). Across 12 million hectares, the total financing required amounts to USD12 billion. While a USD12 billion financing facility for the farmers could potentially generate more than USD21 billion in market value, actual farmer revenues are lower. While the market value is determined based on the price that rice is being traded at as a commodity, the revenue farmers receive is determined by the price of paddy, which is less transparent. The price of paddy is subject to the offtakers and rice mills, who set the price based on several other factors beyond the rice price. Assuming the paddy buyers are fair, farmers could be operating at a gross profit margin of 30%, interest and any other cost of funds on top of the working capital (acquired via a financial facility) eat into the farmers’ final operating profit.

The RRB could help these smallholder farmers access affordable financing from formal/commercial sources that were previously unattainable to them, helping them in many ways including: 

• Increase their profit margin, breaking them out from the poverty cycle

• Be empowered to not be a simultaneous victim and unwitting perpetrator of climate change, but instead an active steward of our environment, enabled by concrete and certain commercial incentives

• Gain protection against loss of yields (and therefore income) from factors beyond their control, such as extreme weather events, through the embedding of crop insurance in the product 

• Avoid exploitation/malpractice from informal lenders

• Establish a digital profile for greater access to services

How are you and your team well-positioned to deliver this solution?

Our team is exceptionally positioned to deliver this solution due to our combined expertise, deep-rooted industry connections, and genuine commitment to the communities we serve.

Our CEO (the Team Lead), David Chen, brings 17 years of invaluable experience in the agriculture sector, with a dedicated focus on rice farming, covering seed breeding, policy, contract farming and marketing of sustainable rice. AgriG8 is a pivot from the last startup David founded - Golden Sunland, a full rice value chain company based in Myanmar with the aim of introducing high-quality rice and first-world farming practices into the country. Through years of working closely with smallholder farmers, David possesses unparalleled insights into the intricacies of rice farming and the challenges faced on the ground. This firsthand knowledge is crucial for designing effective solutions that address the real needs of farmers.

Our COO, Joshua Tan, boasts 30 years of experience in bringing innovative technology to market and driving business growth from inception to profitability, across industries from pharmaceuticals to infrastructure, and including rice as well. Joshua was the Chief Administrative Officer at Golden Sunland, where he drove operational excellence and contributed to the company's success through strategic planning and execution. His expertise extends to mobilising both commercial and non-commercial capital, ensuring sustainable financial support for our initiatives.

Additionally, our Head of Projects, Ho Qian Yu, brings 5 years of diverse experience in public, corporate, and startup environments. Previously a founding member of a social enterprise leading business development efforts, and a programme manager for the Singapore government’s flagship growth partnership programme, her proficiency in partnership development, particularly in tri-sector and regional/global contexts, strengthens our ability to forge meaningful collaborations that amplify our impact.

Over the past 3 years, our team has been actively engaged in understanding the specific needs of smallholder rice farmers across Vietnam, Thailand, the Philippines, and Indonesia. Through direct interactions with over 150 farmers, we've gained invaluable insights that inform our solution's design and implementation. The design of the RRB was based directly on a combination of the team’s previous experience in the agriculture sector, our extensive deep engagements with the farmers, and other sources such as secondary insights from other organisations or literature. For example, CropPal, the digital tool that enables the RRB has seen significant changes based on direct feedback from the farmers, introducing features that were requested by farmers.

Moreover, our commitment to inclusivity is evident in our continuous engagement with stakeholders, particularly NGOs and co-ops directly working with farmers on a daily basis. By prioritising community input, ideas, and agendas, we ensure that our solution is not only relevant but also genuinely reflective of the communities we aim to serve.

Which dimension of the Challenge does your solution most closely address?

Which of the UN Sustainable Development Goals does your solution address?

• 1. No Poverty
• 2. Zero Hunger
• 8. Decent Work and Economic Growth
• 12. Responsible Consumption and Production
• 13. Climate Action

What is your solution’s stage of development?

Please share details about why you selected the stage above.

The technology components powering the RRB have been built and beta-tested with their respective target groups. The public-facing component (i.e. farmer app CropPal) is available on the Play Store in Southeast Asia. A version of the financial instrument was piloted with farmers in Myanmar in 2021, but its design has since seen significant refinement. A pilot for the current iteration of the RRB is planned to begin in 2024 Q3, with most partners in final discussions.  

Why are you applying to Solve?

We are applying to Solve to receive support to refine our solution, such as overcoming barriers to launching and scaling it. As there are currently no full-time team members with a finance/risk management background in the team (although we are exploring onboarding such members), the finer details and nuances in navigating this complex sector sometimes escape us, even if they may seem obvious to those in the sector. This is compounded by the fact that the solution is to be launched regionally, with each country having their own regulatory requirements. As we move beyond the Pilot phase, we intend to be more intentional and systematised with our impact measurement practice, which is a key highlight of MIT Solve for us.

We are also looking to meet more like-minded people with a similar vision of uplifting smallholder farmers and/or providing more affordable financing through alternative risk assessment, whom we would like to learn from, exchange insights with, and collaborate with.

In which of the following areas do you most need partners or support?

• Legal or Regulatory Matters
• Monitoring & Evaluation (e.g. collecting/using data, measuring impact)

Who is the Team Lead for your solution?

David Chen, CEO