Whrrl: A blockchain based disruptive financing model for agricultural practices

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This blog is about a startup under the Financial Inclusion Lab accelerator program, which is supported by some of the largest philanthropic organizations across the world – Bill & Melinda Gates Foundation, J.P. Morgan, Michael & Susan Dell Foundation, MetLife Foundation, and Omidyar Network.

Agricultural credit: A myth or reality?

According to a WHO report, India ranks 21 among the countries with the highest number of suicides per annum. A still bigger shocker is that the country has one of the highest rates of farmer suicides: 7.4% of the total suicides in the country (according to National Crime Records Bureau report). These farmer suicides are largely attributed to indebtedness and distress sales. 

India has a fragmented agricultural system and is largely unorganized and unstructured, due to the presence of multiple levels of intermediaries spread across the agriculture value chain. Among 145 million Indian farmer households, 87% are small and marginal farmers (SHF), who own less than 2 hectares of land. With limited landholding and meagre sources of income from the farm, SHFs struggle even for sustenance. Agricultural reforms such as priority sector lending and farm loan waivers do not help much as access to institutional credit is still a distant dream for many SHFs. Most formal financial institutions are reluctant to offer credit to SHFs due lack of collaterals, absence of a formal credit history, and the inherently risky nature of agriculture. Turned away from formal sources, or wary of long turnaround times to process loans, SHFs usually turn to moneylenders for instant loans. These lenders charge exorbitant interest rates, which sometimes go as high as 75% to 350% per month. Burdened with past debt, farmers are compelled sell their produce to local traders at a loss to get cash quickly. The cycle of debt starts again as they take another loan to prepare for the next season. With shrinking profits, negligible or no savings, and the burden of yet another loan, these farmers remain trapped in a cycle of poverty, which leads to tragic endings like suicide. 

But warehouse receipt financing (WRF), which offers small and marginal farmers a way to avail credit at cheaper rates from formal financial institutions, could be a game-changer and a life-saver.

What is warehouse receipt financing?

Warehouse receipt financing has been around in India since the 1960s. The Government of India enacted the Warehousing Development and Regulation Act (WDRA) in 2007 to develop and regulate warehouses and introduce a negotiable warehouse receipt system.

When commodity prices take a temporary dip due to a bumper harvest, small and marginal farmers can store their produce in warehouses while they wait for the prices to rise again. The warehouse provides farmers with a receipt once they deposit the produce. Farmer can then use these receipts, which contain details like the quantity and value of produce as per the current market rate, as collateral to negotiate short-term credit from financial institutions. Post-harvest credit can help farmers avoid distress sales, pay off previous loans, buy farm inputs for the next crop, and meet other expenses.

Whrrl’s eureka moment

Ashish, the co-founder of Whrrl, started his career as a chartered accountant and later moved onto debt syndication and financial advice to MSMEs. Ashish started to explore blockchain technology in 2018 in a bid to build an end-to-end solution for MSMEs. He co-founded the Blockchain Advisory Council (BAC) – an advisory and consulting firm specialized in blockchain and information technologies to explore the use-cases of blockchain in different industries across India.

Ashish developed an interest in WRF after reading about the Qingdao scandal, which involved the fraudulent use of warehouse receipts to raise finance. He researched the Qingdao scam and discovered that the agricultural warehouse frauds in India, which are also driven by forged receipts, are very similar to it.

Angry and with a firm resolve to solve this problem, Ashish decided to leverage his knowledge on blockchain technology to overcome gaps in traditional agri-warehouse lending. He discussed this idea with Abhishek Bhattacharya—a blockchain developer and Paul Scott—a tech entrepreneur, both of whom Ashish had met during his stint with BAC. The three joined hands as they saw an opportunity to create a positive impact on the lives of millions of farmers. Later, Ashish also roped in his wife Falguni Pandit, a tech professional. And thus, Whrrl was born, turning this idea into reality.

The unique pitch: Renovating the old setup

Whrrl is a B2B2C Blockchain PaaS start-up that provides a technology solution for warehouse receipt financing (WRF). Whrrl helps farmers, traders, and farmer producer companies (FPCs) raise working capital to tide over lengthy crop cycles that range from 6 to 12 months.

Whrrl works on a disruptive model unique to the current scenario. It collects data from warehouses and feeds it to its blockchain system, which creates an immutable record of the collateral

This helps lenders take better decisions by cutting out intermediaries. It also helps mitigate fraud due to the inherent features of blockchain—immutability, transparency, and real-time availability of the latest relevant data values on the network. These features enable financial institutions to estimate the value of the collateral (agriculture produce) accurately and, in turn, lend to SHFs and FPCs at reasonable and affordable rates.

Whrrl differentiates itself from traditional warehouse receipt (WHR) instruments in the following ways:

  • The platform enables easy access to information and communication between warehouses and banks through automatic updates on the common platform. The modular infrastructure ensures that the data is recorded, stored, and updated in a distributed manner. This means that banks and warehouses no longer need to rely on centralized nodes for information.
  • The “smart contract” system helps coordinate and enforce agreements between digitally networked participants without the need for traditional legal contracts. This helps digitize the records with minimal manual intervention.
  • The platform also allows depositors to make commodity transactions through tradeable tokens. In case of default, banks could also use these token to sell the depositor’s produce and recover the loan amount.

Whrrl started its journey as a B2B platform. The founding team soon realized the need to move beyond the B2B space to create a direct impact on the farming community and make the lending process transparent and quick. To help borrowers overcome the tedious and time-consuming process involved in the disbursement of agri credit, the team developed a mobile application in late 2019.

Achievements and the impact made so far

In its journey so far, Whrrl has:

  • Connected with more than 1,400 warehouses across India with five financing and government agencies as its customers and partners.
  • Processed electronic warehouse receipts (e-WHRs) worth more than INR 3,500 crores (USD 468 million). Even during the COVID-19 pandemic, it facilitated INR 50 million (USD 0.67 million) worth of WHR loans.
  • Won the PICUP Fintech award organized by the Federation of Indian Chambers of Commerce & Industry (FICCI) and the Indian Banks Association (IBA).

Roadblocks

Though Whrrl believes in inclusiveness and does not want to skew its lending toward large farmers, SHF lending is easier said than done. The start-up faced the following two major roadblocks in its journey:

  • As most of Whrrl’s founding members started their careers in technical fields, they found it challenging to understand the credit requirements of their target segment—FPOs, farmers, and traders.
  • Scalability was also a major challenge for Whrrl. The team lacked the acumen to help small and marginal farmers understand and appreciate the convenience of WRF. Most SHFs believe that WRF is solely for large farmers, which limits its adoption among their small and marginal counterparts.

FI Lab’s support to Whrrl

Despite the lockdown and other travel restrictions due to the pandemic, MSC conducted an on-field research study for Whrrl in their suggested areas of Jharkhand and Maharashtra.  The objective was to assess the viability of its WRF product as a credit instrument for small and medium farmers, traders, and FPOs. 

The study assessed the role of various players in the WRF value chain, such as farmers, FPOs, warehouse managers, and traders across Madhya Pradesh, Jharkhand, Haryana, Uttar Pradesh (UP), and Maharashtra. This helped Whrrl to understand the credit needs of its target segment better and to build a marketing and communication (MarCom) plan to enhance farmer outreach and make SHFs aware of the convenience WRF offers. The MarCom plan captured the nuances of pitching WRF product and communicating with the farmers.

Based on insights gained through the Lab, Whrrl started to develop a phygital (physical and digital) marketing and implementation strategy. They are using MarCom plan to enhance the productivity of their sales team through trainings and aligning the outreach activities across various channels. 

The road ahead

Whrrl seeks to solve the working capital woes of the farming community and help farmers increase their income by 25-40%. The team is also ready to make its foray into other parts of the world, particularly in Southeast Asia and Africa. As its first step into the international market, Whrrl will soon start to work with the Sustainable Development Goals (SDG) Impact Accelerator to drive financial inclusion in Bangladesh. The start-up wants to build world-class credit products for the farming community. It aspires to become the solution of choice for asset-backed lending by making credit accessible and affordable, especially for SHFs. 

This blog post is part of a series that covers promising FinTechs that make a difference to underserved communities. These start-ups receive support from the Financial Inclusion Lab accelerator program. The Lab is a part of CIIE.CO’s Bharat Inclusion Initiative and is co-powered by MSC. #TechForAll, #BuildingForBharat

Social assistance and information in the initial phase of the pandemic: Lessons from a household survey in India

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India’s early response to the COVID-19 pandemic included several measures, including a nationwide lockdown, a sustained information campaign, and PMGKY—a major social protection package. This paper reports on the implementation of PMGKY based on a household survey. At its outset, PMGKY built on previous pro-people digital investments, including several established programs and direct benefit transfer to financial accounts. PMGKY successfully delivered benefits, including food rations, to millions of households.

Meanwhile, people did not always realize that they had received payments into their accounts despite the information campaign. At the same time, many found it challenging to reach cash-out points because of the disruptions related to the pandemic. These factors constrained the immediate realization of benefits. Performance was broadly uniform across different groups of recipients, with few significant systematic differences in the receipt of benefits reported by gender, urban/rural location, and category of ration card. The study also highlights the critical need to increase the spread of smartphones across the population.

The Center for Global Development first published this paper on 22nd July, 2021.

Bangladesh – the basket case that taught microfinance to the world

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The world has a lot to thank Bangladesh for! Oral Rehydration Therapy, a simple combination of salt and sugar, has saved more than 70 million lives in the 45 years since ICDDR,B in Bangladesh first developed it. The Lancet called ORS “the most important medical advance of the 20th century”.

Bangladesh is also credited with the invention of joint liability group-based lending – the foundation for microcredit across the globe. 50 years into the independence of Bangladesh, we take a look at the contributions of its four most influential microfinance institutions:

  • Grameen Bank originated a structured and formal approach to microfinance. As a result, it influenced generations of microfinance institutions (MFIs) at home, and built capacity abroad through Grameen Trust.
  • BRAC developed a multiservice model of social development and enterprises in Bangladesh. It exported its expertise in microfinance across numerous geographies in Africa and Asia.
  • ASA innovated a model for sustainable scaling up of a microfinance network through standardized self-reliant branches.
  • BURO Bangladesh unlocked a holistic approach toward microfinance by integrating open savings mechanisms, pivoting away from the industry’s exclusive emphasis on lending.

These four entities collectively have >60% of the market share among the 495 MFIs that Credit & Development Forum (CDF) reports on.

1. Grameen Bank: the origin of microfinance

The genesis of formalized microfinance in Bangladesh began during the Bangladesh famine of 1974. Muhammad Yunus, then a professor at the University of Chittagong visited Jobra. There, he learned that the basket weavers relied on exploitative money lenders to buy their raw materials. Yunus decided to make a small loan of USD 27 (equivalent to BDT 856 at the time) out of his pocket to a group of 42 families so they can produce items and sell them for profit. Seeing the positive impact this had, Yunus developed the guidelines for Grameen Bank. The Grameen Bank project started in Jobra in 1976 and was extended in 1979 to Tangail district with support from the Bangladesh Bank. In 1983, the Grameen Bank project was established as an independent bank under the Grameen Bank Ordinance 1983.

The Grameen approach broke barriers of availing credit for the poor by pioneering the joint-liability lending model, offering collateral-free loans. Grameen mainly served women as it found that they generally repay loans on time, invest their money for productive purposes, and make expenditures to improve the quality of life of family members. Grameen also believed that this increased women’s agency over resources by enhancing their traditional role as household budget managers.

After the 1998 floods, Grameen Bank faced high levels of delinquency and reinvented itself as “Grameen II”, which offered both savings services and (nominally at least) more flexible repayment options. Within three years, Grameen’s deposit base tripled and its loans outstanding doubled.

2. BRAC: a multi-faceted approach to social development

Sir Fazle Hasan Abed initiated BRAC as a project in 1972 at Sulla, a sub-district of Sunamganj, in Bangladesh. This small-scale relief and rehabilitation project helped returning refugees after the Liberation War by building homes and fishing boats. In the late 1970s, BRAC focused on combating diarrhea, through the Oral Therapy Extension Program (OTEP). It trained mothers to prepare and administer oral rehydration solution (ORS) from molasses and salt – ingredients available in every Bangladeshi home.

In 1986, BRAC started its Rural Development Program (RDP) consisting of four pillars:

  1. Institution building
  2. Functional education and training
  3. Microcredit
  4. Income and employment generation

From there, BRAC rapidly evolved into the world’s largest, most feted and diverse not for profit organization, offering holist development solutions to millions of poor people across the globe. Microcredit was but one strand of BRAC’s multi-faceted interventions to address poverty.

3. ASA: a frugal alternative for sustainable microfinance

Md. Shafiqul Haque Choudhury established ASA in 1978 to empower rural landless villagers from the bottom up through people’s organizations. Initially, ASA attempted to combine social development with credit provision, similar to BRAC’s approach. However, in 1991, ASA pivoted to a sole focus on microcredit lending. The objective of this shift was to overcome a dependence on international donor agencies and become a specialized microfinance organization that was financially self-sufficient. ASA soon became the most profitable MFI in Bangladesh, generating annual net surpluses since 1992. As a result, ASA consistently recorded some of the highest return on assets and operational self-sufficiency among MFIs. As of 2019, ASA has a return on assets of 5.9% and a return on equity of 11.11%.

 

ASA’s self-reliant model is based on standardization of operations and streamlining of services. An easily replicable and low-cost branch model, and decentralized approach allowed ASA to make quick decisions. ASA was able to reinvest surpluses from the individual branch operations to multiply their branches, turning the organization into a fully self-sufficient entity independent of donors and commercial creditors alike. ASA focused on growing its standard product instead of product diversification, which resulted in ASA capturing a large share of the untapped market through its efficient delivery mechanism.

4. BURO Bangladesh: bridging the gap between microcredit and microfinance

Since its inception in 1990, BURO identified and responded to poor people’s need for savings services. Grameen Bank and BRAC offered only locked-in “compulsory” savings. This meant that customers could not withdraw their savings at will, and were only able to access them when permanently leaving the organization. BURO introduced partial savings withdrawal in 1990, and moved to completely open access saving system unaffected by loan outstanding in 1998. This led to a substantial increase in deposits and net savings. BURO’s approach led to protests and mass default by Grameen Bank’s clients in the mid 1990s, demanding access to their locked-in savings.

Based on the experience gained during its formative years, BURO acknowledged that microcredit in a vacuum is not effective in significant poverty alleviation, let alone poverty eradication. BURO revolutionized the microcredit landscape of Bangladesh by overcoming the industry’s obsession with credit alone and integrating savings into the range of offerings for the clients. BURO continues to lead much of the innovation and broadening of the range of financial services offered by MFIs in the country.

5. How did these four perform?

The graph below highlights the ebb and flow of membership amongst the “big four” as they grew and adjusted overtime. Grameen Bank’s rapid growth in membership starting in 2002 reflects the introduction of the popular Grameen II model. The reduction in membership by BRAC and ASA from 2007 highlights their concerns about multiple membership and over indebtedness, which was beautifully highlighted by Chen and Rutherford in 2013. There is little question that multiple membership of MFIs continues today – indeed it offers a way for borrowers to navigate the largely inflexible annual loan with weekly repayments offered by them all.

Loans outstanding have grown similarly, but the scope and scale of BRAC and ASA’s larger individual lending programs means that their average loan size per member is significantly higher than that of Grameen Bank.

 

The profitability of these organizations also varies significantly. ASA, through is simplified model, and BRAC through cross subsidies from its other programs, generating much larger surpluses each year.

6. Influence and global expansion of microfinance models of Bangladesh

The biggest impact that came as a result of Grameen Bank’s early success was convincing the banks and other people that the poor are bankable, they utilize their loan and repay on time, performing better in contrast to the wealthy borrowers of the bank. The simple effectiveness of the model conceived by Grameen Bank has inspired many NGOs to emulate the model and offer similar financial services to the poor. Professor Yunus created Grameen Trust in 1989 as a private, not-for-profit NGO to cater to the demands of people and organizations that wanted to learn how to replicate the success of Grameen Bank. Since its inception, Grameen Trust has provided assistance to 151 organizations in 41 countries.

BRAC rapidly expanded its operations across geographies in Africa and Asia in the 21st century. BRAC established Stichting BRAC International in 2009 as a non-profit foundation headquartered in the Netherlands to manage all BRAC entities outside Bangladesh. BRAC commenced operations in Afghanistan, Sri Lanka, Uganda, Tanzania, Pakistan, South Sudan, Sierra Leone, Liberia, the Philippines, Myanmar, Nepal, and Rwanda in a span of less than two decades from 2002 to 2018. By 2020, BRAC had already been ranked the #1 NGO in the world for the fifth consecutive time by NGO Advisor, an independent Geneva-based media organization. BRAC ranked as the top NGO for the first time in the Global Journal’s list of the 100 Best NGOs in the world in 2013.

ASA has also expanded its operations beyond Bangladesh, as international roll-out of the ASA model has resulted in sustainable growth and returns.

ASA International currently has 1,961 branches, over 2.4 million clients, and an outstanding loan portfolio of USD 418.5 million in thirteen countries outside Bangladesh.

Fifty years on Bangladesh has exported a remarkable diversity of products from garments to ORS, but one of its key legacies is microfinance – in many forms.

SI #10-Reimagining the way we examine women-run businesses

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Under the Corner Shop Diaries project, we analyzed six months of global data through a gender lens. In this slide deck, we unpack major differences between enterprises run by women and men, the roles that social norms play, and what is needed to reimagine the way we examine women-run businesses.

Webinar series- Inspiration, Insights and Learning’ (I2L): Women-owned enterprises amid COVID-19: Strategies to support survival, revival, and recovery

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We featured a conversation with three young women entrepreneurs from Africa and Asia who shared their journey while navigating the fallout of COVID-19. We also organized a discussion with an expert panel of gender-focused chief executives of philanthropic organizations that work to advance financial and social inclusion for low- and moderate-income populations. Panelists discussed the impact, challenges, opportunities, and way forward in these testing times.

The key themes for discussion were:

  1. The impact of the COVID-19 pandemic on women entrepreneurs and their coping strategies
  2. Lessons learned during the pandemic to inform strategies and policies to “build back better”
  3. Deliberate on ideas that would enable all segments of women entrepreneurs to operate in the new normal and build resilience to such crises
  4. The role of key stakeholders, such as governments, donors, and financial service providers, in aiding a post-COVID recovery.

1:40 – 03:27  Doreen Njau, Communications Manager, Anglophone Africa introduces the three young women entrepreneurs from Africa and Asia

04:05 – 15:64 Doreen speaks to the three young women entrepreneurs who share the challenges they faced as entrepreneurs while navigating the pandemic, the opportunities they see, their needs, and their aspirations

04:13 – 07:10– Rahab Wangari, Director and Co-founder at Hepta Analytics Limited talks about her background and her entrepreneurship through COVID-19.

07:19 – 10:52– Semhal Guesh- Founder & CEO of Kabana Leather gives her experience while navigating her enterprise through COVID-19.

11:19 – 15:64 – Nasima Aktar Nisha- Founder and President of Women and e-Commerce (WE) contributes to this conversation and gives an example of how some female microentrepreneurs in Bangladesh have pivoted and built resilience during the pandemic.

17:14 – 25:13 – Sonal Jaitly, Gender Equality and Social Inclusion Lead, MSC gives the context of the discussion and introduces the panelists.

25:26 – 25:56 Sonal Jaitly introduces the first topic on the impact, barriers, and if we are yet to understand the depth of the impact.

26:24 – 28:23–  Evelyn Stark, Senior Advisor, Consultant, Partner in Financial Health, responds to Question 1: Data shows that the pandemic has had an impact on all MSMEs. What key socio-economic issues have made women entrepreneurs more vulnerable when it comes to their financial health and expansion of businesses?

29:10 – 35:22 – Jamie Zimmerman, Gender Lead, Financial Services for the Poor, at the Bill & Melinda Gates Foundation, responds to Question 2: What do you think have been the short- and long-term impacts of COVID-19 on women entrepreneurs?

37:03 – 44:44– Joyce Muchena, Gender Lead at Mastercard Foundation responds to Question 3: Several countries are dealing with not just the first but also the second and third waves of the pandemic now. We have a large amount of data on the impact of the first wave—what additional work needs to be done to deepen our understanding of the impact of later waves of the pandemic?

46:37 – 52:36 Nicholas Collof, Executive Director at Argidius Foundation responds to Question 4: In your experience what key barriers do women enterprises face in their path to recovery?

53:35 – 54:00 Sonal Jaitly introduces the second topic on key opportunities to build back better

54:25 – 1:01:10 Evelyn Stark responds to Question 1: In your view, what key opportunities have emerged from this pandemic to further the financial health of wMSEs? What roles should the public and private sectors play?

1:02:51 – 1:11:34 Joyce Muchena, responds to Question 2: Even before the pandemic, financial markets did not work well for women entrepreneurs—especially as most of them remain concentrated in the informal sector. What are the opportunities for financial markets to better serve women entrepreneurs, especially in the informal segment?

1:12:17 – 1:18:15 – Jamie Zimmerman responds to Question 3: How can Digital Financial Services play an important role in helping women entrepreneurs recover from the impact of this crisis?

1:19:48 – 1:24:34 – Nicholas Collof responds to Question 4: What are some of the opportunities to improve the effectiveness, reach, and quality of business development services for women entrepreneurs?

 1:25:58 – 1:34:54 – The panelists respond to a round of questions from the audience

Question 1) How do we build digital capacity that incorporates the community building and relational benefits of face-to-face encounters?

Question 2) Thank you for raising “segmentation,” and the need for “’integrating”’ with other sectors (for example, business support), as well as gender issues at the household and community level.

Can you highlight for example, good practices, especially on “gender-transformative” interventions…?

Question 3) What are the donors and funders doing to help the solution providers (tech providers) to move from Idea to PoC as soon as possible so that the entrepreneurs can benefit from this and reach their customers from their comfort of home?

1:38:21 – 1:43:54 Graham Wright, Group Managing Director, MSC presents the concluding remarks.

Way Forward for Delivery of Food Subsidy in India: Lessons from Unconditional Cash Transfers

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This policy brief highlights the key findings from an assessment of unconditional cash transfers in food subsidies in three union territories in India. It also contains recommendations for the food subsidy program in India. The note recommends the Indian government to allow the beneficiaries to take rations from any fair price shop in the country and diversify the beneficiary food basket; focus on improving nutritional literacy; and strengthen the value chain of food subsidy delivery