• Thursday, April 18, 2024
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How Zowasel links farmers with finance through Alternative Credit Evaluation Scoring System

How Zowasel links farmers with finance through Alternative Credit Evaluation Scoring System

Zowasel, an agric tech firm building the future of sustainable agriculture, has released an Alternative Credit Evaluation Scoring System (ACESS) – an ethical credit scoring and loan assessment tool that bridges the gap

between farmers and financial institutions to unlock access to alternative financing across the agricultural value chains.

The project was in collaboration with the Japan International Cooperation Agency (JICA), the office for Nigerian Digital Innovation (ONDI), and Mitsubishi Corporation, Nigeria. The credit scoring project is part of JICA’s Next Innovation with Japan (Project NINJA), a platform for entrepreneurship support that nurtures entrepreneurs and companies that can solve social issues as businesses and create high-quality jobs to assist nation-building in developing countries.

After about two years of dedicated development and piloting, ACESS is now available on the Zowasel platform and open to smallholder farmers and farmers groups in Nigeria. The system enables farmers-facing organisations to digitize their farmers’ footprints by collecting relevant data points across agricultural value chains. It then assesses their creditworthiness, enabling financial institutions to make prompt lending decisions in a low-risk, cost-effective, and efficient manner.

The project was initiated in June 2022 as an initial Proof of Concept implemented in farming communities in Doma Local Government Area, Nasarawa State, and Ileoluji and Oke-Igbo Local Government Area, Ondo State. The primary goal is to enhance access to finance for smallholder farmers, ultimately improving their livelihoods and supporting food security in Nigeria.

“This is a good example of the collaboration between the Japanese corporates and Nigerian startups, which has a lot of impact on the Nigerian afri-tech/fintech sector and an entire ecosystem,” Nao Fuwa, a JICA Expert, expressed enthusiasm for the project.

Among the financial institution partners and early adopters are VFD Microfinance Bank, Nigeria, and SimpliFi Financial Services, UK. The technology provides these institutions with seamless access to customer data, enabling creditworthiness checks and KYC verification, thus streamlining the lending process and saving valuable time and resources.

ACESS is a comprehensive risk assessment model and loan calculator. Through its scoring methodology, it determines credit risk by calculating farmers’ working capital needs and the most likely yield and income from agricultural activities to suggest loan limits in line with repayment capacity and real needs of the farmers, as well as providing recommendations on loan maturity.

Powered by an AI-powered Predictive Dynamic System (PDS) and a human-powered Dynamic Variable System (DVS), the tool assigns scores and grades to potential farmers based on the computation of the sum of weighted attribute scores determined from all data points.

The system uses alternative data provided by farmers to generate a score based on its proprietary algorithm. The score ranges from A to F depending on the farmer’s profile and data provided. The Alternative Credit Assessment Report (ACAR) is a digital report that contains the farmer profile, Zowasel score, and grade eligibility. Based on the CAR, financial institutions can provide financial products like crop loans, agro-input loans, mechanization loans, crop insurance, etc.

This offers financial institutions the flexibility to dynamically add new variables and weight attributes to compare data analytics for quick lending decisions in a low-risk, cost-effective, and efficient environment. It allows for effective time and risk management for agricultural lending, enabling financial institutions to access customer data at a glance for creditworthiness checks and KYC verification to make quick lending decisions in a low-risk, cost-effective, and faster environment to save time and money.

ACESS can assess various loan requests on working capital, cultivation, and machinery, as well as equipment for various activities. It is hence ideal for farmers and agricultural enterprises involved in agricultural activities. ACESS also helps structure their payment schedule and better evaluate repayment capacity.

“The AI-powered Predictive Dynamic System (PDS) and human-powered Dynamic Variable System (DVS) will revolutionize the bottom of the pyramid credit landscape by providing fintech and financial institutions with the opportunity for quick lending decision-making capabilities in a low-risk, cost-effective, and efficient environment,” said Jerry OCHE; Zowasel’s CEO while commenting on the trail.

During the pilot phase, about 700 smallholder farmers and over 100 farmers-facing organisations across Nassarawa, Ondo, Kwara and Oyo States met the minimum credit scoring and analysis assessment out of about 2,000 participants who did not meet the data requirements for credit scoring assessment.

Samuel Sabo, a beneficiary of ACESS from Doma Local Government in Nasarawa State, shared his experience of receiving fertiliser and seeds for loans, which significantly improved his farm yield and facilitated the payment of his children’s school fees. Samuel’s story underscores the transformative impact of ACESS on the lives of smallholder farmers, providing them with the necessary resources to thrive.

The initial pilot during the 2023/2024 farming season saw about $250,000 in successful loans disbursed to qualified farmers and farmers-facing organisations for cultivation and harvest purposes across the grains and cash crops value chains.