China’s agriculture financing has an RMB three trillion gap, according to a report released by the Chinese Academy of Social Sciences (in Chinese). Fintech companies are eyeing the potentially lucrative market but first, they need to overcome the unique challenges that the industry poses.

The Challenges

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In China, agriculture accounts for nearly 10% of the GDP but receives less than 1% of conventional bank loans. Farmers in rural areas are one of the groups with the least credit in the financial system and minimal online footprint. Risk is an urgent issue faced by agriculture fintech because of the lack of credit information and existing data for reference.

A well-known anecdote in the agriculture fintech industry goes that a lending platform provided credit based on the number of pigs a farmer owns. One pig was worth RMB 10,000 credit. So a farmer went and borrowed additional pigs from family and friends to get more credit – completely defeating the purpose of risk control.

Slowly but Surely

 Nongfenqi founder Zhou Jian
Nongfenqi founder Zhou Jian

Nongfenqi (农分期 or “Farmer Payment Plan” in English) is the leading agriculture fintech company providing credit to farmers for equipment, land or other capital expenditures. Founder Zhou Jian was born into a farming family and is keen to take the challenges of this industry head on.

“To do agriculture financing well, one must go into the soil with both hands and feet,” Zhou Jian told Sohu (in Chinese). “If you don’t go deep, then [the business] will die.”

To this end, Nonfengqi makes up for the lack of credit and data of its customers by doing the hard yards. The fintech company employs around 300 loan officers who work offline, each one responsible for two to three villages. Their first job in gauging the credit worthiness of a potential customer is by talking to others in the village.

“Risk control in rural villages isn’t actually as hard as everyone expected. People in the villages like to expose the shortcomings of others,” Zhou Jian explained to Sohu. “[We do not] lend to those who have applied for cash loans before, those with troubled families and those with an unsavoury reputation in their village.”

Following this policy, the rate of bad debt for Nongfenqi is only at 0.1% according to Zhou Jian. The company currently sets the annualized interest rate at around 10%. Founded in 2013, the fintech company has now lent to over 20,000 farmers, opened 100 offices and grew a 500-strong team. Nongfenqi completed series B earlier this year, receiving RMB 100 million.

Onwards and Upwards

Other than Nongfenqi, large technology companies have also entered the agriculture market, providing services from financing to e-commerce. Alibaba’s Ant Finance has 38.24 million registered farmer users of its online loan service and Jingdong has recruited over 10,000 rural ambassadors to promote its e-commerce platform to farmers.

Now with an official endorsement from the government, which released a recommendation encouraging agriculture financing, agriculture fintech is only going to grow even more.

“I used to have a small goal [a reference to Wang Jianling’s comment that RMB 100 million is a small goal] of becoming the richest man in my village. But now I don’t think I can ever achieve that,” Zhou Jian joked in an interview (in Chinese). “Because our village’s richest man is Liu Qiangdong [co-founder of Jingdong].”

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Linda Lew

Linda Lew is a Beijing-based journalist who covers technology, start-ups and business in China. You can reach her at lindalew at aliyun dot com.