- Agrifintech startup Verqor has raised $7.5 million in funding to connect more farmers with credit via its alternative underwriting process.
- Funding includes a $4 million pre-Series A led by Yara Growth Ventures. Accion Venture Lab, SP Ventures, GLOCAL, and Amplifica Capital also participated.
- The remainder of the new capital comes via a $3.5 million debt round from Co_Capital and Addem Capital.
- Verqor will use the capital to expand in Mexico as well as become a direct financial lender to farmers and approve loan applications in “48 hours or less.”
Revamping credit criteria for farmers
More than 90% of Mexico’s farmers lack access to formal financing, according to Verqor. Much of these farmers’ business is conducted with cash rather than online banking and credit cards, resulting in a lack of records that makes it difficult to obtain a traditional loan from a bank.
Climate change adds yet more risk to farmers’ would-be credit. Extreme weather events are on the rise, upending crop yields and impacting farmer incomes, making access to finance even less possible.
And yet, for small-scale farmers operating on thin margins, credit is essential at the start of a season in order to plant crops and acquire the equipment and inputs needed to grow a high-quality product. This lack of credit contributes to perpetual poverty: around 78% of Mexico’s 5.2 million farmers face multidimensional poverty right now.
Verqor’s solution is to bypass traditional loans and offer cashless credits to farmers based on alternative criteria than that used by traditional banks.
Rather than evaluate a farm’s paying capacity via a credit score, Verqor’s underwriting process relies on historical data about the farm’s productivity in addition to normalized difference vegetation index (NDVI) factors like supply chain and weather trends, price fluctuation and yield information.
“Fiscally, the farmer may have a lot of losses because they sometimes [can’t prove] income with invoices,” Verqor CEO Hugo Garduño tells AgFunderNews. “They also use fiscal strategies where not all the inflows of money enter into their bank accounts because there’s a lot of cash in between [e.g., low-paying middlemen]. This is what we are solving: how to see all information and analyze whether the business is profitable or not.”
Once approved, farmers receive credits to purchase inputs, which Verqor delivers directly to them, cutting out the middlemen. The company also connects farmers to corporates (AB InBev, Heineken among them), importers, and exporters, who purchase products directly.
Farmers repay their loan via the Verqor platform once the crop cycle is complete.
“Verqor has created a closed-loop system that addresses some of the major challenges preventing farmers from accessing credit,” Sebastian Molina Gasman, Latin America Investment Officer, Accion Venture Lab, tells AgFunderNews.
“Through partnerships with farmers, produce buyers, input retailers and financial institutions they ensure that loans are used productively and repaid once harvests are sold. In markets where agriculture is highly fragmented, such as Mexico, we believe that a more holistic view into a farmer’s value chain is needed to increase access to credit.”
Towards on-balance lending
Up to now, Verqor has pre-certified farmers before sending them to a formal financial institution, which agrees to assess farmers’ applications based on Verqor’s alternative underwriting process.
Series A funding will enable Verqor to transition from being this type of “off-balance sheet” lender to an “on-balance sheet” one, says Garduño.
“With the transition to an on-balance sheet, we become the financial lender,” he notes.
He stresses that Verqor isn’t shutting down its relationships with third-party banks, and will transition roughly 60% of its business to on-balance while keeping the other 40% off.
Behind this transition is Verqor’s goal to launch “the fastest credit for agriculture in the country.”
“We’re planning to be able to approve credit in less than 48 hours, which is going to be the fastest credit for agriculture in Mexico,” claims Garduño.
“When it’s off balance sheet, we have to adapt to the conditions of the other financial partner, and it may take a week, two weeks to get approved.”
Verqor will use the new funding to make changes to its back-office automation in order to cut this timeline down to 48 hours or less. This will include launching new automations, including some AI capabilities, as the company works to digitize most of its processes.
The company will also expand throughout Mexico and continue building up its network of ag corporates and other partners.
All of this, says Garduño, “gives farmers the chance to access credit they will never get in traditional financial institutions. This goes together with the credit lines we run. One of our main competitive advantages is the way we analyze and mitigate the risks in agriculture.”