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Photo credit: Olam

Olam secures $176m financing to foster digital adoption among Asian smallholders

May 17, 2020

Singapore-based agribusiness Olam has secured loans worth $176 million from International Finance Corporation (IFC) – the World Bank‘s investment arm – and the Japan International Cooperation Agency (JICA).

Olam will deploy the capital to boost the smallholder-dominated commodity crop sector across Asia and Africa. This will include a drive towards more widespread use of digital technologies among farmers in these regions.

The package consists of two tranches: a five-year, $120 million term loan, and a seven-year term loan worth $56 million.

The financing will partly be used to buy agri-commodities from smallholders in Indonesia, Papua New Guinea, Timor-Leste, Uganda, and Vietnam. Olam will also use some of the funds to expand its Indonesian cocoa-processing facility.

Referring to the ongoing Covid-19 crisis, Olam managing director and group chief financial officer Neelamani Muthukumar said the loans will allow the Singapore-based company to provide “support, stability, and reliable market access to smallholder farmers, particularly in these challenging times.”

The funding “aligns with Olam’s core purpose of reimagining global agriculture and food systems, as well as IFC’s and JICA’s mandate of enabling inclusive economic growth with environmental stewardship,” he added.

Tomasz Telma, senior director, manufacturing, agribusiness, and services at IFC, said the investment “will help smallholder farmers in developing countries reach global markets and boost their incomes.”

He said that IFC, along with Olam and JICA, will work together to “help promote greater inclusiveness through better use of digital technologies as well as capacity-building at farmer level.”

Despite there being more specialist farmer apps than ever before, Southeast Asia’s smallholders still seem to prefer WhatsApp and Facebook. Find out why here.

In April last year, Olam was the recipient of the world’s first ‘Digital Loan’ – worth $350 million – which it said it will use to refinance existing loans.

A Digital Loan is a credit facility linked to the loanee’s ‘digital maturity’ as a business, based on an assessment using Boston Consulting Group‘s (BCG) Digital Acceleration Index methodology.

BCG says its index allows enterprises to “uncover their digital strengths and weaknesses, determine whether their digital capabilities are lacking or imbalanced, and evaluate how well they perform against peers in digital efforts.”

Olam was assessed across several areas of digital business transformation. These include how it’s driving its business strategy with digital technologies, its digitization of operations and support functions, and its enablement of others through its use of digital solutions. Improvements in any of these areas during the loan term can trigger a reduction in the interest rate payable by Olam.

Anantharaman Shekhar, executive director and group chief operating officer at Olam, described the Digital Loan as a “pioneering effort” that “links the interest rate on the loan to achieving measurable annual digital improvement targets.”

“This financing can be a good template to drive the agriculture sector’s digital transformation,” he said.

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