FinTechs Can Help Close Climate Resilience Gaps in Emerging Markets
The fuel crisis the spread across Europe and Asia highlights the weather-related vulnerabilities facing global energy systems. As wind and solar flicker intermittently, power generation has defaulted to gas, where demand is squeezed by heating needs in early fall and electric cooling in late fall. been all over Eurasia. The reverberations of the February polar vortex in Texas, which frozen gas production – continue to be felt as the resulting low reserves dry up and Gazprom procrastination. The resilience of energy supply chains is tested and failed.
Fuel interruptions are one thing; food shortages could be even more dire. The energy and food markets have become more and more intertwined as growing demand for biofuels drives up prices for grains and oilseeds. Agriculture is even more vulnerable to climate impact than fuel; this summer alone has seen Drought beat the grain belts of North America and Central Asia, while BrazilâA world leader in food products â is ravaged by forest fires, drought and frost, leaving agricultural markets in turmoil.
To ensure the resilience of the sector, supply chains must be strengthened, risks must be better understood and new capital must be mobilized to enable the global food system to withstand increasingly severe climate shocks. In short, what is needed is financial innovation.
Emerging and frontier markets have proven to be fertile ground for new financial technologies, or âfintechâ. Rapid economic growth and large segments of the population that are digitally connected but without access to traditional banking services have enabled these countries to take the leap into financial post-modernity. In China, AliPay and WeChat Pay pioneered mobile payment innovations to accumulate over a billion users each, becoming powerful enough for the Communist Party to launch a repression.
Outside of China, other markets have created their own fintech giants. In Brazil, the banking bureaucracies that make obtaining credit cards a Kafkaesque ordeal have allowed the growth of Nubank, whose streamlined approval process has attracted 40 million customers, making it the world’s largest digital bank. In Kenya, M-PesaThe s mobile app manages salary deposits, insurance and bill payments to the point that half of Kenya’s GDP is transferred to its servers. During this time, PaymentâA phone recharge service turned digital transfer platform, insurance broker and deposit bank â is gearing up for an international public offering that is expected to be the largest ever in India at $ 2.2 billion.
Mobile payments are the bread and butter of the fintech industry, but a new generation of ‘agri-fintech’ companies is emerging in countries where agriculture accounts for the lion’s share of production economic and employment. Their services are essential for building the resilience of small farmers.
Improvements in underdeveloped agricultural supply chains strengthen the smallholder business model. Business-to-business and e-commerce applications specializing in food systems have used algorithms to streamline logistics and eliminate expensive middlemen, lowering prices while boosting prosperity for farmers. Based in japan Secai Marche stands out, directly connecting farmers in ASEAN countries to the Japanese food and restaurant industry, thanks to its AI-based algorithms that predict demand and assign orders to the most efficient mode of transport.
Optimizing supply chain logistics is not the only way to build resilience. New methods of insuring against climate-related risks can enable small farmers to survive weather disasters and spare the sector economic hardship healing plaguing the post-pandemic restaurant industry. Etherisk uses the Ethereum blockchain to trigger automatic payments when certain weather conditions are met, thus avoiding the travel and verification costs associated with traditional insurance models. from Ghana World coverage, meanwhile, uses data from satellites, ground sensors and GPS to assess climate risks and customize farmers’ coverage based on their portfolio of crops verified by mobile.
New funding will also be essential for equipment and climate resistant seeds purchases necessary to strengthen peasant agriculture. In India, Jai Kisan uses a credit risk algorithm that allows it to provide low cost loans to farmers without a traditional credit history. from Kenya FarmDrive has its own algorithm that it uses to connect farmers to a credit market while allowing lenders to digitally monitor loans. During this time, TraiVe uses AI to provide lenders with risk analysis and crop diversification, enabling them to provide loans to Brazilian farmers at low interest rates.
Yet the race to encourage and attract agro-fintech champions to regional hubs has not yet mirrored the broader fintech race. While Dubai and Singapore have set up dedicated fintech centers, agro-fintech centers in India, Brazil and Kenya have appeared more randomly.
Kazakhstan, where the Astana International Financial Center (AIFC) and its Technical center have been proactive in growing everything from agritech to satellite technology. The recent AIFC agreement with OneWeb accelerating broadband connectivity through space portends Kazakhstan’s diversification from extractive industries (hydrocarbon production accounted for 21% of GDP and around 70% of exports in 2020) to services. Indeed, Kazakhstan’s flagship financial institution is designed to facilitate the central Asian country’s pivot to a high value-added and more resilient economy in all sectors, including agriculture.
In 2019, Kazakhstan’s agricultural sector saw a 41% increase in investment year-on-year, totaling $ 1.1 billion. The forecast for Kazakhstan’s agro-industrial sector now stands at almost $ 10.3 billion increase over the next five years. As Kazakhstan and the United States celebrate thirty years of diplomatic relations, American investors and businesses can find many opportunities in this emerging and growing economy, from hydrocarbons to renewables, from rare earths and metals to fintech to agriculture.
For more, please be sure to connect to the virtual panel of the International Tax and Investment Center Wednesday October 6 where we will discuss our latest report 30 years of bilateral relations: the special US-Kazakhstan relationship. The panel will include Yerzhan Ashikbayev, Ambassador of Kazakhstan in the United States, Amy Conroy, Chevron representative
, Alibek Kuantyrov, Deputy Minister of the Economy, and other high-level speakers.
As lessons are drawn from the fuel crisis, public and private sector actors must act quickly to ensure that critical supply chains can withstand the shocks of increasingly severe climate impacts. The flexible and fast fintech sector will have to be part of the solution. Otherwise, empty gas stations could soon turn into empty grocery shelves.
With the help of Paddy Ryan