Innovations in financing the replanting of smallholder oil palm

The recently announced investment of RM510mil for smallholder oil palm planting is impressive, but the scale of demand is even greater.

In Malaysia, Prime Minister Najib has just announced an allocation of RM510mil (c. US$120M) for smallholder oil palm replanting/new crop planting. This is an impressive scale of investment, but the scale of demand for financing for smallholder replanting in South Asia is even greater.

Millions of smallholders have oil palm plantations that will reach the end of their economic rotation over the next decade. Many who used poor quality planting material when establishing their plantations could realise long term gains through early replacement with improved hybrids. But how can smallholders raise the finance for replanting and to cover the 3-4 year income gap before the new crop starts producing?

SHARP partner SNV is working on this problem with local and international partners through the Transitioning Smallholders to Sustainability Initiative (TSSI). This consortium is looking to build a pipeline of bankable smallholders in Indonesia and then link them to international lenders. TSSI reckon there is a total market opportunity of US$ 700M investment/year in Indonesia alone. Their innovative approach combines risk assessment at group and individual level, cash flow forecasting and credit scoring, loan portfolio development and targeted technical assistance for inclusion of farmers currently in the higher risk categories. The TSSI consortium was one of 9 innovations with breakthrough ideas for sustainable palm oil recently recognised by the the Sawit Challenge. 

Watch the TSSI video here and view their presentation on Making Smallholder Replanting a Reality.