Enabling fair finance for Turkey’s farmers
How Tarfin is reinventing point-of-sale lending
By Johan Bosini
Mehmet Memecan spent six months driving across Turkey in 2016, nursing a fledgling idea for a business. He’d left a job in Switzerland and decided to use the journey home as a research trip, visiting farms, rural communities, and agricultural dealers. By the time he arrived home in Istanbul he was convinced he had an idea that could help farmers build their business through simple, fair, and responsible loans at the point of sale.
Farming is a hugely important sector in Turkey, where some 2.4 million agricultural workers account for 25% of the country’s employment. Turkey is the seventh-largest agricultural producer in the world, and a major grower of hazelnuts, chestnuts, apricots, cherries, figs, olives, tobacco, and tea. These are critical, long-term small businesses, yet aren’t big enough to be considered commercially viable by many traditional banks. Until Tarfin, farmers have had poor alternatives: expensive conventional credit cards; farming cooperatives with burdensome collateral requirements; and loans from the agri-dealers themselves, often with interest rates as high as 100%. With Tarfin, Mehmet set out to change that.
Geographically and historically, Turkey sits in a powerful position at the nexus of Europe, Asia, and the Middle East. It’s a new and exciting market for Quona Capital, one that allows us to leverage the fintech expertise we have developed in emerging markets across Africa, Asia, and Latin America. Since our firm’s inception as an investor in fintech for financial inclusion, we’ve invested in small business lending through tech-enabled lenders, neobanks, and payments businesses, amongst others. And a key part of our strategy is to support “embedded finance” models in emerging markets, businesses that are able to build up transactional data on their customers and use that insight to offer integrated credit and other financial services.
Building a foundation in data
In Tarfin’s case, there is already a relationship between the farmers and the 23,000 local agri-dealers they buy from, sometimes going back generations. Tarfin enables dealers to offer payment terms to customers in a way that is integrated into the buying process, asking the farmer questions about what they want to buy, where the farm is located, and whether they rent or own. Longer-term, Tarfin could integrate this data with services like mapping, building up lucrative knowledge of local agricultural trends including terrain, soil types, and local fertilizer use.
“It’s a real achievement for Tarfin’s engineering team to have built such accurate risk-scoring models that it has a default rate of less than 2%.”
Tarfin is already deploying some impressive machine learning that delivers a real-time risk-scoring decision at the point of sale. Some 90% of financing decisions are made this way, with no human involved, and as the system develops and gathers more data points, that will become 100%. It’s a real achievement for Tarfin’s engineering team to have built such accurate risk-scoring models that it has a default rate of less than 2%. Farmers can finance their purchases up to $6,000 through Tarfin, though the average is $1,100, and repay once they harvest, linking repayment to a moment in time where the farmer has cash income.
Taking business online
While Covid-19 has been devastating for Turkey, and for the world, it has made food security a higher priority and increased prices. Very few farmers funded by Tarfin in 2020 have defaulted on loans as a result, despite Covid. The launch of Tarfin’s app in Q2 2020 helped farmers to shop online during the pandemic, allowing them to find the best prices for the inputs they need. We believe that Tarfin could become quite disruptive, giving the farmer transparent pricing and the ability to buy from somewhere else.
That’s why Tarfin will eventually become a one-stop-shop for farmers. The platform can see what farmers are buying, planting, and selling so it can predict what is needed and when — and with great certainty. Manufacturers will want to advertise to this audience. Agri-dealers can have more oversight of the stock they will need and can push for bigger commissions from the manufacturers. It all means the balance of power will shift.
There are inevitable challenges. One is that access to debt is harder as an early-stage business, though they do raise capital through an innovative asset-backed securitization process. Tarfin’s talented CFO, Kerimcan Aycibin, has also been instrumental in managing this. There are also the familiar obstacles of growing in new markets: moving into a second market, for example, is not doubly complicated but exponentially so, with different currencies, regulation, and culture.
“It’s his ambition that makes Mehmet so compelling — he’s a really good guy with a profound knowledge of his market and creating a huge opportunity.”
Yet from the moment I met Mehmet, I was convinced he had the tenacity and depth of experience to open up this sector. Tarfin plans to expand into a new regional market in 2021, and will then begin expansion further afield in markets that have similar dynamics. It’s his ambition that makes Mehmet so compelling — he’s a really good guy with a profound knowledge of his market and creating a huge opportunity. Finding all three together is pretty rare.
Quona is proud to lead this US $5 million Series A, alongside Austrian Elevator Ventures and agricultural chemicals firm Syngenta, which will allow Tarfin to expand its team of 50 in Istanbul, and scale its business. We’re thrilled to be supporting them on their journey.
Disclaimer: Quona portfolio companies were selected for profiles based on objective, non-performance-based criteria for the purpose of illustrating the types of investment made by Quona funds and their impacts. These profiles are being provided for illustrative purposes only, in order to provide examples of the idea generation, research, and thought process of Quona investment teams. No representation is made as to whether or if the investment ideas represented in these profiles have been or will be profitable. It should not be assumed that Quona will be able to identify similar investment opportunities in the future, or that any such opportunities will be profitable. The above statements include the opinions of the Firm and are for illustrative purposes only. There is no assurance that any trends depicted or objectives described in Quona profiles will continue or become successful.