When Arvind Sharma, Head of Priority Sector Lending, and his team at DBS Bank India, conducted a review of their organic cotton farming pilot programme last year, they did not anticipate the extent to which the project would benefit the lives of small-scale cotton farmers.
The pilot programme revolved around Inditex buying organic cotton through Farmer Producer Organisations (FPOs), which are farmer-owned companies that help improve the livelihoods of member farmers in India.
“The partnership with Inditex was met with great excitement as the Bank had always been a champion for such causes. Prior to this partnership, DBS had already been offering green bonds and working on renewable energy projects,” shares Arvind.
Committed to a cause
The pilot is in alignment with DBS Bank’s vision to lead change for better outcomes through responsible financing, with a clear focus on encouraging sustainable practices among their business clients.
“This partnership is perfectly aligned with the bank’s three pillars for sustainability - responsible banking, responsible business practices, and creating social impact,” says Arvind.
“This is why, despite the risks associated with lending to smallholder farmers, DBS was committed to partnering with Inditex,” adds Gaurav Jain, Senior Vice President, Priority Sector Lending, DBS Bank.
The project involved partnering with NGOs, which played an important role in the transfer of best practices to the farmers in areas such as buying organic cotton seeds, performing soil testing, applying for the necessary certifications, market linkages, etc.
Another key player in the ecosystem was Samunnati Financial Intermediation & Services Private Limited (Samunnati) - a non-bank finance company in the agriculture domain. Samunnati’s domain knowledge in FPO evaluation assisted DBS in structuring the low interest rate financing for this initiative.
Apart from improving farmers’ livelihoods, Inditex pays a premium for organic cotton sourced from this initiative. The financing solution has also improved transparency in supply chains and traceability and integrity of organic cotton farming.
A gratifying project in more ways than one
Besides being in line with the organisation’s sustainability mission, the pilot programme was also deeply satisfying for the team at DBS, given the difference it made to the farmers’ lives. As Arvind says, the greatest satisfaction derived from this project was in knowing how the loans provided by DBS helped these small-scale farmers escape the clutches of moneylenders, who were charging exorbitant interest rates.
“It was heartening to see the positive impact of the programme. Seeing the smiles on the faces of the farmers made this pilot a truly worthwhile effort,” says Gyan Prakash, Regional Head of Priority Sector Lending, DBS Bank India.
To date, the programme has benefited about 2,000 farmers in India with the potential to scale up to 25,000 farmers. The injection of cash into the ecosystem has allowed the FPOs to pay farmers in a timely manner, thus improving their cash flow. The boost in income meant that these farmers no longer had to migrate to cities in search of employment to supplement their livelihoods. It also meant that they could spend more quality time with their loved ones.
“Many of these small-scale farmers are often strapped for cash. Previously, some of them would resort to selling their more valuable organic cotton as regular cotton just to tide themselves through. What this means is they get short-changed for their efforts,” explains Arvind.
The initiative also helped improve their health, as Gyan shares, because of the reduced usage of harmful chemical fertilisers and pesticides in the organic cotton farming process.
According to the National Center for Biotechnology Information, pesticides have resulted in serious health implications to humans and the environment. A PwC report cites WHO findings to highlight the potential risk posed by these chemicals to human health and other life forms, besides their adverse impact on the environment. The report adds that high risk groups exposed to pesticides include production workers, formulators, sprayers, mixers, loaders, and agricultural farm workers.
The World Wildlife Foundation has also found that it takes a staggering 2,700 litres of water just to create a single T-shirt using regular cotton. According to Textile Exchange, a global non-profit that champions the use of sustainable fibres, the production of organic cotton requires less surface and groundwater compared to regular cotton, making it a more environmentally friendly option.
Partnering for sustainability
The initiative comes in the wake of increased need for businesses to adopt sustainable and net-zero models and adapt their supply chain/business models to decarbonise.
According to the report, more than 50 percent of countries, states and cities, amounting to more than 50 percent of the global GDP have pledged net-zero targets by 2050, and this means that businesses too have to make the commitment. In fact, as the report points out, there is increasing pressure on organisations to chart their decarbonisation strategies to support their respective governments in achieving carbon neutrality goals.
These carbon neutral strategies in fact, cut across important areas such as supply chains. But studies also point to the challenges faced by organisations while transitioning to low-carbon models and the need for the right partnerships to overcome these challenges, particularly on the cost and technology fronts. This is where the role of experienced and purposeful banks, who can finance the transition towards carbon neutral and other sustainable practices, becomes critical.
Pioneering a change
The pilot programme is in fact a noteworthy example of path-breaking change in the whole segment. “We were the first off the block to figure out a way of lending to the FPOs. We also helped Inditex review the legal and documentation structure required and determine the flow process for transactions and financing,” says Arvind, adding, “As such, DBS can now be considered part of a pioneering effort in structuring an ecosystem for organic cotton farming in India, something that is meaningful for both the Bank and society.
Gaurav also points out that this project was made possible only due to the collaboration across colleagues in India, London, and Singapore offices.
“Although the pilot program is small and offers little revenue in exchange for the amount of effort required, no one had any qualms about bonding together, despite the difference in time zones, to make this partnership with Inditex work. Everyone saw this as a coming together of like-minded organisations, with a common purpose,” he explains.
In Arvind's words, the journey with Inditex has been nothing short of "phenomenal".
Reach out to DBS Bank India to find out how we can help your company grow sustainably: https://bit.ly/341ynS9