DBS Bank has collaborated with Inditex, a fashion retailer which owns brands such as Zara, Pull&Bear and Bershka, to launch an organic cotton procurement financing pilot programme in India with an aim to scale its organic cotton industry. While India is the largest producer of cotton, organic cotton comprises around 2 per cent of the total cotton produced.
India has the greatest land area used for cotton cultivation in the world. With growing focus on climate risks and social inequality, the global cotton industry offers huge opportunity to invest for positive impact, said Terence Yong, group head of Western Multinational Corporations, DBS Bank. “Globally, our clients are increasingly mindful of looking for ways to add societal and environmental value through their business decisions, with many taking the leap to digitalise their supply chains to enhance transparency and traceability of transactions made,” said Yong.
“The pilot programme forms an integral part of DBS India’s larger plan to build its priority sector lending business. Priority sector covers under-banked sectors which the Reserve Bank of India (India’s central bank) considers important for the overall development of the economy – including agriculture; small businesses; affordable housing; education and renewable energy,” said Arvind Sharma, head of Priority Sector Lending, DBS Bank.
Currently, key challenges for India’s organic cotton industry include a highly fragmented farming community comprising close to 170,000 farmers scattered across mainly nine states, with the majority comprising small-scale cotton growers with limited financial means and knowledge to invest in and implement sustainable farming practices; a disconnect in demand and supply due to a lack of transparency in supply chains with much of the trade remaining manual in nature; and a lack of traceability and integrity as to whether the organic cotton has been farmed and processed in a sustainable manner resulting in farmers being unable to transact at a premium.
To address these pain-points, DBS through its partnership with Inditex, will leverage the network of local Farmer Producer Organisations (FPOs) to reach more than 2,000 farmers in Inditex’s supply chain to evaluate their financing needs. Under the pilot programme, DBS will then arrange financing for the FPOs to procure organic cotton from the farmers in a timely fashion. This provides farmers greater visibility of their cashflow, enabling them to better plan their business needs and in turn, grow their sustainable farming operations.
Transparency is also another benefit of the pilot programme as it eliminates the middlemen in the organic cotton supply chain. The pilot programme combined with other tracking mechanisms enable Inditex and cotton spinners in its ecosystem (which comprise the main buyers of cotton from farmers) to trace the source of the cotton directly and ascertain if it had been farmed sustainably, ensuring farmers secure a higher premium for their organically harvested produce vis-à-vis traditionally farmed non-organic cotton.
In terms of environmental impact, traditional farming practices have resulted in soil fertility challenges across India. With easier and faster access to funds facilitated through the pilot programme, DBS, in partnership with Inditex, is hopeful that this will encourage more farmers to farm organic cotton and to adopt sustainable farming practices.