Hello Tractor’s new pay-as-you-go (PAYG) program is bringing inclusive and sustainable financing to entrepreneurs across Sub-Saharan Africa to further its mission of increasing critical access to farming mechanization.

Globally, there is an average of 200 tractors per 100km2 of arable land. In Sub-Saharan Africa (SSA), however, this figure is as low as 27. Lack of mechanization has dire consequences for farmers – making it difficult to plant on time, leaving land under-cultivated and resulting in the forfeiture of potential earnings. In fact, studies show that 50% of Africa’s yield gap is due to a lack of equipment.

While Hello Tractor has made record-hitting strides in connecting smallholder farmers to existing tractor owners and operators since its inception in 2014 – with more than 500,000 farmers to date, presence in 15 countries, and 3,000 tractors on its marketplace – combating the issue of limited tractor supply is also a strategic priority.

Less than 1% of commercial lending goes to agriculture in Africa – conveying that this sector is grossly under-invested despite the crucial role that it plays in the long-term development of most African countries. Over 80% of the population in sub-Saharan Africa is dependent on the agricultural sector. Accelerating its growth is crucial for combating poverty.

Traditional commercial lenders have underwriting standards that are most often impossible for marginalized individuals to hurdle, namely high liquidity thresholds, steep collateral requirements, high-interest rates and large down payment minimums. Furthermore, these banks typically lack facilities and a boots-on-the-ground presence in target farming regions. As a result, there is a limited understanding of agricultural market dynamics.

Microfinance institutions have been working to be more inclusive to individuals that don’t qualify for commercial loans. Having a physical presence in remote regions, teaching capacity building and providing loans that typically range from $1,000 – $15,000. These loan sizes, however, are inadequate for the financing of farming equipment (such as tractors and combine harvesters).

Young man operating tractor on the field in Nigeria.

Hello Tractor’s PAYG program combats all of these challenges. The company combines its IoT-enabled digital solutions with an innovative credit framework created in collaboration with Moody’s, providing asset financing to individuals who traditionally lack access to capital. Under the scheme, tractors are underwritten with pre-booked servicing routes on the Hello Tractor marketplace and debt repayment is automatically captured at the time of servicing (through a payment rail created in collaboration with MasterCard).

The PAYG program accelerates financial inclusion via technology and automation.

  • Traditional banking history is not required. Hello Tractor’s payment rail provides real-time transparency into cash flows, leveraging a digital wallet system for the acceptance of service revenues and corresponding loan repayments.
  • Should a borrower’s credit profile deteriorate during the life of the loan, the automated payment rail enables Hello Tractor to capture excess repayments to further build cash reserves over time.
  • The financed asset serves as collateral, making cash recovery possible in the case of borrower default.
  • Hello Tractor works to supplement borrowers’ pre-booked business plans with the company’s route optimization tools, insights on partner demand and farmer marketplace.
  • Hello Tractor is using innovative last-mile marketing to incline more women to book services and apply for PAYG loans, with a target of 50% women ownership.

Hello Tractor is proud to have begun phase 1 of the PAYG program in partnership with Heifer International, currently serving East Africa and Nigeria. In phase 2, a ring-fenced structure will be established to invite co-investments from external funds with an expectation of financing 400 tractors.

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