DBS Bank has partnered with one of the world’s largest fashion retailers, Inditex, which owns brands such as Zara, Pull&Bear and Bershka, to launch an organic cotton procurement financing pilot programme to ramp up efforts to scale India’s organic cotton industry.
While India is currently the largest producer of organic cotton globally, with the greatest land area used for organic cotton cultivation in the world, organic cotton only comprises of 2.29% of the total amount of cotton produced in India.
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 farmers’ 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.
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.
The partnership will address key challenges in India’s organic cotton industry including:
i) a highly fragmented farming community comprising close to 170,0001 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;
ii) 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
iii) 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
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 (who comprise the main buyers of cotton from farmers) to trace the source of the cotton directly and ascertain if it has been farmed sustainably, ensuring farmers secure a higher premium for their organically harvested produce vis-à-vis traditionally farmed non-organic cotton.
Encouraging positive social and environmental shifts for a more sustainable future
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 to nurture India’s agricultural pastures back to health.
To drive further progress, DBS advocates the scaling up of transition finance and supporting of like-minded clients, such as Inditex and its ecosystem of supply chain partners, to adopt sustainable business practices to work towards the UN’s Sustainable Development Goals.
To increase its support for businesses seeking to achieve their sustainability ambitions, DBS has committed to finance SGD50 billion in renewable, clean-energy and green projects by 2024, more than doubling its earlier target of SGD20 billion. DBS is also the first Singapore bank to offer Transition Financing and launched the world’s first sustainable and transition finance framework and taxonomy to help clients advance on sustainability agenda.