DBS Bank has partnered with one of the world’s largest fashion retailers, Inditex, to launch an organic cotton procurement financing pilot programme to ramp up efforts to scale India’s organic cotton industry.
Inditex, from its headquarters in Spain, owns brands such as Zara, Pull&Bear and Bershka.
India is now the world’s largest producer of cotton. However, organic cotton only comprises around 2% of the total output.
With growing focus on climate risks and social inequality, the global cotton industry offers a huge opportunity to invest for positive impact says 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,” he says.
This pilot programme forms an integral part of DBS India’s larger plan to build its so-called Priority Sector Lending business, which covers under-banked sectors considered important by the Reserve Bank of India for the overall development of the economy.
Late last year, DBS was directed by the RBI to take over a troubled local Indian bank.
As defined by RBI, these sectors include agriculture; small businesses; affordable housing; education and renewable energy, says Arvind Sharma, head of priority sector lending at DBS.
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According to DBS, 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.
The majority of these small-scale cotton growers have limited financial means and knowledge to invest in and implement sustainable farming practices.
DBS says there’s also a disconnect in demand and supply due to a lack of transparency in supply chains with much of the trade remaining manual in nature.
Last but not least, there’s 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.
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 this 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.
According to DBS, another key feature of this pilot programme is transparency, as middlemen in the organic cotton supply chain are bypassed.
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.
Via this tracing, they can ascertain if the cotton had been farmed sustainably, ensuring farmers secure a higher premium for their organically harvested produce vis-à-vis traditionally farmed non-organic cotton.
