Strengthening financial literacy of smallholder farmers through agricultural fintech peer-to-peer lending: evidence and practical implications

Abstract

This study examined the role of agricultural financial technology (fintech), specifically peer-to-peer lending (P2PL), in strengthening small farmers’ financial literacy. Through a qualitative approach, this research collected comprehensive information from key informants, especially horticulture and aquaculture farmers who had received financial support from agricultural fintech providers in several West Java regions of Indonesia, including West Bandung, Cianjur, Sukabumi, and Bogor. The crucial finding, obtained through in-depth interviews and focus group discussions (FGDs), was that P2PL generally supported farmers with relatively low financial literacy. Interestingly, fintech plays an essential role in improving financial behaviors and attitudes. However, fintech’s efforts to improve financial literacy were primarily conducted in the initial phase. Therefore, financial literacy initiatives should be carried out systematically and sustainably. Collaborating with OJK, Central Bank, and relevant government agencies is necessary.

Keywords:

• Agricultural fintech
• financial literacy
• peer-to-peer lending (P2PL)
• smallholder farmers

REVIEWING EDITOR:

• Geng Yuqing, Shanghai Dianji University, Shanghai, China

SUBJECTS:

• Credit & Credit Institutions
• Rural Development
• Development Studies
• Economics and Development
• Finance

Introduction

Financial literacy refers to an individual’s knowledge, behavior, and attitude toward financial concepts and tools (OECD, 2020; Askar et al., 2020). It is essential for making well-informed and effective decisions about personal finances (ADB, 2020). By equipping individuals with the necessary skills, financial literacy enables them to navigate the complex financial landscape (Morgan & Trinh, 2019; Hasan et al., 2021), avoid financial pitfalls, and establish a robust foundation for their financial well-being (Askar et al., 2020; Widyastuti & Hermanto, 2022).

Unfortunately, by referring to financial literacy data, OECD (2020) concluded that financial literacy in Indonesia is still low. The National Literacy and Financial Inclusion Survey (SNLIK) also reported that during 2013–2022, the Indonesian financial literacy index was consistently lower than the inclusion index (OJK, 2022a). It is suggested that promoting financial literacy is one of the Indonesian main agendas, pivotally required not only for realizing Indonesia’s financial inclusion objectives but also for advancing economic growth and reducing poverty.

The SNLIK also indicated that rural residents’ financial literacy index, especially among farmers, had continued to fall behind urban residents (OJK, 2022a). The farmers’ knowledge of formal financial institutions’ products and services is generally insufficient. Their borrowing behaviors and attitudes are equally deplorable. Financial institutions are reluctant to lend money to farmers due to their inadequate financial knowledge, behaviors, and attitudes. They believe providing loans to farmers would put them at a high credit default risk. Thus, farmers’ access to banks and other formal financial institutions remained limited, with only 11% of total bank loans disbursed to agriculture, forestry, and fishery (OJK, 2022b).

Various studies (e.g. Widdowson & Hailwood, 2007; Nkundabanyanga et al., 2014; Morgan & Trinh, 2019) highlight the importance of financial literacy for individual borrowers and the soundness and efficiency of financial institutions. Financial literacy can help borrowers manage financial risks, determine necessary loan amounts, and select appropriate credit facilities (Widdowson & Hailwood, 2007). When borrowers benefit from financial literacy, it will lower the risk of loan defaults for financial institutions. Furthermore, improved consumer financial literacy may boost demand for financial products, prompting financial institutions to adapt to consumer needs more innovatively, resulting in more dynamic, efficient, and healthy financial institutions (Nkundabanyanga et al., 2014)

As financial institutions reap the benefits of improved financial literacy, they should play a more active role in improving the financial literacy of their borrowers, individually and collectively. However, the significant gap between the financial inclusion index and the financial literacy index indicates a lack of active and coordinated efforts by financial institutions to improve the financial literacy of their borrowers.

Financial technology (fintech) can be defined as the utilization of technology to provide financial services efficiently and innovatively (OJK, 2020; Feyen et al., 2023). It encompasses a wide range of technological applications, new business models and processes designed to improve and automate the provision of financial services (Zavolokina et al., 2016; Imerman & Fabozzi, 2020; Feyen et al., 2023). Fintech covers various areas within the financial industry, including digital payment, peer-to-peer lending (P2PL), insurance technology, blockchain and cryptocurrencies, and crowdfunding (Imerman & Fabozzi, 2020; Feyen et al., 2023). For this paper, the focus will be exclusively on P2PL.

P2PL is an online platform that connects individuals who want to borrow money with investors willing to lend, skipping traditional intermediaries like banks. This platform operates through online marketplaces to facilitate direct loan transactions (Morgan & Trinh, 2019; Dorfleitner et al., 2022). P2PL can be a valuable alternative for underserved or unbanked populations, such as smallholder farmers. Despite its unique business model and target market, the P2PL platform carries risks, like loan defaults (McIntosh & Mansini, 2018). To mitigate these risks, we assume P2PL platforms would prioritize improving customers’ financial literacy more than traditional financial institutions. This condition is because financially literate customers are more likely to use the P2PL platform effectively, make informed risk decisions, and contribute to the long-term success and sustainability of the fintech industry.

This paper explores our earlier assumption by investigating how agricultural P2PL platforms improve their smallholder farmer customers’ financial literacy. It analyzes whether enhanced financial literacy enables these farmers to access financial products and services more efficiently. The study’s value-added lies in three key aspects. First, it pioneers examining the unexplored issue of smallholder farmers’ financial literacy concerning agricultural P2PL platforms in Indonesia and other developing countries. Second, when measuring financial literacy, unlike many studies that concentrate only on basic concepts such as interest, inflation, risk management, and diversification, this paper adopts a broader approach, incorporating practical variables such as financial institutions, financial protection, and long-term financial management. Third, the paper offers fresh insights into formulating strategic and practical policies that encourage agricultural P2PL platforms to prioritize the financial literacy of their smallholder farmer customers.

In addition to Section 1 as the introduction, the paper has five more sections. Section 2 focuses on the literature reviews on financial literacy, P2PL platforms, and the roles of P2PL in improving their customers’ financial literacy. Section 3 describes the methodology used. Section 4 analyzes and discusses the findings on how the P2PL platform improved customers’ financial literacy. Finally, Section 5 concludes and summarizes several policy recommendations.

Literature review

Fintech can be defined as the utilization of technology for the efficient and innovative delivery of financial services (Milian et al., 2019; Thakor, 2020; OJK, 2020; Feyen et al., 2023; Almashhadani et al., 2023). This use encompasses various technological applications, new business models, and procedures to enhance and automate financial service delivery (Zavolokina et al., 2016; Imerman & Fabozzi, 2020; Feyen et al., 2023). Digital payments, peer-to-peer lending (P2PL), insurance technology, blockchain and cryptocurrencies, and crowdfunding are among the diverse domains within the financial industry encapsulated by fintech (Imerman & Fabozzi, 2020; Feyen et al., 2023).

Peer-to-Peer Lending (P2PL), a fintech variant, involves individual funding facilitated by an online lending platform equipped with self-developed credit check tools, bypassing traditional banks (Ge et al., 2017; Morgan & Trinh, 2019; Saptia et al., 2020; Dorfleitner et al., 2022; Wang & Fu, 2022; Khan et al., 2023; Nguyen et al., 2021). Particularly beneficial for underserved or unbanked communities, such as smallholder farmers, P2PL is a viable alternative to financial services (OJK, 2020).

Nevertheless, it is essential to highlight that P2PL platforms have inherent risks. This risk is particularly true concerning the potential for loan defaults stemming from their unique business model and target market (McIntosh & Mansini, 2018; Cheng & Guo, 2020). This risk is attributed to the lack of collateral requirements and information asymmetry, making it challenging for investors to assess the creditworthiness of borrowers accurately (Ran et al., 2019).

Moreover, loans from P2P lending fintech providers usually have higher interest rates or profit-sharing arrangements than regular loans, making it more challenging for borrowers to handle installment payments. The increased accessibility of loans through fintech has also led to a rise in excessive debt issues (Musjtari et al., 2022). Managing their finances becomes challenging for farmers when the fintech office is far from their home or business, requiring a disciplined approach (Segura et al., 2020). Therefore, P2P lending platforms should prioritize improving the financial literacy of their users more than traditional financial institutions do. Clients with a strong understanding of finance are better prepared to use P2P lending platforms wisely, handle risks thoughtfully, and contribute to long-term financial stability.

Various empirical studies show that fintech and financial literacy have a close relationship. Using fintech is linked to better financial literacy (Alshater et al., 2022). Conversely, having good financial literacy significantly influences people to use more fintech products (Morgan & Trinh, 2019; Widyastuti & Hermanto, 2022; Lontchi et al., 2023). Moreover, when financial literacy and fintech work together, it improves access to financial services (Hasan et al., 2020; Hasan et al., 2021; Demir et al., 2022).

Conceptually, financial literacy, according to Lusardi and Mitchell (2014), encompasses individuals’ capacity to acquire knowledge and make informed decisions about financial products and services. OECD (2020) outlines three components of financial literacy: financial knowledge, behavior, and attitude. Financial knowledge involves understanding financial products, services, and associated risks that influence behavior. Financial attitudes are connected to borrowers’ perspectives on making sound financial decisions and achieving financial well-being. Financial literacy bolsters borrowers’ decision-making abilities by enhancing their knowledge through available information sources (Kuchciak & Wiktorowicz, 2021).

Fintech has a significant potential to enhance financial literacy for users and providers (Panos & Wilson, 2020; Kakinuma, 2022; Pandey et al., 2022; Gonzalez, 2023). Using online applications can make it simpler and more efficient for people to understand and access financial products and services (Frame et al., 2018; Panos & Wilson, 2020; Menza et al., 2024). Fintech has significantly influenced its borrowers, improving their knowledge, understanding, behavior, and attitudes towards finance. Those with good financial literacy manage their money well and are better at recognizing and handling fraud risks. Better financial literacy among P2PL borrowers helps them grasp risks better, reduces credit defaults, and promotes the effective use of financial products and services.

For fintech providers, emphasizing financial literacy is vital for expanding their service offerings and diversifying products to the public (Jünger & Mietzner, 2020). Collaborative efforts with the government and other stakeholders can further enhance the financial literacy of fintech borrowers through initiatives such as socialization campaigns and training programs, the launch of digital features, and the promotion of effective financial management (McIntosh & Mansini, 2018; Moenjak et al., 2020). Social media, accessible via mobile phones equipped with fintech applications, is an effective channel for disseminating information and raising awareness about financial literacy (Yanto et al., 2021).

In the agricultural sector, fintech plays a pivotal role in fostering the adoption of farmer technology for sustainable development (Anshari & Alas, 2015; Anshari et al., 2019; Qawi & Karuniasa, 2020; Mapanje et al., 2023). It brings substantial benefits to farmers by enhancing their access to finance, information, and social networks, while also promoting e-commerce and other digital financial services to mitigate their vulnerability to poverty (Wang & He, 2020). Moreover, fintech facilitates farmers’ access to essential services such as credit and insurance, bolstering productivity and supporting investments in new technologies and land expansion (Fowowe, 2020). Savings and insurance, in particular, act as a buffer, mitigating the risks associated with business cycle fluctuations, weather changes, and pests that could result in crop failure.

Methodology

This study qualitatively investigated how P2PL platforms improve customer financial literacy. After obtaining permission from BRIN’s Social and Humanities Ethical Clearance Committee under Clearance Number: 449/KE.01/SK/10/2022, between October 2022 and January 2023, in-depth interviews were conducted with P2PL stakeholders, including smallholder farmers, fintech providers and their partners, and agriculture agency officers in four West Java districts: West Bandung, Cianjur, Sukabumi, and Bogor. As the Indonesia Fintech Association reported, these districts were selected based on their status as Indonesian agricultural centers and the concentration areas of P2PL farmer-borrowers.

The survey contains structured one-on-one interviews with various P2PL stakeholders, primarily using open-ended questions. We also included some direct and focused quantitative responses. Furthermore, we ensured clarity by verbally explaining the consent form to all participants.Therefore, before conducting interviews, we outlined study details, potential risks and benefits, participant rights, and will based on verbal consent form. In support of this, we have provided this verbal consent form, available for reference in the attached document. Interviews with smallholder farmers were aimed at understanding their P2PL borrowing experience. At the same time, fintech providers and partners were focused on P2PL implementing experiences for smallholder farmers, especially in horticulture and aquaculture sub-sectors. From the agriculture agencies, we collected information about their knowledge and understanding of the use of P2PL in expanding access to smallholder financing.

We purposively selected three fintech lending providers: CDE (Fintech-1), TNF (Fintech-2), and ASY (Fintech-3). Fintech-1 was chosen as a significant player in the horticulture sector, while Fintech-2 was selected for its end-to-end program. Both Fintech-1 and Fintech-2 are conventional fintech providers. Fintech-3 was selected as it is recognized as the best and largest Sharia-based fintech. The study used the snowball sampling technique with information from farmer groups due to the unavailability of borrower data, the study involved 43 respondents from smallholder farmers, P2PL providers, and agriculture and horticulture agencies (Table 1).

Table 1. Distribution of respondents by background and locations.

Respondent	Cianjur	West Bandung	Bogor	Sukabumi
Fintech lending providers	3	0	1	2
Smallholder Farmers
Horticulture	5	3	10	4
Aquaculture	2	0	0	2
Agriculture and Horticulture Agencies	4	3	3	1

Finally, we analyzed and interpreted the data qualitatively in a descriptive manner and categorized the findings based on variables and indicators (Table 2). We develop financial literacy dimensions by referring to various literature, including the OECD Financial Literacy Survey (OECD, 2020) and OJK Financial Literacy Level (OJK, 2019).

Table 2. Research dimensions and variables.

Dimensions	Variables
Financial Knowledge	Farmers’ knowledge of financial institutions and their products (savings, financing, and investment) Farmers’ literacy about basic financial principles Farmers’ literacy regarding financial protection
Financial Behavior	Prudent financial management Responsibility for fulfilling financial obligations on time Capability to design investment plans based on valid data/information
Financial Attitude	Farmers’ perception related to fintech as alternative financial support Farmers’ paradigm and perception of managing finance for future life (obsession) Famer’s assumption and reason of appropriateness is obtaining money from business The farmers sense who always feel they have an insufficient amount of money Attitude related to frugal practice in using money (Retention) Attitude or view that money is safer to be kept at home (security)

Source: Authors’ Design.

Regarding financial knowledge variables, we took a different approach compared to some previous studies (e.g. Huston, 2010; OECD, 2020; Lilian, 2022). Instead of solely focusing on basic concepts like interest, inflation, risk management, and diversification, we assess financial knowledge by considering various factors. This includes understanding financial institutions and their products (such as savings, financing, and investment), having literacy about basic financial principles, and being aware of financial protection (OECD, 2022;Fernández-López et al., 2023). While grasping basic concepts is crucial, our method broadens the scope and relevance of financial literacy assessments by including a broader range of knowledge about financial institutions and their offerings.

This approach delves into individuals’ financial knowledge, aiding them in navigating the complexities of the financial world (OECD, 2022; Fernández-López et al., 2023). Including these elements in our measurement of financial knowledge offers a more complete understanding of individuals’ financial literacy for several reasons. First, understanding financial institutions and their products gives insights into real-life interactions with the financial system. Assessing various savings, financing, and investment options helps us evaluate practical financial decision-making. Second, incorporating knowledge about basic financial principles ensures a comprehensive understanding of essential concepts, encompassing broader principles like the time value of money, budgeting, and financial planning. Third, being literate about financial protection, including insurance and risk management, underscores the importance of safeguarding financial well-being against unexpected events. This knowledge helps individuals grasp the role of protective measures in managing financial risks.

Regarding financial attitude variables, we focus on understanding how people view the long-term use of money rather than just immediate spending. This approach gives us valuable perspectives on financial behaviors and decision-making. By capturing attitudes toward long-term money use, we encourage financial planning, goal setting, and responsible financial habits (Fernández-López et al., 2023). This, in turn, contributes to improving the overall financial well-being of smallholder farmers. Accordingly, we include variables like how smallholder farmers manage their finances for the future and their frugal money practices (Table 2).

Results and discussion

Key informant profile

The criteria for selecting smallholder farmer informants are based on various indicators, aligning with the insights of Lin et al. (2017), who identified significant factors affecting loan defaults. These criteria ensure a diverse yet relevant sample for the study, including age, education level, smartphone ownership, land possession, income, assets, technology adoption, and capital. Table 3 shows that most key informants are around 40 years old, with a minimum senior high school educational attainment.

Table 3. Key informant profiles.

No	Indicators	Description
1.	Age	Most farmers belong to the Y-generation, born between 1980 and 1995
2.	Education	Most horticulture farmers completed senior high school or higher, while aquaculture farmers finished junior high school or lower.
3.	Group and commodity	Most farmers are farming group members, excluding aquaculture farmers Agricultural commodities include chilies, peppers, potatoes, lettuce, cabbage, and peanuts. Aquaculture commodities include tilapia (Oreochromis niloticus), common carp (Cyprinus carpio), and catfish (Ictalurus punctatus).
4.	Smartphone ownership	Most farmers own smartphones.
5.	Land ownership	Horticulture land typically ranges from 0.6 Ha to 1.5 Ha, with 80% rented. Farmers own the remaining 20%, but most lack formal ownership certificates. Aquaculture farmers have 40 − 50 ponds, rented or owned.
6.	Income	On average, horticulture farmers earn IDR12.5 million monthly, varying with land size and production, while aquaculture farmers earn over IDR2 million monthly.
7.	Assets	Most farmers own houses, lands, and motorcycles.
8.	Technology adaptation	Horticulture farmers adopt simple technologies, like greenhouse and hydroponics. Aquaculture farmers use traditional methods like floating net cages in lakes and ponds.
9.	Capital	The capital comes from farmers’ pockets and financial institutions, including conventional fintech providers.

Sources: Our Qualitative Survey, 2023.

Table 3 also demonstrates that the informants predominantly own land for farming, with variations in land size. On average, horticulture farmers earn IDR 12.5 million monthly, while aquaculture farmers earn IDR 2 million. Moreover, a noteworthy finding is that most horticulture and aquaculture farmers own smartphones, which are essential for accessing fintech services.

Fintech roles in improving smallholder farmers’ financial literacy

Financial literacy is theoretically crucial for making well-informed and effective financial decisions (ADB, 2020). When individuals make financial choices, they should possess adequate knowledge, skills, and confidence to navigate and justify their decisions (Palameta et al., 2016; Morgan & Trinh, 2019; Hasan et al., 2021)

Unfortunately, OECD (2020) concluded that financial literacy in Indonesia remains low. From 2013 to 2022, the Indonesian financial literacy index consistently lagged behind the inclusion index. The National Literacy and Financial Inclusion Survey (SNLIK) reported that in 2013, 2016, 2019, and 2022, Indonesia’s financial inclusion index increased to 59.7%, 67.8%, 76.2%, and 85.1%, respectively, while its financial literacy index rose to 21.8%, 29.7%, 38.0%, and 49.7%, respectively (OJK, 2022a). This underscores the crucial necessity for Indonesia to pave the way and devise strategic policies to enhance financial literacy, considering it a prerequisite to achieving its financial inclusion objectives.

Due to its distinctive business model and target market, Fintech carries higher loan default risks than conventional financial platforms (McIntosh & Mansini, 2018). To mitigate these risks, we assume that P2PL fintech platforms would prioritize improving customers’ financial literacy more than traditional financial institutions. Supporting our assumption, we found that farmers’ involvement in P2PL fintech platforms positively impacts their financial literacy. This is particularly true in relation to Fintech 2 and Fintech 3. This finding aligns with earlier studies confirming the positive association between fintech usage and enhanced financial literacy. Fintech facilitates immediate and convenient access to financial information, acting as a gateway to broader financial markets and fostering awareness of diverse financial services and products (Alshater et al., 2022; Kakinuma, 2023). Table 4 displays the financial literacy level and the role of P2P fintech in enhancing customer literacy.

Table 4. Agricultural Fintech’s impact on farmers’ financial literacy: knowledge, behavior, and attitude.

Financial Literacy dimensions	Fintech-1	Fintech-2	Fintech-3
Majority of farmers’ literacy level (combination of knowledge, behavior, and attitude in finance)
a. Well-literate	–	√	√
b. Sufficient literate	–	–	–
c. Less literate	√	–
d. Not literate	–	–	–
Majority of farmers’ financial knowledge
a. Increasing knowledge of bank accounts	√	√	√
b. Improving financial reporting and business plan	√	√	√
c. Improving knowledge of financial protection (insurance)	√	√	√
Majority of farmer’s financial behavior
a. Managing agricultural income	√	√	√
b. Planning budget	–	√	√
c. Managing and controlling expense	–	√	√
d. Managing debt well	–	√	√
e. Joining a fintech provider will possibly change the more positive farmers’ behavior toward financial behavior.	√	√	√
Majority of farmers’ financial attitude
a. Farmers have a perspective view that fintech is an easy access to financial support without a collateral guarantee	√	√	√
b. Perception of the easiness of getting a loan for working capital	√	√	√
c. Preference for upscaling agricultural business: buying/renting more lands, tractors, and capital savings	√	–	√
d. Motivation to save more money (retention)	–	–	√
e. Enthusiastically depositing money in the bank	–	–	–
f. Joining a fintech provider will possibly result in a more positive attitude of the farmers toward the financial institutions.	√	√	√

Sources: Our Qualitative Survey, 2023.

Financial knowledge

Regarding financial knowledge, various studies (Qawi & Karuniasa, 2020; Wang & Fu, 2022; Mapanje et al., 2023) concluded that farmers generally possess limited knowledge and understanding of financial institutions and their services, including savings, financing, and investment. Many farmers lack awareness about financial institutions, often resorting to family members, neighbors, rentenir (loan sharks), and/or tengkulak (middlemen), when requiring additional capital. During interviews, farmers from various study locations mentioned that their financial knowledge noticeably improved upon joining Fintech P2PL.

Mr. Ad, a borrower with Fintech-3 in Sukabumi (December 18, 2022), provided a more detailed explanation highlighting the pivotal role of P2PL Fintech in improving his financial knowledge and facilitating his interaction with a bank. He emphasized that Fintech-3 necessitates applicants to have a bank account, and as he did not possess one, he was required to open an account in a bank recommended by Fintech-3. Contrary to his initial belief that opening a bank account is intricate and requires substantial money, the Fintech-3 facilitator assured him that the process is straightforward, requiring only a personal ID (KTP) and tax file number (NPWP) if available. Mr. Ad further noted that his understanding of financial institutions expanded through engagement with Fintech P2PL, as the platform mandates the possession of a bank account for all financial transactions, including fund transfers from Fintech providers and loan repayments at the financial institution.

In a different instance, Mr. Dd and Mr. Hd, borrowers with Fintech-2 in West Bandung (November 24, 2022), recounted their experience. They conveyed that, having pre-existing accounts in a bank recommended by Fintech-2, they were exempt from the obligation to open new bank accounts. Mr. Hd further accentuated that Fintech P2PL, beyond enhancing their comprehension of financing, has broadened their knowledge and understanding of various financial products, encompassing savings and investment. Although they have not yet utilized financial institutions for investment purposes, they firmly believe that grasping diverse financial products is imperative for future long-term financial management.

Farmers’ knowledge and understanding of basic financial principles, such as financial reporting, business planning, and managing financial risks, demonstrated notable improvement upon engaging with fintech P2PL. Before their involvement with fintech, several interviewed farmers admitted to a lack of understanding regarding financial reporting and its advantages. Interestingly, post-access to fintech significantly enhanced their knowledge, awareness, and skills related to creating financial reports and business plans. Fintech P2PL mandates its borrowers to regularly generate simple financial reports and business plans, contributing to this increased proficiency. Mr. Ud, a borrower with Fintech-2 in Cianjur (November 25, 2022), provides valuable insights into this transformation:

I noticed that joining Fintech-2 has significantly improved my ability to write simple financial reports. The platform requires borrowers to have financial reports and business plans and provides coaching and mentoring [on creating these documents]. [The facilitator explained that creating] these reports allows me to quickly assess my farming financial condition, identify potential risks, and make informed borrowing decisions to enhance overall financial capacity.

Regarding farmers’ knowledge of financial protection, a significant portion of those interviewed appear to lack awareness of this concept. However, it becomes apparent that some other interviewed farmers have inadvertently implemented financial safeguards without realizing it. Specifically, they have opted to open accounts in banks recommended by their fintech partners, which fall under the protective umbrella of the Indonesian Deposit Insurance Agency (LPS). This strategic decision affords them insurance coverage from LPS, safeguarding a specified amount of their deposited funds in case of a bank failure or financial distress. Additionally, it is noteworthy that insurance costs are already factored into the financing agreements, especially for farmers borrowing from Fintech-1.

Mr. Mk, a manager with Fintech-3 (January 19, 2023), asserts that Fintech P2PL also contributes to an increase in farmers’ knowledge of how to use smartphone applications productively. Farmer-borrowers are required to leverage their smartphones for business purposes to access fintech applications. Mr. Dn in Cianjur (January 19, 2023) explained that he initially used his smartphone solely for communication before becoming a customer of Fintech-3. However, after joining Fintech-3, Mr. Dn expanded his smartphone usage to enhance his business. He now employs his smartphone to execute fund transfers to and from Fintech-3, order necessary feed, make installment payments, and facilitate the sale of his products.

Financial behavior

Fintech has significantly influenced farmers’ financial behavior and how they handle money. Fintech providers catering to the agricultural sector primarily extend financial assistance to farmers, who derive their income from agricultural businesses. These farmers face unique challenges, unlike conventional monthly earners in agriculture or aquaculture. Upon harvesting, borrowing farmers are tasked with adeptly managing their income, meticulously planning budgets, exercising control over agricultural costs, and ensuring judicious debt management.

Surprisingly, a noteworthy trend has emerged as fintech borrowers proactively shift their behaviors toward more positive trajectories. Notably, Fintech-2 distinguishes itself by providing formal financial reporting and management training, a feature absent in the other two fintech platforms that lack structured coaching programs. Hence, borrowers associated with Fintech-1 and Fintech-3 have undertaken self-driven behavioral changes to navigate the financial landscape effectively, ensuring smooth financing payments. Mr. Rm, a borrower from Fintech-1 in Bogor (November 22, 2022), and Mr. Dn, a borrower from Fintech-3 in Cianjur (January 19, 2023), affirm that their participation in fintech initiatives has instilled a heightened sense of discipline in managing their incomes. These individuals allocate their harvested income for planting and cultivation capital and family living expenses, prioritizing financial prudence to meet their obligations to fintech lenders.

In budget planning, fintech is crucial in guiding farmers to craft meticulous agricultural or cultivation budgets, ensuring the appropriate allocation of loans aligns with the specific needs of their farming or cultivation ventures. This strategic budgeting is anticipated to enhance farmers’ production levels and expand the scale of their agricultural businesses. Mr. Dd, a Fintech-2 borrower in Bandung (November 24, 2022), underscores the inherent responsibility of borrowing from Fintech, necessitating careful planning for his business due to the obligation to repay the loan. He allocated all his fintech financing to construct a greenhouse for romaine lettuce and mustard plants, with the aim of boosting the productivity of his crops.

Similarly, Mr. Dn, a Fintech-3 borrower in Cianjur (January 19, 2023), emphasizes the thoughtful planning of his Fintech loan. He directed the funds towards purchasing feed from Institution E, a Fintech-3 partner, intending to increase his fish farming production. In contrast, Mr. Rm, a Fintech-1 borrower in Bogor (November 22, 2022), faced challenges in exercising robust control over planning the loan budget. This limitation arose from Fintech 1’s collaboration with specific agents or distributors, where the borrower lacked full authority in determining the quantity, quality, or price of the fertilizers used in his agricultural activities.

The unpredictable monthly income of farmers and cultivators underscores the necessity for fintech borrowers to exercise precise control over their expenses and farming costs. According to insights from Mr. Dd in Bandung (November 24, 2022) and Mr. Dn in Cianjur (January 19, 2023), obtaining a fintech loan requires them to manage and reduce unnecessary production costs actively. Mr. Dn, for instance, has opted to stay at his farm without returning home and has streamlined his workforce by employing only one worker, a strategic move to curtail expenses. Similarly, Mr. Dd, managing a team of 12 workers, has adopted a unique payment structure, compensating them not with a fixed monthly salary but with daily wages based on their attendance. This dynamic approach allows borrowers to navigate the financial uncertainties inherent in farming and cultivation while fostering efficiency in cost control.

Farmers who borrow from fintech platforms diligently oversee their businesses and income to ensure prompt repayment of their debts. Farmers associated with Fintech 3 exhibit commendable proficiency in debt management, consistently meeting repayment deadlines. This success can be attributed to the effective collaboration between borrowers, actively striving to enhance their repayment capabilities, and the fintech platform itself. The platform plays a pivotal role by closely monitoring and regularly reminding borrower farmers of their impending debts. This sentiment is echoed by Mr. Ae, a Fintech-3 borrower in Sukabumi (January 18, 2023), affirming the positive impact of this cooperative dynamic on ensuring timely and efficient debt repayment:

Upon realizing the outcomes of their businesses, most farmers engaged with Fintech-2 and Fintech-3 demonstrate a primary focus on settling their loans with the fintech provider. Their home consumption allocations, including daily necessities, housing installments, children’s education, and social activities, are comparatively modest. Concurrently, they earmark funds for crucial working capital needs, directing resources toward purchasing essential items like fish feed and seeds.

However, it is noteworthy, especially concerning Fintech 2, that its farmer borrowers primarily consist of individuals with strong business acumen committed to making timely payments. Despite their commitment, communication lapses between fintech and borrowers create challenges in loan repayments. In contrast, Fintech 1 borrowers exhibit weaker control over their businesses and loans, resulting in suboptimal debt management. In summary, participating in fintech positively impacts the behavior of borrowing farmers, particularly in aspects like income management, budget planning, cost management, and debt management. Enhanced communication channels can further refine the relationship between fintech providers and farmers, fostering smoother loan repayment processes.

Financial attitude

The farmer-borrowers have an improved financial attitude due to the support of fintech providers. From the farmers’ perspective, using a fintech service is an easier way to access financial support from financial institutions without providing collateral guarantees. This experience was confirmed by Mr. Ud (November 25, 2022), who preferred borrowing money from a fintech provider because borrowing money from banks was more complicated as they had to follow certain administration procedures. Similarly, this experience is also confirmed by Mr. Rm in Bogor (November 22, 2022). Furthermore, he said he was interested in fintech to scale up his business to gain more profits.

It is true that many farmers still believe that borrowing money from a bank requires them to follow complicated procedures and to provide a collateral guarantee. Therefore, the farmers may perceive fintech as a more practical way to get financial support. The key to changing the traditional perceived attitude is to provide field assistants or agents of the fintech providers who can elucidate the fintech business process to the farmers and persuade them to be their customers. Traditionally, farmers prefer to use their own money rather than borrowing it from banks or fintech providers; thus, an agricultural field assistant needs to give proper guidance to the farmers so that they become more interested in using the services offered by fintech providers.

Moreover, farmers need some cash as their working capital to do agriculture business. For example, Mr. Aj, a Fintech-1’s customer in Cianjur, stated that he needed working capital (from the loan given by the fintech provider) to cultivate his land by planting peppercorns, and he wanted to gain profits successfully to support his family (November 22, 2022). Consequently, farmer-borrowers’ attitude in using the money for working capital and investment has improved. Most fintech loans are channeled to farmers as working capital used generally to purchase production inputs, such as seeds, fertilizers, and pesticides. In Fintech-1, some cash loans also cover the labor costs. Many Fintech-2 and Fintech-3 borrowers have not only made a profit but have also started investing some of the profits for future gains. By joining a fintech provider, farmers positively perceive the importance of managing their finances for future needs. The farmers invested to buy or build certain items such as farmlands, paddy fields, vehicles to distribute agricultural products, livestock, and greenhouses. To sum up, this trend indicates that the presence of fintech providers could encourage the farmers’ awareness of the importance of managing their finances for their plans.

Customers’ ability to invest in business development is greatly influenced by the more economical attitude of using their money (retention). By becoming fintech providers’ customers, farmer-borrowers try to be more prudent in using their money. They have become more frugal because they must put aside a large amount of their income to pay off the fintech loans. Fintech providers have paid attention to this aspect at the initial stage of their prospective customer selection process. This is confirmed by Mr. Nv, an e-fishery officer and Fintech-3 distribution partner in Cirata (January 19, 2023), who explained that before becoming the recipient of Fintech-3 financing, the farmers will be given dissemination and education about the principles of microfinance, including the proper attitudes and behavior in financial management.

Some farmers are starting to get into the habit of saving up some excess income in their bank savings accounts. In other words, after gaining knowledge and experience in using bank accounts when they borrow money from fintech providers, they changed their saving practice from saving their money at home to saving it in bank accounts. For example, Mr. De, a Fintech-3’s customer in Sukabumi (November 19, 2022), told us that the profits from his business were used for business development and savings for the family, especially to prepare for his children’s future. Using his wife’s name, he has used a bank account and mobile banking (M-banking) to conduct various transactions, such as paying debt installments, making savings, and making other financial transactions. In general, Fintech-2’s customers have better financial attitudes and behavior. For example, Mr. Ih in Lembang, West Java (November 22, 2022) said, ‘The excess money is allocated for savings, investment (business development), and capital reserves to anticipate demand or production orders from the hotels’. Mr. Ih has used accounts and financial services at three different banks (BRI, Bank Mandiri, and Bank Syariah Indonesia) in nearby cities to save money and conduct other financial transactions.

Unfortunately, the opposite condition was found for most farmer-borrowers at Fintech-1. Their involvement in accessing fintech services has not significantly influenced or changed their saving habits. Mr. Aj in Cianjur (November 22, 2022) said, ‘I do not have the habit of saving money at banks, but I just keep it at home so that I can immediately spend it when I need it. I also do not have a saving target. I save my money at home as much as I can. If I have already collected much money, I will use the money to buy agricultural land, and the profit will increase’.

Based on those findings, farmer-borrowers of fintech providers can access alternative financing to strengthen their working capital with a more flexible installment scheme after harvest, improve their financial knowledge, and develop better financial management behaviors and attitudes. In addition, the ongoing mentoring by field assistants greatly influences the positive contribution of fintech providers in strengthening literacy, either carried out directly by fintech staff, as in the case of Fintech-1, or conducted by fintech channeling partners, as in the cases of Fintech-2 and Fintech-3. In terms of increasing knowledge, the field findings confirm the results of the study by Wang and He (2020), explaining that one of the benefits of fintech is expanding information and social networking as well as promoting e-commerce or other digital financial services for its users.

Conclusions and recommendations

Our examination of Fintech borrowing among farmers at the micro-level reveals a nuanced picture, indicating that not every recipient of Fintech P2PL financing possesses a robust understanding of financial matters. Intriguingly, P2PL Fintech emerges as a catalyst for enhancing financial literacy, particularly by augmenting knowledge and reinforcing prudent financial behaviors and attitudes among farmers. Nonetheless, it is noteworthy that Fintech’s endeavors to bolster financial literacy were predominantly concentrated in the initial phase. Consequently, there is a pressing need for systematic and sustainable initiatives to advance financial literacy in the agricultural sector.

To enhance the financial literacy of their farmer clientele, fintech providers ought to engage in collaborative efforts with key stakeholders such as the Financial Services Authority (OJK), the Central Bank (BI), and other pertinent government agencies. Through a synergistic approach, fintech providers, OJK, BI, and multi-level government agencies can construct a holistic and enduring framework to elevate farmers’ financial literacy across Indonesia. This collaborative initiative is indispensable for effectively addressing the multifaceted needs of farmers and fostering inclusive economic growth.

This paper proposes several collaborative initiatives. First, regulatory bodies like OJK can foster collaboration by encouraging fintech providers to embed financial education features within their platforms. This can be achieved by issuing guidelines or providing incentives for fintech companies actively contributing to enhancing financial literacy among their user bases. Second, fintech providers should undertake the development and promotion of user-friendly financial literacy apps. Endorsement from regulatory bodies and government agencies and joint marketing campaigns can stimulate widespread adoption. Third, fintech providers are encouraged to share anonymized data with regulatory bodies and government agencies to facilitate research and analysis. This data-sharing initiative can contribute to identifying trends, evaluating the efficacy of financial education efforts, and tailoring programs to cater to specific demographic needs.

Despite its value in exploring the intricate relationship between fintech P2PL and farmers’ financial literacy, this paper is not without limitations. The study uses qualitative analysis methods to focus on the horticulture and freshwater aquaculture subsector in four West Java districts. The reliance on a small, non-random sample restricts the generalizability of the findings to broader populations. Consequently, caution is warranted when interpreting the results, as they may not fully depict the influence of fintech P2PL on financial literacy across various economic sectors. In light of these limitations, we recommend future research endeavors to encompass a diverse range of economic sectors nationwide and employ quantitative methods for a more comprehensive understanding.

Ethical approval

This research have been approved by BRIN (National Research and Innovation Agency of Indonesia), Social Humaniora Ethics Committee.

Author contributions

All authors contributed to this study’s work, which can be seen on the table below for the specific contributions. All authors drafted the original draft, read, and approved the final manuscript. All authors agree to be accountable for all aspects of the work.

Table

Role	Author’s Name
Conceptualization	Muhammad Soekarni, Latif Adam, Yeni Saptia, Tuti Ermawati, Sujianto Sujianto.
Methodology	Muhammad Soekarni, Latif Adam, Mahmud Thoha, Sujianto Sujianto.
Material Preparation	Muhammad Soekarni, Latif Adam, Jiwa Sarana, Yeni Saptia, Tuti Ermawati, Sujianto Sujianto.
Data Collection	Muhammad Soekarni, Jiwa Sarana, Yeni Saptia, Tuti Ermawati, Septian Adityawati, Sujianto Sujianto, Mukti Wibowo.
Data Analysis	Muhammad Soekarni, Latif Adam, Jiwa Sarana, Yeni Saptia, Tuti Ermawati, Septian Adityawati, Sujianto Sujianto, Mukti Wibowo.
Data Interpretation	Muhammad Soekarni, Latif Adam, Mahmud Thoha, Jiwa Sarana, Tuti Ermawati.
Writing - original draft preparation	Muhammad Soekarni, Latif Adam, Mahmud Thoha, Jiwa Sarana, Yeni Saptia, Tuti Ermawati, Septian Adityawati, Sujianto Sujianto, Mukti Wibowo.
Writing - review and editing	Muhammad Soekarni, Latif Adam, Sujianto Sujianto
Funding acquisition	Jiwa Sarana, Mahmud Thoha
Supervision	Muhammad Soekarni, Latif Adam

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The datasets generated during and/or analyzed during the current study are available from the corresponding author on reasonable request.

Additional information

Funding

Research Organization for Governance, Economy, and Community Welfare; National Research and Innovation Agency of Indonesia, Number: SK B-4252/III.12/HK.00/11/2022; research code: RRP3-22/2022.

Notes on contributors

Muhammad Soekarni

Muhammad Soekarni SE, M.Si (corresponding author) is a senior researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency since 1997 as an economic researcher. He obtained a Master of Science from Postgraduate, the University of Indonesia. He actively conducting research and scientific publications in micro finance, Islamic banking, small and medium enterprises, and economic development.

Latif Adam

Latif Adam, has been an economic researcher since 1993 at the National Research and Innovation Agency (BRIN)—formerly the Indonesian Institute of Sciences (LIPI). He obtained his Ph.D in Economics at the University of Queensland, Australia, in 2007. His research focused on small and medium enterprises, micro finance, industrial and public policy, and trade. His articles have been published in some leading journals and newspaper.

Mahmud Thoha

Mahmud Thoha, APU is a senior researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency. Completed his Masters Degree at the Faculty of Economics, University of Manchester, UK, 1991. He has conducted extensive research in Islamic economics and finance, as well as Small and Medium Enterprises.

Jiwa Sarana

Jiwa Sarana, SE, MM, is a researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency. He obtained his Magister Management at the Gadjah Mada University of Yogyakarta. His research focused on small and medium enterprises and micro finance. He actively conducting research and scientific publications in small and medium enterprises dan micro finance.

Tuti Ermawati

Tuti Ermawati, SE, M.SE is a researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency. She completed study Master of economics at the University of Indonesia and bachelor of Economics at the University of Sebelas Maret Surakarta, Indonesia. She conducted many studies and research in the fields of public economy, microfinance and small and medium enterprises.

Yeni Saptia

Yeni Saptia, SE, M.Si is a researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency. Completed study Master of Sciences in The University of Indonesia. She has conducted many studies and research in the fields of Banking Finance, Islamic Economics, Poverty, SMEs and the public economy.

Septian Adityawati

Septian Adityawati, SE. M.M, is a researcher at Research Center for Macroeconomic and Finance, National Research and Innovation Agency. She completed her Magister Management at Mercu Buana University. Her research focused on MSMEs and microfinance.

Sujianto

Sujianto, S.TP. M.ABM. He has been working for the Research Center for Macroeconomic and Finance, National Research and Innovation Agency as an agricultural economic researcher. He has a master of agribusiness management from Asian Institute of Technology, Thailand and interested in researching improving farmers’ income through adopting feasible technologies, giving empowerment and agricultural extension, to smallholder farmers.

Mukti Wibowo

Mukti Wibowo, B.Com., MM. He is currently a Vice President of Risk Management of Hijra Group since July 2021. His experience in the financial technology industry started from 2019 when he joined Akulaku Group during the digital bank transformation for Bank Neo Commerce as the Head of Risk management until 2021. He has Master of Management from The University of Melbourne, Australia in 2018.