EthicHub, the Fintech connecting investors with Mexican growers

Jori Armbruster and Gabriela Chang are betting on breaking the cycle of funding inequality in which Mexican coffee farmers are immersed. The mission of these entrepreneurs, who have spent over 15 years in contact with coffee farms from Chiapas, was to bring the 180,000 unbanked growers in the country – according to their own data – to funding options, in order to ensure their production.

Because their families were always involved in coffee production and marketing, Armbruster and Chang closely visualized the economic difficulties of farmers. That is why they chose to create EthicHub, a crowdlending platform which bases its competitive advantage on the use of blockchain.

“The lack of money and funding inclusion makes small farmers have little access to funding, or are obliged to pay high interest rates when applying for loans,” says Jordi Armbruster, EthicHub CEO and co-founder.

The solution

Entrepreneurs designed a platform to connect communities of farmers – who are looking for lines of credit that fit their needs – with investors from around the world. They did it with the help of technology. For that, they recruited Raúl Martínez, who joined EthicHub to lead the creation of a system which was able to make international transfers safely, without the presence of intermediaries.

Ricardo García, sales manager of the Katun blockchain-oriented technology solution company, the platform seems efficient. However, entrepreneurs must take on an important challenge: how to integrate this system into the field, a place lacking technological infrastructure, he explained.

But the three co-founders found the solution: farmers looking for funding are grouped into communities of 20 people, which are represented by an individual, who is responsible for receiving and managing the investment and, therefore, ensuring that the money will be used for coffee production and will generate returns to lenders.

Gabriela Chang, who is in charge of communications and PR for the company, explained that having a person in charge of work groups, it is easier to validate the work of the remaining 19 farmers, which helps having a system of cross-verification of information. Thus, each time a task is accomplished; the representative receives the money and distributes it, depending on the activities in the production process.

So far, three communities of coffee farmers in Chiapas are enrolled in EthicHub, and over 80 investors are responsible for funding agricultural projects in the Mexican state.

The model

In the crowdlending platform, farmers register their project for funding, which is supported by more than one investor willing to lend capital in exchange of a 15% return.

Investors may contribute a minimum of $1,060 Mexican Pesos (MXN). After making their transaction, it is possible to see in real time how the money passes from the electronic wallet to the smart contract wallet that is being generated with the contributions.

When the amount needed to fund the project is reached, the money is sent to the community representative, and the money is converted into the ethereum cryptocurrency. Then, it is converted into Mexican pesos, which is the currency in which farmers will return the loan.

“It is a cyclic business. The payment of the loans is made one year later, since that is the time it takes to harvest coffee crops. Once the product is ready for sale, it is marketed with buyers already established under the concept of contract farming, that is, companies are committed to buying a certain amount of the crop”, Gabriela Chang explains.

Entrepreneurs generated a business where buyers manage to have the highest quality product at the best cost, so that farmers can get better funding for themselves and in better conditions by selling their crops at fair prices.

The platform keeps a 4% commission for each loan paid, and a 3% for coffee sales.

The entrepreneurs

Coffee farms in Chiapas were the meeting point between Jori Armbruster and Gabriela Chang. “Our families are closely related to coffee, mine as merchants and Jori’s as producers,” says Chang.

Both were taking a close look at the problem of debanking in the countryside. In 2016, the idea began to develop in the head of Armbruster, a text about the exponential growth of crowdlending and a TED talk about the success of the start-ups which implemented this model motivated the entrepreneur to lay the foundations for the project-.

In search of innovative talent to join the project, Armbruster and Chang published a job opening in the Meetup Ethereum Madrid employment platform. That is how they found Raúl Martínez, current chief of technology at EthicHub. By September 2017 the team was ready to run the project and founded the firm in November of the same year.

Challenges and plans

By 2020, entrepreneurs will close their second harvest cycle, from which they expect to achieve the same results as the first: 100% loan payment and marketing.

Their first funding was made with token sales in 2018, bringing together over $557,000 USD to start the project and open offices in Chiapas. Now they are in the process of raising a traditional seed round to broadcast the platform.

The model they propose, in the words of EthicHub founders, is scalable to crops such as sugarcane, as well as to different countries. Therefore, the next step of the company is to improve the lives of farmers in other parts of the world.