SINGAPORE - DBS Bank has partnered Zara owner Inditex to launch a pilot organic cotton procurement financing programme which will disburse payment to over 2,000 farmers in India.
The partnership, which aims to upscale India's organic cotton industry, will leverage the network of local Farmer Producer Organisations (FPOs) to reach the farmers in the fashion retailer's supply chain to evaluate their financing needs.
Despite India being the largest producer of cotton and has the greatest land area used for cotton cultivation globally, about two per cent of the total amount of cotton produced in the country are organic cotton.
Under the pilot, DBS will arrange financing for the FPOs to procure organic cotton from the farmers, providing them greater visibility of their cash flow.
This allows them to better plan their business needs and grow their sustainable farming operations.
Said DBS' head of priority sector lending Arvind Sharma: "The pilot programme forms an integral part of DBS India's larger plan to build its priority sector lending business.
"The priority sector covers under-banked sectors which (India's central bank) Reserve Bank of India considers important for the overall development of the economy - including agriculture, small businesses, affordable housing, education and renewable energy."
The programme also aims to provide transparency on whether the organic cotton has been farmed and processed in a sustainable manner by eliminating the middleman in the supply chain.
Combined with other tracking mechanisms, it enables Inditex and cotton spinners in its ecosystem to trace the source of the cotton directly and make sure it had been farmed sustainably. This will also ensure they secure a higher premium for their organically harvested produce.
DBS' group head of western multinational corporations Terence Yong said the global cotton industry, which has a growing focus on climate risks and social inequality, poses an opportunity to invest for a positive impact.
"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 said.
To increase its support for businesses seeking to achieve their sustainability ambitions, DBS has committed to finance $50 billion in renewable, clean-energy and green projects by 2024, doubling more than its earlier target of $20 billion.