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Tuesday / November 29. 2022

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Agro finance sprouts new roots

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Despite being a very productive sector, capital flow into the agri sector has been a sticky wicket. Outdated warehousing and distribution systems, lack of financing options and minimal presence of commodity exchanges have been major stumbling blocks in the growth potential of the ‘evergreen’ sector. Here’s where the synergy between the agro industry, banks, private lending institutions and young entrepreneurs promises to help the industry take off in a big way. New schemes and financial service have cropped up notably, playing a pivotal role in agri and allied sectors. We shall examine the new shoots of development in the Indian agro finance space.

India’s agriculture sector is one industry that generates maximum employment for the country. According to the Government of India, in 2021, 56.6 per cent of the workforce in India were employed in agriculture and allied activities, while the other half was almost evenly distributed between industry and services. The Economic Survey of India 2020-21 report reveals that in FY20, the total food grain production in the country was recorded at 296.65 million tonnes, up by 11.44 million tonnes compared with 285.21 million tonnes in FY19. The government has set a target to buy 42.74 million tonnes from the central pool in FY21; this is 10 per cent more than the quantity purchased in FY20. For FY22, the government has set a record target for farmers to raise food grain production by 2 per cent with 307.31 million tonnes of food grains. In FY21, production was recorded at 303.34 million tonnes against a target of 301 million tonnes.

Despite being a very productive sector, capital flow into this industry has been a major problem owing to outdated warehousing and distribution systems, lack of financing options and minimal presence of commodity exchanges. However, in order to ease up the financial inflow cycle of the agro industry, many banks, institutions and young entrepreneurs have joined hands and floated many new schemes and ideas to financially back the agriculture and allied sector. 

Regular flow of capital plays a very vital role in any sector. Likewise, in the agriculture sector finance acts as a catalyst to nurture and cultivate this industry. Finance and capital inflow have been a prolonged issue of India’s agriculture sector and many companies, financial institutions, banks and financing firms have been working closely to draw modules which can actively address the financial needs of the people associated with this industry. Earlier, the situation was calamitous for farmers as most of the money lenders and financing institutions dominated this industry by dictating their own terms and conditions hence exploiting agriculture and allied sector to the fullest. But now, with a lot of interventions by the government and introduction of new policies and norms, the situation is easing out slowly and steadily. 

Elaborating on the subject, Sandeep Sabharwal, CEO, SLCM Group, said, “We have a subsidiary called Kissandhan Agri Financial Services that provides financial aids to farmers, traders and agri processors. In this financial year, we are all locked to provide monetary assistance to diversified basket of agricultural commodities and products such as lending to farmer producer organisations (FPOs), non-banking financial companies and microfinance institutions, invoice discounting facilities”.

Banks step up  

To address the financial needs of agriculture and allied sectors, many banks have tied up with small and large companies to economically strengthen this industry. Recently, Stellapps, a leading dairy-tech startup, has joined hands with Airtel Payments Bank to enable cashless payment transfers to small dairy farmers and contribute to digital financial inclusion in the country.  Stellapps has been closely working with dairies and their milk collection centers to enable direct payments to the bank account of the dairy farmers. However, a significant challenge for farmers has been the long travel to reach the nearest ATM or bank branch for withdrawing the payments. 

Airtel Payments Bank will now onboard the new partner milk collection centres of Stellapps as banking points. With milk collection centres operating as a banking point, farmers and other residents in the neighbourhood will no longer have to travel long distances. Through these banking points, they will be able to open a bank account, withdraw and deposit cash, earn interest on savings, access Aadhaar Enabled Payments, get government pension schemes, and make bill payments.

Similarly, the aquaculture tech company ‘Aquaconnect’ recently partnered with Bank of Baroda, India’s leading public sector bank to pave the way for access to formal credit for 1.6 million aquaculture farmers. This partnership will provide credit access under the Kisan Credit Card (KCC) scheme at an annualised rate of as low as 10 per cent. The fish and shrimp farmers can also avail the advisory services and quality farm inputs from Aquaconnect platform. Under this partnership, Bank of Baroda has extended loan for up to Rs 10 lakh under KCC scheme and fisheries loan. Higher credit limits can also be availed under Pradhan Mantri Matsya Sampada Yojana (PMMSY) and the Fisheries and Aquaculture Infrastructure Development Fund (FIDF) schemes on a case to case basis.

The partnership aims to make the loan application system hassle-free for aquaculture farmers along with access to Aquaconnect’s expertise through farm advisories and ease of buying farm inputs through Aquaconnect App. The company aims to target Andhra Pradesh, Tamil Nadu, Gujarat and Orissa and later extend it to other states of India. The partnership will benefit more than 15,00,000 fish farmers and 150,000 shrimp farmers across India.

Rajamanohar Somasundaram, CEO, Aquaconnect, said “Due to the lack of formal credit access, Indian fish and shrimp farmers depend heavily on informal lending that pushes them to pay annualised interest as high as 40 per cent to finance their farming operations. We are happy to partner with Bank of Baroda to enable low-interest farm loans for the farmers.”

“Our AquaCRED system is not only going to help aqua farmers but it will also assist banks in managing the entire aquaculture lending portfolio throughout the loan lifecycle. The newly crafted system uses machine learning algorithms and satellite remote sensing analytics, to provide a near-real time view of the portfolio,” he added. 

In another move to provide a healthy market linkage to the farmers, Arya, India’s post-harvest Agritech Company entered into a strategic partnership with Canara Bank for collateral management and warehousing services. With this step, the contracted partnership will support and extend finance to farmers, Farmer Producer Organisations (FPOs), processors, and various depositors stocking their agri-produce in warehouses managed by Arya Pan India. Through this corporation, both the authorities are not only trying to focus on getting profit for farmers based on the quantity but also on the quality of grains they produce. Its focus has always been to create an integrated platform that offers everything in an agriculture supply chain. However, rural lending has been one big obstacle for agriculture as an industry and through this agreement, the new collaboration will translate to zero paperwork, instant credits, robust solutions, and much more to country’s farmers, FPOs, processors, and depositors.

The partnership will have a huge impact on the current financing situation of agriculture businesses. While all banks are required to follow the Priority Sector Lending guidelines of the Reserve of Bank of India, they look for efficient mechanisms to reach farmers, especially smallholders. Many banks fall short in meeting these targets in the absence of these mechanisms. Through this strategic association with Arya, Canara Bank will be able to leverage the extensive reach of Arya to over 350,000 farmers through the 450 FPOs it works with. As a collateral manager, Arya shall facilitate post-harvest credit for the bank through its digital platform across its network of 4000 warehouses covering more than 3.0 million tonnes of agriculture commodities, especially in primary and secondary near-farm markets.

Similarly, to provide a financial bridging to the seafood sector and to maintain healthy capital circulation into the trade system, Aquaconnect partners with Alliance Insurance Brokers for an insurance programme for shrimp farmers. After loan benefits, this is the next step towards the company’s vision to strengthen the financial inclusion of shrimp farmers. This partnership will benefit 1.5 lakh shrimp farmers across India. As a part of this partnership, Aquaconnect is all set to provide risk management services to the insurance partners which include farm data collection, ground validation by Aquaculture officers and AquaCRED dashboard support. The partnership aims at making comprehensive insurance available for shrimp farmers to mitigate weather and disease-related challenges. In addition to this, farmers will also get an Aquaconnect farm advisory app and options to buy high-quality inputs (feed, healthcare products & farm equipment) from the Aquaconnect platform.

 

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