India’s agriculture sector, inarguably, can be termed as the main driving force of the Indian economy. Apart from churning the financial wheels of the country, this sector plays a vital role in steering the trade cycles of allied sectors of the rural economy and the manufacturing and services segments of the national economy. Like Agriculture, the Agri Warehousing and Agri Financing sectors are also the key growth enablers of India’s agri-economy and the development and growth of these two sectors will ultimately benefit farmers. Despite being one of the mainspring of Indian frugality, currently the Indian agriculture sector is characterised by instability owing to the effect of the number of risks involved. There are multiple factors that are influencing Indian agriculture, including over-dependence on agriculture, ever-growing population, changing climatic conditions, predominance of small and marginal land holdings, among others. But the one issue that commands immediate attention is the lack of investment and finance where it is needed the most in agriculture. Lack of storage facilities for the produce has been a major issue faced by the agriculture sector for years. We shall analyse the challenges, currently, holding down agriculture progress in India
Every year 10 per cent of crops, valued at a staggering Rs one lakh crore, are being wasted in India due to non-availability of storage, as per government figures. This clearly suggests that there is a major requirement of beefing up storage and warehousing facilities in the country and this where investment and financing play a vital role. Lack of adequate investment in building new storage facilities and developing the existing ones has resulted in loss of huge quantities of agriculture produce in India. However, the challenges in accessing finance are hampering the growth of this sector.
Inadequate financial infrastructure
The current financial infrastructure of the country’s agro sector has not been able to match up with the key financial needs that arise along agricultural value chains. Many agri intermediaries, as well as farmers, are either left unserved or underserved due to the lack of timely access to institutional finance via agri loans.
Elaborating further on the subject, Sandeep Sabharwal, CEO, SLCM Group stated, “The farm sector is fraught with inherent challenges which make it unattractive for formal financial institutions. Farming is a cyclical business which follows cropping seasons and the farmers are always exposed to the vagaries of nature such as droughts, floods or crop diseases which are beyond their control. Though land is the most preferred form of collateral asset, often problems like the title and property rights and smaller loan amount makes the liquidation process of land, an extremely expensive and arduous task. Liquidation of other movable assets like livestock and equipment is also fraught with risk, as it is usually without a proof of ownership and insurance cover.”
“The smaller ticket size of farm loans makes its servicing an expensive affair for the financial institutions. This is further complicated by the fact that farmers and especially women and young ones do not have formal ownership of their lands and have little to offer in terms of collateral. This makes them vulnerable to money lenders which can be extremely risky for a resource-poor farmer since the loans are charged at very high rates of interest contributing to increasing challenges of indebtedness,” he added.
Technology to fill the gap
After the pandemic brought the entire world to a standstill, it was technology that keeps the world moving. Similarly, in the agri finance sector as well the evolving technological landscape is opening up new possibilities to target and price credit, share risk, and harness information technology to expand agricultural productivity.
According to CropIn Technology Solutions, an intuitive, intelligent, self-evolving system that delivers future-ready farming solutions to the entire agricultural sector, the emergence of smart technology and Artificial Intelligence (AI) in agriculture has led to the rise of a number of Non-Banking Financial Company (NBFC) that use technology for risk assessment and mitigation to offer credit to farmers. It enables financial institutions to understand more about growth and yield potential in different regions. Especially in agriculturally-driven economies like India, gaining reliable data-driven insights on such a large sector helps banks and financial institutions make informed expansion decisions. Real-time tracking through satellite imagery along with historical and weather performance data can help determine major agriculture zones so banks can effectively gauge their potential and tailor their products accordingly.
Using AI in agriculture, particularly in finance, banks evaluate the credit and farming history of the farmers before offering loans. Smart farming technology benefits farmers and financial institutions as it improves transparency in the pre-disbursal process. With intelligence regarding the historical performance of the farms, along with real-time information about the yield potential for the current period, banks can determine the expected harvest from any plot and offer loans with reduced risk.
Apart from aforementioned elements, there is another issue that can be resolved through technological assistance. Most of the people associated with the farming business don’t have a credit score plus they don’t even have the documented credit history. Hence, they don’t directly fall in the ambit of a lot of money lending institutions of the country.
To address the issue, Arjun Ahluwalia along with Adriel Maniego floated a startup called Jai Kisan in 2017 at Mumbai. The company claimed to be committed to breaking the current informal credit culture that stunts the economic and social growth of farmers. To begin with, it treats farmers as businesses rather than as consumers while facilitating formal credit efficiently. Jai Kisan’s FinTech platform analyses farmers better, monitors the end use of capital, mitigates production risk, and facilitates repayment.
Amplifying further on the model, Adriel Maniego, Co-Founder and COO, Jai Kisan stated, “Financial services play a very crucial role in each and every sector. In farming as well, these services are of utmost importance as the entire production line depends on it. Particularly in India, where the entire country follows a trade module of ‘Buy Now and Pay Later’, the credit line has to be firm as a rock. We need to understand the concept that if the formal financing is made available to the customer, it is not just the customer who gets benefited with that but the entire ecosystem that revolves around that customer benefits.”
Jai Kisan claims to have financed over 15 per cent of the transactions, which portrays the monetisability and quality of commerce being captured. The ability to have visibility and virality of high-quality transactions has enabled Jai Kisan to scale business by over 50 per cent in a few months. The unprecedented growth trajectory stands testament to Jai Kisan’s capabilities to deploy capital efficiently by focusing on core customer credit needs.
Walking on the similar path, Amilkumar SG founded a startup called ‘Samunnati’ in 2014. Based in Chennai, the company aims to provide smallholder farmers and agri enterprises access to markets through financial intermediation, market linkages and advisory services so that the enterprises and value chains that they are engaged in, operate at a higher equilibrium thereby creating value for all stakeholders in the agri value chain.
“There is a big problem with the agri lenders in India; they don’t have a prescribed definition of farmers. Most of the farmers that are working on small portions of land are actually tenants and not owners of the land. But, they are made accountable for the entire loan amount whether crop cultivation happens or not. As a result, farmers in India are not only perennially in debt, but also left with limited access to formal credit. Studies suggest that only 11 per cent of the farming population has access to organised lenders and farm loans,” said Amilkumar SG, Founder & CEO, Samunnati.
Sammunati customers can avail working capital for one to 100 days, with the average loan size at about Rs 70 lakh, and individual transactions pegged at Rs 5-10 lakh. “Our goal is to make the throughput more, and remove working capital constraints for everyone in the value chain”, stated Amilkumar.
