Agri-focused NBFCs and Fintech’s plays critical role to augment credit requirement for agricultural innovation
CXOToday has engaged in an exclusive interview with Mr. Prabhat Chaturvedi, Chief Executive Officer, Netafim Agricultural Financing Agency Pvt Ltd.
- How do you see the growth of tech-enabled agriculture-focused financing systems?
Public data suggests that approximately 30-35 per cent of total small and marginal farmers have access to banks and other formal credit channels. Some of the issues faced by banks in providing credit to the farmers are difficulty in reaching far-flung and remote areas and lack of critical technology. Further, banking activity involving lending to small farmers is plagued by various limitations like higher acquisition and servicing costs for marginal farmers and a greater risk of loan default. There are other problems that banks have faced, like difficulty in gathering farm-level data and getting information such as the cash flow and credit history of farmers. This is where the role of Agri focused NBFCs /Fintech’s becomes critical. NBFCs / Fintech’s focus on Agriculture mechanization has scripted a remarkable success story. From large Agri infrastructure financing to small farmers’ microfinance, these NBFCs have innovated over time and found ways to address the debt requirements of the farmer community. Over time, Agri-focused NBFCs / Fintech have evolved to be well-regulated and, in many instances, adopted best practices in technology, innovation, risk management, and governance. Thus, act as conduits and have furthered the Government’s agenda on Financial Inclusion. The Agri-focused NBFCs /Fintech has the potential to meet the long-term credit needs of the farmers as most of them have high penetration in rural India, and the bulk of their credit disbursements are focused only on small and marginal farmers.
- What are the purposes Agri-focused NBFCs or fintech consider while offering loans? How are these sets of creditors differentiated from others?
Some of the various purposes for which agri-dedicated NBFCs lend money to the farmer include loans for equipment and machinery, modern and efficient methods of irrigation, and various other components in the value chain of cultivation. They have also brought down the interest rate of loans to as low as 12-18 per cent compared to 24-60 per cent available in the informal credit system in the vast rural parts of India. The use of modern technology to draw estimates of loan demand, visibility of usage of credit, tracking irrigation facilities, etc., to come up with the exact products and offerings for the farmers are another set of distinct advantages these NBFCs offer.
- What are the key roadblocks agri-focused NBFCs, and Fintech are facing yet?
Even though the country has taken some proactive steps in heralding reforms in agri-credit to provide financial assistance to the farmer community, it is still behind compared to some neighbouring nations. While the volume of credit has improved over the decades, its quality and impact on agriculture have only weakened. Agriculture requires substantial capital commitment, as procurement of equipment remains a significant spend for most farmers. Still, most agricultural credit extended to farmers is of a working capital nature, thus stagnating more than 80 per cent of farmers’ income. The analysis of Indian credit demand suggests that even though the banks and other financial institutions are aggressively increasing their reach to the farmer community under priority sector lending, the penetration continues to be low. The major challenge these NBFCs are trying to tide over is inclusion under reforms that currently are limited to banks and their Agri credit business. The policymakers must ensure that agri-focused NBFCs/Fintechs are included in effective programs such as the government subsidy schemes, a benefit hitherto available only to the Banks. It will enable them to lend efficiently, and mitigate farmers’ credit requirements, thereby supporting their income growth. It will also go a long way in boosting agriculture financing and help India dominate global leadership of the agrarian economy.
- There is a lot of emphasis on Agricultural economy. What is your take on this sector?
India is largely an agrarian economy and fiscal transformation of the country crucially depends on the performance of the agriculture and allied sector. The sector continues to play a substantial role to offer employment and income to the large proportion of the population directly or indirectly. Approximately 70 percent of country’s rural households still depend primarily on agriculture, with ~80 percent of farmers being small and marginal. Being a dominant. sector of the Indian economy, with approximately 85 percent of farm holdings being less than 2 ha in size, still producing sufficient food and fiber for our large population of 1.41 billion. In addition, it generates some net export surplus. Even during the difficult time of pandemic lockdown, India continued the food export to the world food supply chain. The policymakers have been giving considerable attention to the sector. Several measures ranging from income support schemes, crop insurance, agricultural land leasing laws, promoting micro-irrigation techniques to improve efficiency in water usage to agriculture marketing reforms have been tabled for the betterment of the sector and farmer community.
