India accounts for 7.Sixty eight% of total worldwide agricultural output and roughly 49% of its workforce is on this region, yet it contributes best 17-18% to India’s GDP. While the government and agritech startups together with Ninjacart, AgroStar, Stellapps, CropIn, EM3 Agri amongst others have attempted enhancing the performance of agricultural production and distribution to guide the average Indian farmer, one essential problem still remains unsolved — immediately finance.
“There is a massive gap in terms of availing credit for farm and farm-associated activities. We realised this while we started with our Uber for tractor model in 2016, renting out tractors to the farmers,” stated Alekh Sanghera, cofounder and CEO of farMart, an agri-fintech startup based in Gurugram. Though the tractor condo commercial enterprise version turned into a success, it was now not a whole lot of a value-addition to the farmer’s present state of affairs, where every decision revolves around get entry to to budget.
As he elaborated in addition, more than INR 11 Lakh Cr is allocated in the direction of agriculture credit score underneath the concern quarter lending (PSL) through the authorities. However, this capital does now not attain the smallholder farmers, as best less than 20% of smallholder farmers are able to obtain credit score from formal banking establishments.
“This method over one hundred Mn farmers are depending on casual channels who charge exorbitant hobby rates to meet their credit score desires each cropping season,” Sanghera added.
In order to resolve this, Sanghera alongside together with his cofounders Lokesh Singh and Mehtab Hans— all from farming households and vast enjoy in microfinance phase — pivoted farMart to the agri-fintech model in July 2018.
The farMart platform basically supports smallholder farmers in having access to low-fee virtual loans to permit them to buy merchandise at the factor of sale. Farmers receive a virtual credit card, through which they should purchase top notch seeds, fertilizer and different agricultural inputs on credit thru farMart’s network of 90 offline retail channel companions.
No coins disbursement is given to farmers, making sure zero diversion of budget by way of middlemen, and allowing a cashless environment.
During their pilot segment, the agri-fintech startup reached 300 farmers and dispensed loans worth INR 15.5 Lakh with less than 1% NPA (non-performing asset). Backed by way of IAN and LetsVenture, farMart is operational in choose areas in Uttar Pradesh. The founders are seeking to enlarge operations to Madhya Pradesh, Rajasthan and Bihar over the following years. Also, they may be focused on to attain 1 lakh farmers thereby disbursing loans worth INR one hundred Cr until July 2020.
How Does farMart Solve This Complex Problem?
Any lending institution has three pillars: Right and profitable client sourcing, credit score evaluation and subsequently collection. FarMart is working on all 3 of those to clear up the farmer-credit hassle.
Low-Price Customer Sourcing
The founders awareness on smaller farmers with less than 2 hectare of landholding as their number one target audience. Sanghera advised CFT this is the most underneath-served network, and don’t have too many options. The It normally takes them three-twelve months to get a mortgage from banks, and frequently they must pay bribes or costs to touts, aside from banking expenses.
Instead, farMart gives get admission to to credit in a range of INR 10K to INR 50K, inside three operating days, and has grow to be a feasible alternative for farmers via gaining their consider over the years.
“Without disclosing the exact numbers, let me inform you, our sourcing fee is double-digit INR that is unmarried digit % of our margin,” Sanghera delivered.
Viable Credit Assessment
farMart operates on a proprietary credit score underwriting version which analyses over 50 alternate records points to decide the creditworthiness of a farmer. These data points are accrued across four areas:
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Personal profiling: own family background, age, gender, geography amongst others
Agricultural profiling: consists of the acreage of land; whether or not the farmer owns it or is renting it, among others, to keep away from the threat of migration
Income diversification: Another factor taken under consideration is the dependence on agriculture for the farmer. Ideally, farmers must rear farm animals or fowl, or have earnings within the circle of relatives from resources aside from agriculture.
Asset profiling: farMart additionally takes under consideration a farmer’s financial electricity, loan compensation functionality, previous loans fame and so forth.
Creating A 360-Degree Data Infrastructure
Data approximately farmers and their land popularity is accrued with the help of the shops who are working with farMart. It companions with agricultural produce companies, farmer cooperatives or government-recognized shops. “After one crop season, local outlets in the area additionally begin partnering with us,” Sanghera delivered.
Further, the agri-fintech startup has its group working at the ground, to assist farmers entire their profile on the platform. A farmer can upload the desired information, by scanning files including a bank passbook, Aadhaar card and different ID proof. “We have OCR era in which the passbook picture information will be directly converted to text,” he introduced.
Combating Risk Of NPA
Like in the microfinance industry, farMart gives loans by using using a ‘Closed-User-Group’ lending model, wherein loans are given to a group of people inside a place. In the case of non-payment of dues through anybody farmer, the network can help the organization recover loans.
At the same time, the agri-fintech startup operates in areas of Uttar Pradesh (UP) in which farmers grow plants like wheat, paddy, pepper, mint, and potato. All those crops are backed by way of the government and are likely to be purchased in case of contingency.
At the gathering factor, farmers are supplied bendy compensation option that allows them to pay again their loans in any quantity during the mortgage time period, that is normally one crop season equivalent to a few months, as farmers have seasonal cash flows.
Farmers additionally have the choice to pay within the form of produce to farMart’s marketplace linkage companions. According to Sanghera, for a farmer, the produce is also forex.
“We realised that if we will assist farmers convert produce into coins to repay us, it'd notably reduce our collection efforts and the price of series. Therefore, via marketplace-linkage programs, we permit farmers to now not best get higher fees for produce but additionally accumulate repayments thru a focused set of entities digitally,” he introduced.
Bridging The NPA Gap For Lending Institutions
Agriculture is taken into consideration one of the riskiest sectors for lending due to two center problems: the threat of diversion and hazard of migration, that can lead to a high occurrence of non-acting assets or NPAs.
Sanghera emphasized that farMart isn't handiest fixing the credit score hassle for farmers but additionally fixing NPA trouble for banks and financial institutions. Amongst many challenges, the banking atmosphere is based on self-reporting of the customer to song or report usage of loans. In most instances, loans have been diverted from the farm for unrelated sports which includes carrying out a marriage inside the family, constructing houses and so forth. The atmosphere grapples with the acute venture of loan usage tracking.
Now, underneath precedence lending act, 18% of the capital, desires to go to the agricultural sports. So, banks normally purchase agri-portfolios from microfinance groups on top rate or deposit money in the NABARD account with a penalty. In any case, the to be had sources do no longer reach the farmers in need.
“With farMart’s no cash model, we can not best forestall risks on unwanted diversification of agri funds however also can track the fund utilization to the extent of expenditure in seeds, fertilisers, agri-remedy and extra. This information we trust can alternate the attitude of the world itself,” Sanghera introduced.
One of the opposite challenges for the banking ecosystem is doing KYC (Know Your Customer) for the farmer network best on the premise of Aadhaar, PAN card, Ration Card and so forth. Here, the farMart’s 50-point statistics analysis method can help banks, microfinance and other lending institutions get all rocher profile facts on one platform and determine the hazard of the portfolio in one move.
As farMart isn't a non-banking financial agency or NBFC, it's miles currently partnering with lending institutions consisting of Happy Loans, Arth Impact among others. These establishments are presenting credit score to farMart to in turn lend to farmers on their behalf.
At gift, the agri-fintech startup claims a ninety Day DPD metric (Days Past Due, which banking institutions music cautiously to monitor repayment styles) and less than 1% defaults in the mortgage book.
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“The infrastructure layer that we are looking to construct between a lending institution and farMart is that we can assess the patron for you, we can check the utilisation of capital and we can also do the gathering. You simply come to plug and play into the version and you can lend to the farmer with low threat and excessive returns inside the method,” Sanghera said.
Microfinancing Enters A New Era
From a coverage standpoint, the government has taken concrete steps to allow players like farMart to create opportunities which didn’t exist before – Aadhaar-enabled KYC, Jan Dhan bank money owed, and NPCI price infrastructure. On top of that, the deeper penetration of cellular and net is assisting fintech startups digitise the whole surroundings inclusive of agriculture.
Sanghera believes that farMart is on road to steer within the technology of Microfinancing 2.Zero, leveraging era to disrupt the conventional fee shape of microfinancing institutions. He delivered that the biggest competition comes from the casual market which is deep-rooted in agriculture and is currently financing and controlling nearly the complete fee chain. In order to scale, farMart desires to be a hundred times higher and simpler to use than the offline market.
As Sanghera rightly concluded with a hundred and twenty Mn+ smallholder farmers within the united states of america, the possibility for agri-fintech is big and to the music of $60 Bn as in line with his estimates. But he is likewise confident of constructing on the stairs farMart has taken thus far. “There might be an entire ecosystem of business on top of this infrastructure similar to what we've got visible in ecommerce these days.”