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What Are Tech-enabled Financing Solutions In the Agriculture Industry? Agriculture is reforming with technological and digital adoption, with the financial sector playing a significant role

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In 2021, India's agriculture sector had the highest number of employees recorded at around 152 million. Despite the impact of the pandemic, the sector saw an upswing in its employment trend. With such numbers, it is easy to conclude that agriculture is, undoubtedly, one of the primary employers of the country and contributes significantly to the economy.

However, this does not indicate that farmers and retailers have sufficient income, good produce, and easy access to credit and marketplaces. Many farmers still suffer from the plight of poor credit, inefficient marketplaces, low-quality farm inputs, and no support for improving crop yield.

Fortunately, agriculture is reforming with technological and digital adoption, with the financial sector playing a significant role. India's Fintech market is amongst the fastest-growing in the world. The industry's market size in 2021 was valued at $50 billion and is projected to grow to nearly $150 billion by 2025. The ecosystem encompasses many sub-segments, including lending, payments, personal finance management, wealth technology, insurance technology, regulation technology, agriculture technology (agri-fintech), and more.

Agri-fintech is developed in response to the growing relevance of agricultural technology financing. It refers to the use of technology to improve farmer and farm economics by enhancing farmer and value chain financing.

Who Needs Finance In the Agriculture Sector?

Agriculture consists of a wide range of activities, including small-scale farming, infrastructure projects, and research and development. When considering the target market for agricultural finance, there are four sections: farmers and small agricultural entrepreneurs, the players along the value chain, rural infrastructure, and research and development.

Farmers need loans and credit for procuring agri inputs, buying equipment, investing in farming technologies, and selling produce to food companies. Wholesalers or small agricultural entrepreneurs operate from APMC markets and require working capital to manage large quantities of produce, improve storage, and transport goods to retailers. Rural infrastructure firms need finance to develop irrigation schemes, rural roads, bridges, tracks, health centres and markets. The research and development division needs to invest money to acquire knowledge about simple, scalable, and affordable next-generation solutions to drive agricultural innovations.

There are different financial instruments to cater to the needs of the agriculture sector. And there are different roadblocks for each of these sectors to acquire financing from bankers and financial institutions. Fintech represents a space where innovation can be made to serve the marginalized in ways that lead to economic growth and welfare. Here's a look at how technology and its solutions are changing the face of agricultural finance.

Value Chain Financing

Value chain finance refers to the flow of funds to and among the different links within a value chain. In the field of agriculture, it is developed within the interlinked relations between buyers, producers, suppliers and bankers. The goal of financing is on the business transaction between two or more players in the chain, instead of direct financing of the farmer or the entrepreneur.

Technological innovations have played a crucial role in the growing application of value chain finance. They include the application of information and communication technologies in mobile banking, electronic networks, mobile technical support, etc., which have improved management information systems to accommodate tailored financial services.

Blockchain Technology

Blockchain is a ledger of transactions and accounts written and stored by all those involved in the process. It serves as a reliable source of information about the state of farms, contracts and inventories in agriculture. The collection of such information is otherwise incredibly expensive. Blockchain technology is a trusted way of storing data and helps to make farming smarter.

Moreover, in collaboration with smart contracts, the technology helps in managing timely payments between stakeholders. Blockchain technology has applications in agricultural insurance, food supply chains, smart farming, and transactions of agricultural products from theoretical and practical perspectives.

Role of Fintech Firms

With a combination of smart data intervention, partnerships, market linkages, and a phygital strategy, NBFCs and agritechs have proved that lending to farmers, value chain participants, and FPOs can be executed at scale. Many established agritech firms focus on post-harvest, agri input, and data-centric models. They have also included financing and credit services as their core offering. Moreover, many agritech players have developed unique models and algorithms in agri-fintech and agri-insuretech.

Fintech firms have a major role to play in offering mass-scale agricultural finance. The advent of digital technologies has significantly lowered the cost of providing services on the margin, allowing them to be provided in smaller packages to poorer customers. Fintech has led to the development of new ways for targeting and collateralising credit, pricing and spreading risk, and organising agricultural value chains.

End notes

Finance in agriculture is as vital as other inputs being used in agricultural production. A farmer can invest in technical inputs only if funds are available. But a farmer's income isn't sufficient, and there is a constant need for outside finance or credit. Until 1935, it was only the professional money lenders who offered credit to agriculture. After the passing of the Reserve Bank of India Act 1934, Land Development Banks Act, and District Central Co-op Banks Act, there was a significant improvement in agricultural credit.

Technology has further accelerated the process by solving common challenges faced by bankers - Data, Digitisation, and Demand. Technology enables easy verification of farm and farmer identity through the Aadhaar based framework. Digitisation helps in capturing input usage, prices, crop health, quality of produce, and more to establish credit worthiness. Many startups in the sector are leading the agricultural disruption by blending farm inputs with physical infrastructure for greater price certainty, eliminating inefficiencies in supply change, enabling farm management and precision agriculture, and helping farm owners attain access to credit and crop insurance.

Kartheeswaran Kandasamy

COO and co-founder, Ninjacart

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