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NBFCs refer to entities that are not banks but provide services such as lending and other activities without holding a banking license. One of the main reasons why people choose NBFCs over banks is due to lower costs. Since the need for finance in the farming community is on the rise, banks alone cannot cater to the increasing demand, so NBFCs provide finance to both the public and private sectors.

Entities such as banks consider a strong credit score an advantage while providing a loan and can be stringent regarding the documents’ approval.

Hence, most people turn towards NBFCs for business loans because of less documentation and competitive interest rates.

Let’s further look at the advantages of NBFCs over banks:

• NBFCs provide end-to-end solutions with an easy application process and instant approvals making the loan process faster than banks.
• NBFCs base interest rates are not regulated by the RBI. Therefore, have greater flexibility and offers competitive interest rates.
• NBFCs such as Agriwise provide exceptional customer service and require minimum documentation along with relatively lenient eligibility criteria compared to traditional banks, leading to quick disbursal of funds.

While computing the loan amount over the collateral property during calculation, NBFCs consider statutory changes like stamp duty, etc. Further, loan repayment is easier than banks owing to no penalty clauses.

With offerings that prioritize customers and provide hassle-free and digitized loan processes, the farming community prefers NBFCs over banks.

References:

• https://inc42.com/resources/heres-why-nbfcs-are-better-than-traditional-banks-for-business-loans/
• https://lawyerinc.net/learning/advantages-of-nbfc-over-bank/#:~:text=NBFC%20are%20more%20profitable%20than%20Banks%20because%20of,as%20banks%20have%20stringent%20regulations%20and%20cumbersome%20paperwork
• https://keydifferences.com/difference-between-nbfc-and-bank.html#Definition
• https://www.lendingkart.com/blog/banks-nbfc-which-better-business-loans/
• https://www.moneytap.com/blog/nbfcs-vs-traditional-banks/#Why_NBFCs_are_a_better_choice_for_personal_loans

Agri Equipment Finance is a loan given to obtain business equipment that includes any tangible asset such as: farm equipment (except real estate) that would help borrowers boost farm produce, not having to worry about loan security. It simply refers to a collateralized loan allowing farmers to purchase equipment, and once the loan is repaid, the borrower becomes the owner of that equipment. At Agriwise, we offer these products to our clients who want to purchase small farm equipment for their farms and require financing to do the same.

Features and Benefits of Equipment Finance:

References:

• https://isfae.org/farm-equipment-finance/#:~:text=Farm%20equipment%20financing%20allows%20you%20to%20purchase%20essential,you%20don%E2%80%99t%20have%20to%20worry%20about%20loan%20security.

Agricultural loans are availed by a farmer to fund seasonal agricultural operations or related activities like animal farming, purchase of land or agricultural tools; A form of credit that can be secured as a personal loan by the borrower. Agriwise provides these Agri loans to farmers with commercial or residential properties as collateral and the tenure lasts up to 8 years. It is a Secured term loan with the primary purpose of business development and expansion. However, this loan can also be taken for the purpose of educating a child, marriage or any other personal reasons. The rate of interest on the loan is determined keeping several factors in mind such as loan amount, tenure, credit score, income, existing EMIs etc.

The benefits of this product offering include:

• Financial assistance for Land development & reclamation, Soil conservation measures and on farm development works like Land levelling, terracing, contouring, bundling, fencing etc.
• Term Loans are extended for construction of wells, for deepening/renovating the existing wells and for boring in the existing dug wells to augment water supply.
• Financing for purchase of machinery/implements like Tractors, Power Tillers, seed drill, seed-cum-fertilizer drill, planters, power sprayers, seed cleaners, weed removers, power threshers, chaff cutters, cane crushers, harvester combines etc.
• Term loans for cultivation of Coconut, Coffee, Tea and Rubber plantations, Floriculture, Vegetable and Fruit cultivation etc.
• Credit facilities extended for activities related to dairy, cotton etc.

References:

• https://www.grihashakti.com/knowledge-centre/beginners-guide-to-loan-against-property-lap.aspx
• https://www.landcan.org/Grant-and-Assistance-Programs/

Warehouse Receipt Finance is a process where a financer provides credit to a seller against the security of goods stored in the warehouse. It includes the assurance of the commodity’s quality and quantity within an approved facility. While simple in concept, a warehouse-receipt system requires the availability of safe warehouses and widely accepted commodity grades and standards. Further, it is primarily limited to non-perishable goods with relatively predictable price developments. This product offering by Agriwise has proved to be a boon for several farmers.

Our group company, StarAgri, provides warehouses for our borrowers to store commodities. The warehouse receipts can then be used as collateral to avail loans by the depositors. Warehouse Receipt is an instrument used by the clients like farmers, processors, traders and others to secure short-term finance from NBFCs such as Agriwise. They can now use the warehouse receipt as collateral to avail of credit from Agriwise. The company will provide credit as a loan up to a specific percentage of the value of commodities stored in approved warehouses.

This product offering by Agriwise has several benefits:

• -Borrowers can get short-term working capital loans up to INR 5 crores against the pledge of agri-commodities. All types of food grains, pulses, cereals and oilseeds are covered. The rate of interest is low on such funds.
• -Warehouse receipts allow small farmers to delay the sale of goods, taking advantage of sizeable seasonal price swings for produce while obtaining cash when the harvest begins, which results in higher profitability for the farmers.
• -Another benefit to the small farmers is the transparency of produce prices as we provide them with up-to-date information on prices throughout the season. They can become “price setters” rather than “price takers.”
• -Farmers can realize savings by “buying back” their produce from the warehouse for home consumption during the lean season when food prices are high.

The above benefits make Agriwise’s Warehouse Receipt Finance an attractive option for farmers.

References:

• https://ebrary.net/19416/economics/warehouse_receipts_finance#:~:text=In%20warehouse%20receipt%20finance%2C%20a%20financier%20provides%20credit,an%20independently%20controlled%20warehouse%20to%20secure%20the%20credit

Agriculture is the backbone of the Indian economy and therefore the problems faced by this industry have been crucial topics of discussion. The uncertain nature of this industry results from a number of reasons including:

• Poor infrastructure & farming techniques, low use of farm technologies etc,
  ultimately resulting in low productivity. Consequently, the emergence of digital agriculture- a term used to refer to the use of digital technologies in managing the business of agriculture- is proving to be a boon for farmers today.

Some of these initiatives in India include:

• The initiation of the Digital Agriculture Mission 2021–2025, by the Union Minister of Agriculture & Farmers Welfare, which aims to support and accelerate projects based on new technologies, like AI, block chain, remote sensing and GIS technology and use of drones and robots.
• Sites such as eNam- National Agriculture Market, DBT- Direct Benefit Transfer Central Agri Portal, eChoupal-kiosks located in villages for access to the internet, have been developed to promote the use of technology among farmers.
• AgriStack – a collection of technology-based interventions in agriculture, United Farmer Service Platfrom (UFSP), Esagu and Agrisnet are among some of the other famous platforms based on e-technology.
• Further, the Jio Krishi Platform launched in February 2020 helps digitise the agricultural ecosystem along the entire value chain to empower farmers; The platform uses stand-alone application data to provide advisory, the advanced functions use data from various sources, feed the data into AI/ML algorithms and provide accurate personalised advice.

As a company committed to combine traditional agri knowledge with transparent credit and tech-driven insights to help farmers, with a similar goal of adding value along the entire value chain, Agriwise’s new platform, Fininza (fininza.in/) utilises some of these newer technological advancements. The platform works to smoothen the lending process and provide access to all loan details under one roof.

“Technology can make farmers’ lives easier, predictable and profitable, and increase food production”, said Ram Kaundinya, director general, Federation of Seed Industry of India (FSII). Today, the world is witnessing technological advancements at a rate faster than ever. Big data, Artificial intelligence, Deep learning etc are some of the tools that can be utilise to the advantage of farmers and pave way for economic prosperity in the country as a whole.

References:

• https://www.ibef.org/blogs/digital-agriculture-the-future-of-indian-agriculture
• https://www.analyticsinsight.net/technology-can-benefit-agriculture-farmers-india/
• https://www.insightsonindia.com/agriculture/e-technology-in-the-aid-of-farmers/
• https://economictimes.indiatimes.com/news/economy/agriculture/india-fields-technology-to-boost-farmers-crop-yields/articleshow/85280441.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

The Indian Agri-credit system has made commendable progress with the enforcement of some major policy changes over the years. Credit supply is one of the most integral determinants of investments in agriculture due to the degree of uncontrolled production and price risk that can influence the industry which makes the progress of Agri-credit systems more crucial than ever.

Policy changes have helped strengthen such progress; A number of innovative methods like the Kisan Credit Card Scheme, SHG bank linkage groups, JLGs and FPOs had been promoted for financial inclusion under institutional structure of which all saw great success other than the formerly mentioned KCC.

Further, this problem of farmer’s access to credit is being resolved by the leap from Agritech to Agri-fintech. Even though technology cannot resolve the root issue in its entirety, its implementation is creating a space that facilitates solving issues pertaining to data, digitalisation etc. Data has proven to be a boon which helps NBFCs check the Farmer’s identity, credit records and facilitates the process of determining interest rates and providing the loan. Some of these data points also constitute the foundation layer of Agristack, as proposed by recently released IDEA (Indian Digital Ecosystem for Agriculture) framework by Government of India³. Further, digitalisation has enabled companies to capture crop health, soil health, quality of produce- all of which are important determinants in assessing the creditworthiness for Agri loans and for enabling the process of underwriting among lending institutions.

Similarly, since the late 1990s, organisations have developed innovative approaches to financing agriculture including microfinance concepts, used good banking products drawing on knowledge of agriculture to enter and succeed in this market. No single approach works for all situations but a combination of many of these approaches have shown great promise. Some other innovations in agricultural credit markets include the warehouse receipt financing, value chain financing, leasing, contract farming and producer companies.

At Agriwise, we are more than just a provider of Agri finance. We understand Agri and allied businesses, their challenges and opportunities. We know Agri customers require not just finance, but also knowledge and expertise to grow. Agriwise has adapted to these innovations over the years by strengthening our product offerings which include:

• Agri Term Loans
• Warehouse Received Finance
• Supply Chain/ Invoice Finance
• Equipment and Input Finance
• Working Capital Facility.

We combine traditional Agri knowledge with transparent credit and tech-driven insights to help farmers and Agri & allied businesses to reimagine the future.

A number of Agritechs today have demonstrated that lending to farmers/ FPOs is doable at scale with the integration of smart data intervention, market linkages, partnerships and phygital approach. Agri-credit systems are critical and an effective means for the development of rural India. Consequently, innovations in the agricultural credit market have gained importance over the years. Future innovations and reforms should be designed in a manner that would further help resolve challenges faced in the Agri Finance sector and facilitate the process of lending loans.

References:

• https://inc42.com/resources/pivoting-agritech-to-agri-fintech/
• https://www.econstor.eu/handle/10419/206974
• https://www.researchgate.net/publication/340228278_Innovations_in_Agricultural_Credit_Disbursement_and_Payment_Systems_for_Financial_Inclusion_in_Rural_India

The PM Kusum Yojana was introduced by the central government in 2019. Under this scheme, the central government of India will provide Kusum solar pump sets on a subsidised basis. These solar pumps have two purposes: They help farmers with irrigation and allow them to generate electricity. The government will provide a subsidy of 60% to farmers and 30% of the cost will be given by Government in form of loans. Farmers will only be responsible for 10% of the total cost of the project.

Now, the Rajasthan government launched the Kusum scheme with certain reforms. The Industries Department of Rajasthan said that it would provide subsidies on interest of 30% of cost formerly mentioned- that is the 30% being given in the form of loans. The Rajasthan Renewable Energy Corporation Limited said that the problems being faced by farmers under Kusum Component (which states Addition of 10,000 MW of solar capacity through installation of small solar power plants of capacity up to 2 MW) in the state will be resolved. For this, the Rajasthan Renewable Energy Corporation has started listening to the problems of the farmers.

Under this Kusum Scheme 2022, 17.5 lakh diesel irrigation pumps running in the first phase will be powered by solar energy in order to reduce the consumption of diesel. Irrigation pumps running on solar energy would result in no net loss in the agricultural output. Rajashthan’s Kusum Yojana 2022 will be especially good for those farmers where the state is drought-prone and there exists a problem of electricity. Under the Rajasthan Kusum Yojana, about 10 lakh diesel and petrol powered irrigation motors will be replaced.

Reasons for implementing reforms and promoting the scheme:

• Day time reliable power for irrigation for farmers.
• De-Dieselization by Replacing Diesel Pumps with Solar Pumps, Promoting renewable energy in light of the 2015 Paris Climate Agreement.
• Enhancing Farmers Income under component C: selling surplus energy to DISCOMS at a pre-determined rate.
• Curbing Climate Change
• Boosting Domestic Solar Manufacturing
• Reducing the Import Bill, considering India’s petroleum import bill is large and on the rise. Another incentive to be self-reliant.

Source:

• https://vijaysolution.com/rajasthan-kusum-yojana-2022-online-registration/#:~:text=Under%20this%20Kusum%20Scheme%202022,the%20agriculture%20of%20the%20farmers
• https://mnre.gov.in/img/documents/uploads/file_s-1650960108170.pdf
• https://pmkusum.mnre.gov.in/landing-faq.html

Priority sector lending (PSL) was formalized in 1972, and RBI advised PSL targets to banks in 1974, which ensures that the lenders compulsorily lend 40% of their total credit to specific sectors. The Reserve Bank of India (RBI) has defined different categories under priority sector and agriculture is one of that category which falls under priority sector lending. Domestic scheduled commercial banks excluding Regional Rural Banks (RRB) and Small Finance Banks (SFB) and Foreign banks with 20 branches and above have a target of 18% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers. The activities covered under Agriculture are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities.

Bank credit extended to registered NBFC-MFIs and other Microfinance institutions (MFIs) such as societies, trusts etc. which are members of RBI recognised Self-Regulatory Organisation (SRO) for the sector, for on-lending to individuals and also to members of Self Help Groups (SHGs) / Joint Liability Group (JLGs) will be eligible for categorisation as priority sector advance under respective categories of agriculture subject to conditions specified in para 21 not applicable to RRBs, UCBs, SFBs and Local Area Banks (LABs). Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term lending’ component under agriculture will be allowed up to Rs. 10 lakh per borrower subject to conditions specified in para 22 and 24 (not applicable to RRBs, UCBs, SFBs and LABs).

In order to provide greater operational flexibility to banks and NBFCs for reaching out to priority sector, a revised scheme, renamed as co-lending model (CLM) was introduced, effective November 5, 2020. The primary focus of the revised scheme is to improve the flow of credit to the unserved and underserved sectors of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the comparative advantage of lower cost of funds of banks and greater reach of NBFCs.

The Government of India (GoI) fixes the agricultural credit target every year for commercial banks, RRBs and rural co-operative banks. During 2020-21, against the target of Rs. 15 lakh crore, banks achieved 75.1 per cent of the target (Rs. 11.27 lakh crore) as on December 31, 2020, of which commercial banks, RRBs and rural co-operative banks achieved 78.6 per cent, 74.2% and 59.3%, respectively, of their targets.

In sum, during the year, the Reserve Bank implemented the recommendations of the Expert Committee on MSME and the Internal Working Group on Agricultural Credit to improve inclusiveness and also enhance flow of credit to these sectors. Further, revised Master Directions on PSL were issued to harmonise the various instructions. Co-lending was introduced to improve the flow of credit to the unserved and underserved sectors of the economy at an affordable cost and scale up of the pilot CFL project was initiated to cover the entire country in a phased manner. Going ahead, the implementation of the recommendations laid down under the NSFI document and strengthening financial literacy will be the key areas of focus for the Reserve Bank.

References:

• https://m.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1317
• https://m.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11959#Targets
• https://m.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11959#Agriculture
• https://www.rbi.org.in/scripts/FAQView.aspx?Id=87

Agri financing plays an essential role in farm sector development, as India being an agrarian economy is a major contributor to the global food basket. As on March 31, 2020, NBFCs had total assets of Rs. 51.47 trillion, almost 25% of India’s GDP. Therefore, a healthy NBFC sector from a systemic point of view is crucial for India’s economic revival. The recent RBI bulletin released in May 2021 states that India’s NBFCs did register a year-on-year (y-o-y) growth of 13% and 11.6% in the second and third quarter of 2020-21 despite the ongoing pandemic. This shows the sector’s resilience, as they were quick to adopt technology, policy support, and sensibly strong fundamentals.

The Food and Agriculture Organization (FAO) mentioned on May 6, 2021 that its Food Price Index in April 2021 rose 30.8% higher as compared to its level in the same month last year. India is among the world’s leading producers of many commodities such as dairy, cereals, spices, fruits and vegetables, rice, wheat, cotton, etc. India’s exports of agriculture and allied commodities for 2020-21 (April-February) was up by 18.35% at Rs. 2,69,241.41 crores as compared to the same period last year was Rs. 2,27,493.43 crores. The recent rally in global commodity prices and the prices of commodities in India being fairly low in comparison, led to a boost in farm exports, giving rise to many businesses in the agri sector.

There are enormous opportunities in the agricultural sector and Agri financing has that potential to transform the agricultural sector in a massive way. By targeting the excluded segments of the farming community with the help of modern technological advances can pave the way towards making Agri financing more far reaching. The widespread access to affordable smart mobile phones has already led to a shift in the way farmers have access to price information, buyers, sellers, markets, etc. This has given rise to many Agri Fintech, professional tech-enabled Agri services companies, etc.

One such example is Agriwise Finserv Ltd, which has been one of the leading NBFCs in agri financing space, registered with the RBI as a Systemically important-Non Banking financial institution (SI-NBFC). We have disbursed Rs. 1,250 crores worth of loans as on March 2021 and serviced over 2,800 clients. Usually securing finance can often become a daunting task, given the complexities in the process, but at Agriwise we have made agri-financing simpler, easier and faster. A three-step application process and 24-hour approvals, ensures that access to finance is not a barrier in a progressive farmer’s growth.

In order to reduce turnaround time, facilitate spontaneous and automated decision making, aid in optimization of resources and processes, and ensure accessibility of credit to farmers at rates custom-made to their socio economic profile can be possible only if technological innovations across value chains are adopted.  This would give NBFCs an advantage over institutional banking systems and drive maximum possible growth. The success of agri NBFCs largely depends on their ability to make best use of technology, human capital and strategic partnerships. A combination of NBFCs having a large customer base and FinTech companies having the right technological support; together, can form a mutually beneficial relationship to increase the processes of helping farmers secure credit.