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An Inc42 Plus Story

Why Agri-Fintech Startups Have Failed To Cash In On Rural Finance Needs

Shanthi S

Inc42 Staff

02 Dec'20 19 min read

Out of the 1,000-plus agritech startups in India, only a handful are operating in the agri financing space. This segment is the least funded due to multiple challenges involved in achieving scale such as the prevalence of informal credit, repayments in cash and non-availability of customer data

To resolve multiple challenges in the agri fintech space, startups such as Samunnati, Jai Kisan and farMarts are looking at innovative approaches and alternative business models such as working with FPOs and merchants instead of farmers and partnering with market-linkage startups

Will agritech startups’ baby steps towards making fintech accessible to farmers yield results?

Playbooks

Farming 3.0: India’s Mission Agritech

Once least favoured, agritech is today betted as one of the most resilient sectors. The pandemic has further pushed farmers to leverage technology offered by the startups in the space, thereby making the sector a hotspot of investments. Is India’s agritech on the brink of a permanent transformation or the newly-found success a passing cloud? This playbook explores!

What is challenging India’s small and marginal farmers, once considered the economic backbone of the country? As most people already know, the top issue impacting both farmers and agriculture is the lack of timely and adequate finance. Be it drought, flood or pest proliferation, a bad harvest would often force small-scale farmers to seek quick, small loans, but the interest rate could be as high as 10% per week. The reason: Financial inclusion rates have always been low in the farming sector, and farmers are often left out of the formal credit system.

While banks mostly provide collateral loans at 8-12% interest per annum, some non-banking financial companies (NBFCs) may provide non-collateral loans, but the annual interest range could be 13-26% due to the high-risk nature of these loans.

Rural credit comes from two main sources, private and institutional. The former includes private moneylenders, landlords or even relatives who can, at times, exploit the people in need. The second category includes rural co-operatives, commercial banks which provide short-to-medium term credit and the National Bank for Agricultural and RuralDevelopment (NABARD) that takes care of long-term credit requirements. The options are not many when it comes to ‘affordable credit’ from formal sources.

According to experts, the lack of lenders’ presence on the ground, or their outreach, could be a key reason behind the lack of formal credit access.