CXOTi day has engaged in an exclusive interview with Mr. Prabhat Chaturvedi, Managing Director, Netafim Agricultural Financing Agency Pvt Ltd.
- How do you see the growth of technology-enabled agriculture-focused financing systems?
Public data suggests that approximately 30-35 percent of total small and marginal farmers have access to banks and other formal credit channels. Some of the problems banks face in extending credit to farmers are difficulty in reaching remote and remote areas and lack of critical technology. Furthermore, banking activities involving lending to small farmers are plagued by various constraints such as higher acquisition and service costs for marginal farmers and a greater risk of loan default. There are other problems that banks have faced, such as difficulties in collecting data at the farm level and getting information such as cash flow and credit history to the farmers. This is where the role of Agri-focused NBFCs / Fintechs becomes critical. NBFCs / Fintechs focus on agricultural mechanization has written a remarkable success story. From major financing of Agri infrastructure to micro-financing of small farmers, these NBFCs have innovated over time and found ways to meet the debt requirements of the farming community. Over time, Agri-focused NBFCs / Fintech have evolved to be well regulated and, in many cases, have adopted best practices in technology, innovation, risk management and governance. Therefore act as channels and have promoted the government’s agenda on financial inclusion. The Agri-focused NBFCs / Fintech have the potential to address the long-term credit needs of 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 objectives Agri-focused NBFCs or fintechs consider when offering loans? How do these creditor sets differ from others?
Some of the various purposes for which agriculture-dedicated NBFCs lend money to the farmer include loans for equipment and machinery, modern and efficient irrigation methods, and various other components of the cultivation value chain. They have also lowered interest rates on loans to as low as 12-18 percent compared to the 24-60 percent available in the informal credit system in the vast rural parts of India. The use of modern technology to make estimates of loan demand, visibility of credit utilization, tracking of irrigation facilities, etc., to come up with the accurate products and offers for the farmers is another set of distinct benefits these NBFCs offer.
- What are the key roadblocks facing NBFCs and Fintech yet?
Although the country has taken some proactive steps to initiate reforms in agricultural credit to provide financial assistance to the farming community, it still lags behind some neighboring nations. While the volume of credit has improved over the decades, the quality and impact on agriculture has only done so weakened. Agriculture requires significant capital investment, as the acquisition of equipment remains a significant expense for most farmers. Nevertheless, most agricultural credit given to farmers is for working capital, and thus more than 80 percent of farmers’ income stagnates. The analysis of Indian credit demand suggests that although the banks and other financial institutions are aggressively increasing their reach to the farming community under priority sector lending, penetration remains low. The biggest challenge these NBFCs are trying to achieve is inclusion under reforms which are currently limited to banks and their Agri credit operations. The politicians must ensure that agriculture-focused NBFCs/Fintechs are included in effective programs such as the government subsidy schemes, a benefit that has hitherto been available only to the banks. It will enable them to lend efficiently, reducing farmers’ credit requirements, thereby supporting their income growth. It will also go a long way in increasing agricultural finance and help India dominate the global leadership of the agricultural economy.
- There is a lot of emphasis on agricultural economics. What is your view on this sector?
India is largely an agricultural economy and fiscal transformation of the country largely depends on the performance of agriculture and allied sectors. The sector still plays a significant role in providing employment and income to the large proportion of the population directly or indirectly. About 70 percent of the country’s rural households are still mainly dependent on agriculture, with ~80 percent of farmers being small and marginal. Being a dominant. sector of the Indian economy, with about 85 percent of farm holdings less than 2 hectares in size, still producing sufficient food and fiber for our large population of 1.41 billion. In addition, it provides some net export surplus. Even during the difficult time of pandemic shutdown, India continued to export food to the world’s food supply chain. Politicians have given considerable attention to the sector. Several measures ranging from income support schemes, crop insurance, agricultural land leasing laws, promotion of micro-irrigation techniques to improve efficiency in water use to agricultural marketing reforms have been put forward to improve the sector and the farming community.
