TAC Ecosystem Workshop Summary

Enhancing Financial Access for Small, Tenanted, and Women Farmers through Scalable Digital Solutions

SUMMARY NOTE

The Agri Collaboratory hosted the Round Table with the esteem presence of Mr. Ramesh Chand, Niti Aayog, Harsh Kumar Bhanwala, Ex-NABARD chairman and other distinguished experts from the industry.

The discussions focused on -

• Challenges faced by small, tenanted & women farmers while accessing finances for their farming cycle.
• Challenges encountered and factors to be taken into consideration when seeking solutions that can have impact at scale - by the ecosystem organizations
• Digital technology helping farmers currently and the gaps that need to be addressed.
• How as an ecosystem we can come together to build digital solutions that are neither in silos nor monolith.

It was followed by product presentations by the ecosystem members - IUDX, Whats Loan & Varaha.

The attached document provides a comprehensive summary of the key insights discussed and the recommended suggestions put forth by the participants.

KEY INSIGHTS

Finance

Holistic approach to farmer finance -

The primary focus in digital agriculture should be on improving farmers' income, particularly by addressing farmer credit issues rather than solely focusing on agricultural credit. In regions like Telangana, Andhra Pradesh, Punjab, and Tamil Nadu, where small farmers face poverty and indebtedness, providing credit beyond agricultural needs is crucial. Many farmers lack access to consumption credit, leading them to borrow at high rates from non-banking financial institutions. With only 35% of a farming household's average income coming from agriculture, understanding diverse income sources throughout the year is vital. However, this is challenging due to a lack of data, making it essential to create a comprehensive income footprint.

The failure of traditional financing systems, leading to farmer suicides, is attributed to the lack of insurance in the system. Solving both financing and crop/other insurances together can provide air cover for more innovation in the agricultural sector. Shortcomings of the existing crop insurance schemes, such as the Bhima Fasal Yojna, suggest a re-examination of ways to improve and implement effective crop insurance.

Credit Distribution

Contrary to common perceptions, credit availability varies across regions, and oversupply of credit can lead to issues. Innovative solutions are necessary to ensure credit reaches to those in need, with the private sector playing a crucial role in creating demand and overcoming limitations for small farmers through targeted interventions. The private sector can also contribute to protecting small farmers from fraudulent practices related to credit availability and distribution. The success of small farmers results in a greater supply of credit, creating a consistent cycle of growth.

Lowering cost of credit

Currently, NBFCs, have been able to offer last mile connectivity on the ground and due to being digitally enabled. They are prime source of lending for farmers, but at a high interest rate. NBFCs cannot work for less than a 10-12% margin, due to their higher borrowing costs and operational cost. This may be one of the reasons why despite having better management, better governance and better technology, their acceptability and trust amongst farmers is still exceedingly low, whereas well-functioning, cooperative banks in some states enjoy much better trust than even RRBs. For example, in Gujarat, commercial banks find it difficult to penetrate their customer base, hence digital agriculture is state specific.

Recovery of loans and reduce default.

Loan collection is complex - while giving a loan is easy, ensuring repayment is the hard part. For the collection to improve, it is important for the lender to control the end use and/or incoming cash flow, whereby improving repayment rates.

Loans lacking both end-use and cash flow control are classified as type one loans. Everybody in the system is type one right now.

Type two is when end use is controlled.

Type three is when incoming cash flow is controlled.

Type four loan is when you can do both - SBI has already set aside some 100 -200 crores for T4 loans for agriculture.

Digital Revolution

Technological Advancements Shaping Agriculture– Digital Agriculture and Farm Technology Leading the Path Now

Historically, technology initially favoured developed countries, but the Green Revolution narrowed the gap between developed and developing nations in terms of agricultural productivity. The conclusion of the Green Revolution marks the beginning of a new technological era in agriculture. However, a noticeable divide is resurfacing between developed and developing nations in the adoption of agricultural technology.

Developed countries are rapidly embracing advanced tools for tasks such as feeding livestock, watering plants, assessing nutrient requirements, diagnosing diseases, and more. This transformation, largely led by the private sector, is not mirrored in India and many developing nations. Although discussions about these technologies exist, their widespread adoption in production agriculture seems unlikely in the near future.

This divide, if left unaddressed, will have severe consequences. Unlike the Green Revolution, where public sector institutions played a crucial role, the current scenario demands increased participation from the private sector. Agriculture is becoming capital and knowledge-intensive, with timely decisions determining success or risk. This shift is a significant departure from the past, where government institutions played vital roles. Private sector involvement in production agriculture is currently only 0.5% of total investment, with very little capital deployment, as a result there are very few use-cases and practical applications on the ground. Further, Private sector engagement in production agriculture, particularly in the application of digital technology, needs greater emphasis than in post-harvest or pre-harvest stages. To address this, it is essential to recognize and pursue specific cases and applications and identify 5-10 digital tools and their applicability so as to offer practical solutions for farmers. This will also ensure efficient and effective deployment of technology.

Digital Adoption

Adoption of digital Agri practices at ground level

Despite the futuristic potential of digital agriculture, there's a lack of incentive for farmers to adopt it. The younger generation is moving away from farming, contributing to labour migration from villages to cities. Additionally, the immediate benefits of digital technology in agriculture are not well understood. Without addressing income enhancement challenges, reluctance towards digital agriculture persists.

The younger generation in rural India is adopting digital learning independently, but there is a lack of effort and investment in providing financial and digital literacy to help farmers understand the benefits of going digital. Collaboration with state governments, Agri-input suppliers, and banks is suggested for effective implementation. However, the current trend of self-learning leads to information gaps and the spread of misinformation, contributing to increased distrust among farmers towards technology. Concerns about data security and management are on the rise, with farmers questioning the security and accessibility of their data

Experiment of Account Aggregator – A digital tool for Agri

Account aggregators provide the service of collecting & retrieving financial information of end user, with a consent. It can view the flow of personal & activity data, flow of money and flow of people. It can revolutionize the farming sector since consented data of the farmer is available to service the farmer. It is an important tool while building various use cases for the Agri sector, one such being effective collections of loans and improved repayment rates.

Harnessing the data & AI capabilities in agriculture

It is imperative that the AI community in India considers the potential impact of their technology on key areas, such as optimizing the supply chain for agricultural products and harnessing on the tremendous opportunity to save government resources by improving decision-making processes in areas such as crop procurement. There is a fundamental need to bridge the gap between aspirations and practical applications, and the AI community needs to identify specific cases where their solutions can make a tangible difference.

Additionally, it is important to leverage the intelligence of the private sector and to collaborate with institutions such as IITs, to harness breakthroughs in non-agricultural sciences, address systemic issues hindering the growth of the agriculture sector, and to aid in dispelling myths and stereotypes surrounding Indian agriculture, by focusing on application rather than restriction to data science and actively engaging with challenges to contribute meaningfully to the sector's growth.

Farmer Focused

Efficiency in resource allocation

The government's substantial support to agriculture, by way of subsidies has resulting in India having the highest subsidies in the world. This in turn has led to concerns about fiscal sustainability. Hence, there is a rising need to transition from costly to efficient and sustainable growth. To overcome this challenge, efficiency in resource utilization, particularly water and fertilizers, is crucial. Precision farming and the application of digital tools can play a significant role in achieving this efficiency. Furthermore, digital tools should be employed to monitor and ensure the quality of agricultural products and grade the produce based on quality attributes, benefiting both the farmer and the consumer.

Diversification

Small farmers' limitations are over projected. Diversification into dairy farming, horticulture, organic farming etc. is feasible and sustainable. Direct sale in the market, bypassing market yards, is also possible for such farmers.

KEY TAKE-AWAYS

Finance

RRBs vs NBFCs for Revised Banking Products

Prioritize small finance banks over NBFCs to reduce the cost of credit, due to their lower borrowing cost of 4%. Ensure active participation of banks and RRBs with deposits and validate this through pilot programs to assess viability. Additionally, tailor the approach for each farmer-centric product during pilots, testing variations in diverse locations to account for different Agro-climatic conditions.

Improve Underwriting

The focus should be on implementing a well-executed lending process to tackle issues related to loan recovery. Replace the blind spot lending model with a new approach that that focuses on transparent information, mobile-based awareness, and multi-lingual formats. Acknowledging technology limitations, the text underscores the crucial role of effective fund delivery for successful recovery.

Holistic Finance Approach Assisted by Digitalization

There is need for -

• Banking products that cater to the consumption credit needs of farmers, which is a shift from targeting Agri-credit.
• Comprehensive financial solutions considering major financial challenges faced by farmers, such as household, health and societal obligations.
• Differentiating Finance products, addressing money flow challenges, and adopting a complete finance approach is emphasized.

Loan Recovery

The importance of linking income and cash flow for loan repayment is highlighted, with a focus on improving collection mechanisms. TAC should concentrate efforts on Type 4 loans, where both end use and collection are controlled. Initially, progress toward type 2 & 3 loans

Leverage digital technology for providing financial and digital literacy to farmers.

Digital Revolution

The role of the private sector will and should be very high in the second agricultural revolution, so the Government needs to define its role (at both central and state levels) less expansively and spell out the expected role of the private sector. Absence of private lenders for Agri-sectors is a concern. Currently, only PSBs and Agri Co-ops are lending to the sector.

Digital Indices and Pilots

The Agri digital index is a strong concept, however, one needs to consider the limitations of the data in terms of accuracy, completeness, comprehensiveness, and timeliness. It is imperative that credible data is captured and verified, and a policy framework is created to monitor and secure the data-sharing network. Pilot digital index in specific villages to understand the microcosm of challenges and opportunities before attempting larger-scale initiatives. Make index for either state or the start-up, for it to work. The concept of a digital index, though valuable for creating buzz, should proceed at a slower pace, ensuring a more comprehensive and substantial impact, especially in the context of the evolving changes in agriculture.

Introducing DPIs in Agri

The establishment of building blocks, resembling E-mandates on UPI, are crucial in Agri and can be a potential for market players to introduce innovative loan products. A collective pressure on RBI & MoF can expedite progress on these important use cases.

Digital Adoption

Leveraging AI

AI Community should build solutions that can significantly improve the optimization of supply chain for Agriculture products with a focus on application rather than restricting themselves to data science. Leverage precision farming and digital tools to efficiently use resources and monitor product quality and grading.

Opportunity for Agri-tech startups

Injecting digital tools and technologies along with other tech interventions like introduction of high-yielding crop varieties and innovating on attribute-based crops can provide a real opportunity for Agri-tech startups, provided the problem statement is articulated in a more focused manner at a more granular level.

A step-by-step approach to digitization

Incentivizing farmers to create digital footprints by selling in a physical market incentivizing her to get paid using UPI and trigger repayment processes.

Open Network Experiments

Similar to the initiatives like ONDC, OCEN & others, developing a variant for agriculture is crucial due to noticeable differences. While similarities can be reused, in areas where distinctions exist, it's beneficial to give it careful consideration.

Collaborative Approach

A collaborative approach involving technologies beyond traditional agriculture knowledge is advocated. Collaboration with institutions like IITs for breakthroughs in non-agricultural sciences is recommended.

Focus on Smaller, Focused Efforts

Given the early stages of digital agriculture, the importance of smaller, focused efforts for scalable models is stressed. Proof of concepts should be conducted within limited geographies before thinking of national-level models and solutions.

Farmer Focused

Shift Focus on Providing Input Services

A shift in practices from input sale to input services, might help optimize usage of fertilizers, pesticides, such as the sale of pest-control as a service as opposed to pesticides as a commodity. Further, enabling contract farming wherein an individual makes crucial decisions such as crop choice and optimization of financial returns through data, backed by AI could enable a higher income.

Use of FPOs as Channel for Products/Services Including Insurance

FPOs are identified as a promising channel for providing scalable solutions across regions in the agriculture sector, especially for insurance.

Misaligned Incentives in the Digital Ecosystem

There is urgent need to address misaligned incentives in the digital ecosystem, and proactively solving it. TAC should take a lead in pushing clear regulations for intermediaries, who are a significant issue in various sectors, including agriculture.

Variability in Farmer Productivity

Tailored solutions based on regional differences in farmer productivity are emphasized.

Caution on Expectations

The importance of patience, acknowledging failures, and focusing on creating facts on the ground before generating buzz is stressed. The emphasis is on learning and evolving through pilot projects

CONCLUSION

Overall, the discussion highlights the complexity of challenges in the agriculture sector, advocating a thoughtful and patient approach. Tailored financial solutions and reforms are deemed essential for meaningful change in the sector.