Executive Summary of Industry Round Table and Consultations on Project AgCx

Executive Summary of Industry Round Table and Consultations

Project AgCx: Automating Rural Finance: Scope, Issues, and Considerations

A. Objective:

The Agri Collaboratory is leading Project AgCx - Automating Assessment for Rural Finance - using data and digital assets combined with Govt records & ground records to independently assess the Farmer's Household, the Farm, and planned Crop for purpose-neutral loans and support the lender in loan recovery. This project is complex, multi-sided needing a wholesome injection of domain knowledge, consultations with policymakers, and deep tech & digital expertise.

This is an exec summary of industry Round Table (27th Jun ‘22) and subsequent Govt. & Farmer consultations in Aug ‘22 to:

I.Brief the ecosystem partners on the current approach, status, and planned steps for Project AgCx

II.Pool together our collective understanding, and experience in rural finance, govt policy & tech to build the next steps.

B. Why is Rural Finance so important?

India had a history of Agri / rural lending to small and marginal farmers through organized financial institutions which got systematically reduced because of viability issues. As per Agriculture Census, 2015-16 India has 126 million small and marginal farmers and requires Rs 35-40 Lakh Crores (400-500 US$ Billion) of working capital annually. RBI estimates approx. 59.1 % of small and marginal farmers and 30 % of agricultural households avail credit from non-institutional sources, probably since they cannot offer collateral to avail institutional credit.

Timeliness of the loan disbursement is critical – currently, the average loan approval cycle takes two weeks and loans sanctioned after May(Kharif) and November (Rabi) are of no use for that crop sowing cycle and tend to be diverted to other purposes. Technology can reduce the cost of reaching out to the farmer, servicing, and timely disbursement.

C. Project AgCx Objective - In 50 | At 50 | For 50:

Federate and authenticate digital identity and credit assessment of i) The Farmer Household, ii) Her Farm, iii) Target Crop + Credit usage: Real-time - in less than 50 min, at a base cost of Rs 50 (for the farmer), at a national scale - for 50+ Million farmers, (directly or with FPOs), and monitor credit usage to improve recovery.

D. What are the elements of an ideal solution for Rural Finance?

The Round Table and subsequent consultations with govt and industry recognized that access to rural finance is important to be tackled and generated a rich narrative of suggestions. Based on collective practical experience over several decades- on streamlining rural finance and balancing the interests of lenders, farmer households and Agri technology players. Simplifying this can also help improve long-term sustainability and ESG - motivating new institutions to join.

Approach / Domain

Adapt a holistic approach towards Rural/Agri Finance and credit requirements which extends “purpose-neutral” loans as well as insurance, and market access acknowledging the collective economic need of rural households.
Monitor usage to ensure loan disbursement is used for the stated purpose and not diverted.
Encourage direct payment to supplier/aggregator (vs directly lending to farmer) synchronised with the Agri cycle and recover dues in bullet repayments (vs EMI) from forward market linkages.
Motivate private lenders to expand the Agri loan book by helping them reduce NPAs and improve usage visibility.
Include allied Agri activities into Project AgCx ecosystem (farming share of Agri income has come down from 60% to 40% in last 20 years - savings now help purchase livestock and drilling bore wells).
Include aggregators, FPOs, and intermediaries into the AgCx ecosystem if they add economic value and reduce lending risks. Help intermediaries become efficient core value chain players.

Inclusive / Farmer at the centre.

Keeping the primary focus on farmers, we need an all-inclusive mechanism enabling KYC verification and market linkage from within the credit assessment system - a seamless end-to-end platform on which the farmer enters to avail purpose-neutral credit, secures crop insurance, and exits by selling his produce and timely loan repayment. (An institution’s ability to recover credit is dependent on the farmer’s access and linkage to the market).
Enable women & tenanted farmers (formal and informal) to raise institutional credit (Orissa Govt gives credit to tenant farmer under Pradhan Mantri Yojana – reference Mr. Garg, Agri Sec, architect of the solution).
Credit assessment of the farmer to be linked to the farmer's household’s credit history including loans from microfinance, NBFCs, banks, savings, insurance, and cashflows. Increase the visibility of savings – assessing financial discipline.
Quantum of loan for different types of farmers /crops to be assessed based on the history of loan repayment and savings, and not only by payments made to renew the loan (evergreen loans).
Banks should not classify farmers as “defaulter” if they have recovered loans through public welfare schemes.

Policy / Process considerations

Help synthesise varying Govt land record formats across states.
Integrate crop insurance and subsidies with farm credit- both kind and money, into the end-to-end system.
Validate the Risk Scores with assessment on the ground
Build weather forecast into the system

Data and Technology

Leverage technology to democratise farmer outreach and minimize touch points (branches, monitoring, KYC, etc) by embedding all regulatory & KCC requirements in the system.
Ensure farmer permission (and on paying a nominal fee) before credit assessment is carried out.
Use data from multiple sources – farmer, government, autonomous, digital, manual, etc to anonymously assess the farmer – but keep farmer privacy sacrosanct.
Use technology to help assess the quality of output with price points, if possible (pre and post-harvest).
Explore diverse parallel approaches – with Government and private data providers. Conduct POCs in Telangana and a few other states / Agro-climatic zones, leveraging FPOs and local co-operatives.
Government Soil cards to be used for assessment, along with drone-based soil analysis

Project AgCx Roadmap - The “How”

The Agri Collaboratory (TAC) partners with Samunnati, Govt of Telangana, RICH, Cropin, Satsure, The Indian Institute of Science (IUDX), Digital Green, and others to build open-source digital assets and enable data flows. The insights from these diverse datasets, combined with local information (Govt, FPOs, CBOs, PACS, and co-operatives) along with policy and regulatory changes, can provide accurate, real-time credit assessment for millions of small and marginal farmers.

The Project AgCx focuses on a 3-year, 4-phase implementation plan:

Phase 1: Concept Development & Buy-in: Create a detailed conceptual design to get feedback and in principle buy-in from multiple stakeholders (domain, technology, government, funders).

Phase2: Initial Proof of Concept (POC): Conduct a POC in chosen village clusters (Mulkanoor & Jammikunta mandals in Telangana) for 2000+ farmers in several controlled (iterative) experiments to develop and validate the following key steps for Project AgCx. Work with community-based organizations (like PACS and FPOs) in the village, as much as possible.

a) Concur with RBI, Banks, etc. on using Data-based Rural Finance Assessment and fine-tune the assessment report.

b) Validate availability & accuracy of data on farm parameters and historical crop yield obtained from satellites, drones, and Govt., Private sources with ground reality.

c) Map govt land ownership records with geo-sat farm boundaries.

d) Collate data through a semi-automated process to validate suitability to create the credit assessment report.

Phase 3: Advanced Proof of Concept / Pilot: Conduct detailed pilots in several sub-districts in 2-3 states (100K farmers).

Phase 4: Field Trial Roll-Out: Roll out AgCx in 2-4 states as a production trial. Establish commercial business models for AgCx to be self-sustainable. Onboard 25+ Data Providers and 25+ Farm Credit lenders.

E. Few Participants: Round Table & Consultations with Industry, Govt leaders, and Farmers in Mulkanoor & Jammikunta.

Sri Jayesh Ranjan, Secretary Information Technology, Electronics &Communication, Govt of Telangana.
Sri Raghunandan Rao, Secretary Govt of Telangana, Agriculture & Cooperation
Dr. Praveen Rao, Former VC, Prof. Jayashankar Telangana State Agri University.
Sri Praveen Reddy, Chairman, Mulkanoor Cooperative Rural Bank, and Marketing Society Telangana & his team.
Sri P Vijay Gopal Reddy, Secretary, KVK Karimnagar, Jammikunta, Telangana, his team, and 6-8 local farmers.
Sri C. S. Reddy, Ceo APMAS (Mahila Abhivruddhi Society, Andhra Pradesh)
Sri Ram Kaundinya, DG National Seed Federation of India, Ex-Axis Bank board, Ex- MD, Advanta
Sri Suresh Venkatesan, Group Head IT, Samunnati
Sri Manoj Bhatt, Ceo, Social Alpha Bangalore
Sri Srinivasan R, Ex Editor, The Hindu Business Line.
Sri NV Ramana, Advisor Samunnati, Ex-CEO BASIX, Ex-ITC
Sri Ravishankar A, Ex Madura Microfinance, Ex Centre for Good Governance, AP
Sri Vineet Saraogi, Volunteer, iSPIRT
Sri Ashutosh Vaidya, Entrepreneur, Ex Tata Tech, Dell
Sri Gautam Mandewalker, Product Head, Digital Green
Sri Nipun Mehrotra, Founder & Ceo, The Agri Collaborative (TAC) – Convener

Abbreviations: ESG: Environmental Social Governance FPO: Farmer Producer Organisation KYC: Know your customer KCC: Kisan Credit Card NBFC: Non-Banking Financial Company NPA: Non Performing Assets PACS: Primary Agricultural Credit Society POC: Proof of Concept