Workstreams
Our workstreams are focused on agri tech use cases that empower smallholder farmers
The Agri Collaboratory’s Current Workstreams
AgFx - Democratizing Finance for Smallholder Farmers
Project AgFx aims to simplify Farmer Credit Assessment for Small farmers (specially tenanted and women) by triangulating consented, multi-year, disparate, public, and private data sets such as farmer ids, farm records and cropping history. AgFx partners are attempting to generate an efficient, authentic assessment of purpose neutral loans for small & tenanted farmers in less than 15 mins and at a reasonable cost. A proof of concept for the same is being developed in a few states, and TAC is looking for new partners in other geographies for similar programs - FPOs, ELIs, implementation partners, AgTech, etc.
Motivation - The “Why”
As per Agriculture census, 2015-16 India has 126 million small and marginal farmers. As per NABARD the Agri sector requires Rs 44 Lakh Crore (US$ 580 Billion) of working capital annually. The Finance Minister in the 2024 budget estimated that 26% of small and marginal farmers (30 million) avail non-institutional farm loans.
Here is a summary of the complex web of challenges related to Agri Finance:
- Small holder farmers whose land papers are not in order, or cannot offer alternate collateral, struggle to avail formal creditSmall holder farmers whose land papers are not in order, or cannot offer alternate collateral, struggle to avail formal credit. Farmers who can avail institutional credit are very often disbursed a loan amount lower than -- and often later than - needed to start sowing season.
- Transaction processing costs are very high – estimates suggest 5% of the loan value (~Rs 4 to 5k per loan) are borne by the bank and 10% by the Farmer – both in actual expenses plus lost wages. Simultaneously, Agri Loan NPAs are high, officially ~10% and informally, maybe 20% or more, with little recourse even with land as collateral. As per RBI “farm credit is largely dependent on the operated area due to constraints on data available on other credit determinants”.
- Timely availability of cash on demand is more important than the cost of finance for the farmer. NBFCs and Micro Finance companies have been accelerating focus on farmer finance and slowly eating into the share of the informal money lenders. Even though their interest rates are higher than Banks, it is lower than that charged by moneylenders. Both of them fulfill an important need allowing the farmer to access cash when most needed.
- Cash is needed across the crop cycle, but bank loans usually target the start of the sowing cycle, ignoring the finance needed later especially for unplanned exigencies like pest attacks or unpredictable weather. Farmers have maximum access to cash at the sowing stage of the crop cycle, (which is also the least cash intensive period) but are cash-strapped to finance postharvest processes (access to mechanisation, cash for labour, transportation to markets, warehousing etc.).
- India has approximately 40-50 million “tenant farmers” or sharecroppers, who informally rent another’s land to farm. Many are women and they collectively remain anonymous, since the Government (Centre and State) don’t / cannot recognise them since they don’t own land. Hence, they are unable to receive benefits under Government schemes (like PM-KISAN) or receive institutional loans. This literally, is the very bottom of the farming pyramid.
- Finally, our focus should be on Farmer profitability not just cash flow. Credit availability has to produce incremental value for the Farmer – through well advised, timely and good quality inputs like seeds, pesticides and fertilizer -- as well as access to warehousing or markets and optimum pricing. Without this essential fact, Farmers even with the best of intentions struggle to pay back loans.
However, Agri Finance has tremendous potential!
It is probably the last mega opportunity to formalise a very large section of India’s financial sector. Estimates suggest that US$ 300-400 Billion of informal lending can potentially be formalized, out of the US$ 580 billion needed annually. These estimates are based on a constrained environment. As India aspires to become the food basket to the world, the need for finance could potentially double.
This will need new digital innovations and holistic approaches, across StartUps, financial institutions and the Govt. policy makers.
AgFx: An exciting alternative vision for Data Flow based Finance - The “What”
Very succinctly, Project AgFx will establish a new, holistic, collaborative approach to Agri Finance using Data and Digital technologies.
Most Farmers don’t have access to credible data – and digital literacy is poor. Hence, we have to leverage external digital markers – from Satellites, Drones, Start Ups or the Govt. – and in some cases even look for pseudo “digital footprints” to identify several day-to-day agricultural activities, the regularity of these practices, choice and rotation of crop, and try to forecast earnings, need for finance and ability to pay back.
By triangulating consented, disparate, multi-year, public, and private data sets at high speed and low cost, we can attempt to bring 50-100 millions of Farmer households out of digital anonymity. This approach is conceptually similar to the approach of the Account Aggregator and using GST data for SMEs - where largely self-generated data is used for better decision making for personal finance. However, in the case of farmers - especially smallholders, tenanted, women - the issue is especially challenging due to the need for external data sets, poor data quality, lack of data standardisation, and the general difficulties in private sector data sharing.
Shining a “digital spotlight” into the farmer’s household, the farm, crop, agricultural activities can enable the flow of institutional agri finance including access to “purpose neutral” financial products, insurance, better quality inputs, advisories, and the right markets for the produce. The result will be enhanced farmer profitability, sustainability, and resilience.
In the long term, gradually hundreds of digital footprints will build up - across credit histories, input purchases and farming activity patterns leading to a more holistic appreciation of their profile and needs. This will facilitate new products to be created and integrate more farmers into the formal national economy. Lenders will also improve loan recoveries through better visibility to crop cycle, market access & usage of Agri loans
While collateral-based “farmland” based lending favors farmland owners, “alternate data based” lending focuses on the “farmer” rather than the “owner” and will help energise tens of millions of tenanted and women farmers with no access to collateral.
Project AgFx Pilots:
Finance requirements differ for each crop, and very often by the agro climatic zone, and it is also determined by the “scale of finance” specified by each State govt. Hence, we will work in a district, a suitable crop and work with specific ecosystem players motivated by the end potential.
We will test the availability and authenticity of alternate data and use a digital platform combined with FPOs and digitally trained Village Level Entrepreneurs to manage farmer consent and engagement including access to inputs and market. These pilots will help us understand what works and fine tune the approach.
At present, we are exploring the Sugarcane farmers in the Belagavi region of Karnataka. To increase farmer profitability as well as explore how sustainable practices can reduce Agricultural water use.
After several pilots, a National Agricultural Data Exchange would be needed to operate this at scale by on-boarding diverse data sources and enable pooling of private and public data. All this while keeping the data source and the data itself safe and anonymous and protecting the business interests of the data providers and enabling monetisation opportunities. This will enable loan transactions to complete within minutes, at a reasonable transaction cost of under Rs 50.
