In India, the agritech sector has been diversifying its operations and revenue streams. These startups are not only improving market linkages, but also bridging financial gaps in the supply chain from field to the supermarkets. The majority of the start-ups are focusing on small scale holder farmers' pain points to help them adopt efficient and effective practices and gain a profitable business. Over 50% of the segment's entrants are small and marginal growers looking to streamline their operation. To enhance their practices most framers and FPOs ask for financial assistance to incorporate technology advances in their practices.
In conversation with Mr. Gajanan Gharde, Senior Manager - Business at Samunnati Financial Intermediation & Services Private Limited, we attempted to seek his opinion and understand his side of story to the changing fortunes of the Agritech Industry and how are companies gearing up for it.
Q1. Since, the Agritech market is in its growing stage what are the challenges or pain points of the Agri Fintech players?
In India, over 50% of the farmers are small or marginal farmers. If you look at their land holding, they have land amounts ranging from three acres to two acres and as much as five acres. These small farmers seek financial assistance from the small money lenders for their financing needs.
Q2. What is the penetration rate or the no. of users of the Agritech Platform currently?
Farmer participation is probably less than 10% due to challenges such as farmers' avoidance of formal solutions, lack of financial literacy, and hesitation to approach banks. They lack trust and they are resistant to follow lengthy formal procedures. Easy access from their local money lender became the common trend. Money lenders became easy to access, resulting in a common trend.
Q3. If we divide the agricultural practices as Pre Harvest, Mid Harvest and Post-Harvest, What do you think which harvesting period requires more financial help considering the current market situation in India?
Pre harvest requires the highest investment hence maximum money is borrowed for the pre harvest section. Farm inputs such as seeds, pesticides, prepare land. Split will be approximately 70% for pre harvest, mid harvest is 20% and post-harvest is the least about 10% since at post-harvest stage they liquefy cash by selling their produce.
Q4. Organised market has never been the first choice for lending the money is the trend same in the agriculture financing? What is the duration of the loans of agritech loans?
Unorganised market is almost 60-65% while 40-45% will be banks and NBFC through the apps. In the fintech financing which is via app m-commerce or ecommerce platform is in its embryonic stage in terms of agricultural loans. Considering the split in the organised sector itself then banks (nationalised bank, private bank) hold the maximum share because of their widespread network even in the remote and smallest villages of India. In the private segment FC has the highest lending percentage concluding banks to be around 70%, NBFC finance farmers mostly for the irrigation needs and input needs their contribution will be around 25% and then rest will be 5%. The agritech loans from banks are usually for a 1 year and repayment are biannually and annually.
Q5. Agritech financing has successfully on boarded many farmers, what is the percentage split secured and unsecured loans? Also what is the ROI?
Unsecured loans are very low compared to the secured loans in the agritech platform. It contributes to almost 20% of the market. Land collateral security is uprightly followed in the agritech financing. 80% will secured loans.
Online partners usually have 16-24% ROI and it is mostly unsecured financing while banks have 7-10% ROI with secured financing. Finance money given by the agritech companies doesn’t reach the farmer directly instead they make the payment to the vendor companies for input purchase on behalf of farmer which farmer repay on selling his produce.
Q6. Which region in India has the highest request queries for the financial help?
West and south India has proved to be high focus areas for us mainly because fragmented land or scattered area is high in the southern and western India. The lending percentage is high in the western India while some agri financing companies get business from the western parts of Maharashtra, MP and Gujarat. Southern parts generates high request from Telangana, some parts of Tamil Nadu and Andhra Pradesh where largely even farming is performed whereas if we talk about West Maharashtra specifically majority of the area is divided in the small and marginal farmers.
Q7. Have you observed any specific demand pattern from the end users which may be specific to the crop type or special agricultural practice?
We need to create the demand, generally farmers borrow money from the bank and they spend their loan on their personal needs for their daughter’s marriage, or other household needs. If we specify their end use it becomes easy for the farmer as well as the financer. It helps in generating the trust for the repayments. If we observe the farmer’s current situation then banks or any private institution they are facing more NPA percentage. This gave rise to strict government regulations and norms to disburse loans in the agricultural sector. End use governance is highly important.
Q8. Who do you think are the best players currently operating in the efinancing segment of agriculture?
As of now, I believe, there is a large opportunity in this sector ‘n’ number of players wouldn’t be enough to target the end user market. Dehaat is one popular player in the segment with a strong network across India. Then comes our Pune based start-up Agrostar which has a good connect in western part of India, Gujarat, MP, and Maharashtra. Then comes Gurgaon based company Farmart which is doing good. Bijak is also doing well but I guess it is a trading company.
Our company Samunnati which is specifically operating in Finance and Market linkages, they have pan India presence in addition to this their operation is not restricted to an individual rather they finance FPOs. These are key players’ competing with each other on various verticals.
Q9. What do you think is the overall share of the transactions occurring from the online platforms compared to offline platforms in agricultural sector?
It is very minimal. It would be less than 5 to 10% at this point.
Q10. If we consider Agri fintech sub components of the service offering as Risk Mitigation and Micro Insurance, Micro Finance and Credit Score Analysis and Remote Payment, Financial Literacy and Digitization of Records, what will be the percentage split in terms of the queries received by the end user?
Micro Finance and Credit Score Analysis and Remote Payment has the high percentage share with percentage share of ~40%. It has become a new chapter in the financing sector. Integration of the technology to understand the client by using Tech and preparing reports has become very useful. We analyse farmers on different data points. Risk Mitigation and Micro Insurance is ~20% while Financial Literacy and Digitization of Records will be 40%.
Q11. How has the Agritech platform been in the last 5 years and how do you expect the journey to be in the coming 5 years?
Growth in this sector is promising. If we analyse the pattern and farmers need and provide specific solutions. Another opportunity area would be one stop solution for all the Agritech sectors. An integrated platform that provides every solution at each step of the harvest. The growth rate in the last 5 years would be around 15% and in the coming 5 years, the sector is expected to grow by ~20-25% CAGR. Our government is coming up with great initiatives and agendas to promote this sector.
Q11. What is the opportunity or the grey area in this sector that has limited players or no participation at all?
Currently, players are operating in a very fragmented manner, some specialize in input, some at advisory or market linkages and some for financing help. We need an integrated model where farmers can seek help in all the sectors at one place. It may be challenging and time consuming but with expertise and technology integration it is possible.
For any queries or feedback, reach out to the author at Namit@kenresearch.com
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