These challenges, coupled with the overall movement restrictions imposed by the government to curb the spread of COVID-19, have severely affected the business of these agents. They need more support than ever to manage liquidity and hence remain operational. Our blog highlights some measures that policymakers and service providers in Indonesia may consider to support the agents in these difficult times.
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COVID-19 management by local governments: Is there a mantra to follow?
COVID-19 is yet to reach India’s 112 aspirational districts[1] in full force. The disease appears to be spreading first and most widely in concentrated urban areas. It is not surprising, therefore, that these largely rural districts have seen only 2% (610 cases in total as of early May, 2020) of cases so far, despite lower social development indicators. Yet that does not mean that these areas, home to more than 20% of the country’s population, have not been affected deeply by the global pandemic.
It is not hard to imagine the potentially devastating consequences of a pandemic of this nature for people who live in rural areas. Multiple aspects of economic and social vulnerability characterize their daily lives. To mitigate the repercussions of the pandemic, Aspirational Districts have been pioneering simple yet effective measures to solve the immediate needs of the community during the pandemic, which other districts across the country can use at scale.
So, how can aspirational districts mitigate the consequences of the pandemic while continuing to prepare a response to the potential arrival of more COVID-19 infections—or the future arrival of another pandemic? In our search for answers, we look at the approach taken in the Goalpara district in Assam. Goalpara is picturesque, located a few hours away from the state capital at Guwahati. The West and East Garo Hills districts of Meghalaya surround Goalpara on the south, while the mighty Brahmaputra River runs along the north. The following section identifies some of the bottom-up measures rolled out there thus far and looks at policies centered on engaging with the community, embracing digital channels, and solving immediate needs.
Engaging with the community
Goalpara has been quick to involve civil society, businesses, and the public in its COVID response. The district has organized community members to engage with vulnerable groups, mobilize the production of needed goods, and support the medical community.
Efforts include the launch of “Mission Goalpara Cares,” which has tasked teams of teachers and college students to call elderly residents regularly, inquiring after their physical and mental well-being, and determining if they need assistance from the government. The district has also deployed Nehru Yuva Kendra and Civil Defense volunteers to help manage the disbursement of direct benefit transfers under the Pradhan Mantri Jan Dhan Yojana at potentially crowded locations, such as banks and customer service points by maintaining social distancing measures.
Protective equipment, from sanitizer to masks, foot covers, and head covers have been put into production through the work of nearly 150 women who form part of self-help groups under the Assam State Rural/Urban Livelihood
Mission network. The Goalpara district administration expects to procure some 162,000 masks from these collectives in the coming times, which it will then sell or distribute to the police, administrative personnel, and the public to bolster public health measures and local livelihoods.
Local retailers have been on-boarded to provide new home delivery services for essential goods. The District has also ensured that frontline medical workers receive hotel accommodation, free Wi-Fi service, and personalized “care kits” during their duty period. These medical professionals are involved in the treatment of patients and have been working away from their families. These measures have kept the morale of the medical workforce high during this stressful time. The district administration also ensured life insurance coverage of ASHAs, ANMs, GNMs, and cleaners in the district. The first premium was paid from the contributions from CSR partners and NGOs.
Embracing digital channels
The Goalpara administration has used its social media channels to disseminate information about the outbreak and lockdown restrictions. The pandemic and lockdown measures have also brought with them the need for new or expanded services with digital components, like the home delivery of groceries.
Before COVID-19, home delivery of essential goods was not popular in Goalpara. It became a necessity when the lockdown was imposed in the district. The district administration mobilized developers in Goalpara to design BG – Bazaar of Goalpara, a new app for home delivery of food and essential items during the lockdown. Besides, contact numbers for food shops and vegetable sellers were circulated through social media to facilitate ordering.
The district administration took several steps to overcome the initial resistance from shopkeepers. These include meetings, mentoring for the adoption of the new approach, and monetary incentives and vehicles for retailers to help them deliver services in the district.
Goalpara has also encouraged a “Learning from Home” initiative to revamp the ecosystem of public education in Goalpara. At the time of writing, this campaign engaged 1,500 teachers with 60 officials and benefited 10,000+ students. The administration established an official YouTube channel to promote learning where the modular learning videos based on the curriculum are consolidated, reviewed, and uploaded. A plan has been chalked out to make the channel more accessible to students with structured content. To make the digital adoption easier, teachers receive digital pedagogy training, courtesy UNICEF. The training courses includes the development, mapping, and delivery of the content. More than 90 teachers had been oriented on online safety, monitoring, and psychosocial health.
Solve immediate needs
Before community engagement and digital channels can be harnessed effectively for the benefit of the population, people must have their nutritional and health and hygiene needs covered. Here, Goalpara acted early to ensure the availability of food and essential items. Vans were deployed to each ward to sell vegetables, fruit, and milk on alternate days, and agreements were made with stores to make vegetables with longer shelf-life, like potatoes, onions, and ginger available. These measures were accompanied by public communication to ensure that information on the availability of essential goods was widely known and that panic around potential shortages did not arise.
Similarly, the production of sanitizers and protective equipment is not useful without a coordinated effort to deliver them where they are needed and ensure their proper use. To this end, the district has made handwash facilities available at essential service outlets, public areas, and particularly in “containment zones”, where COVID-19 cases have been identified. These are sanitized regularly and social-distancing circles have been marked for those queuing at grocery shops, ATMs, and pharmacies. Finally, the district has mandated that everyone should cover the mouth and nose with masks or gamusa (traditional cloth) in all public places.
Uncertainty has been a hallmark of the past weeks and months for many people over the world. Yet as districts like Goalpara act quickly to protect their populations from the worst effects of the pandemic, we have the opportunity to learn something important from their ideas and successes. Preparation for whatever will come can now be based on understanding how these measures have mitigated the effects of COVID-19 and the lockdowns for the most vulnerable. We can now learn how the measures can be further developed and refined to protect them now and in the future.
* MSC District Financial Inclusion Coordinator (DFIC) for PEFI project working in Aspirational District of Goalpara, Assam
[1] Aspirational Districts have been identified as pockets of under-development across the country and the Government of India is implementing a program to ensure their rapid transformation. Anchored by NITI Aayog, the Aspirational District has been instrumental in breaking the vicious cycle of low development and low motivation in the 112 under-developed districts of India.
Impact of the COVID-19 pandemic on CICO agents- Uganda report
MSC conducted qualitative research with cash-in/cash-out (CICO) agents in Uganda to understand their needs, attitudes, perceptions, and behaviors during the COVID-19 pandemic. This included the understanding agents had of the pandemic’s impact on their families and businesses. MSC also sought to understand their strategies to minimize threats and maximize business opportunities in these trying times. The research revealed that most agents are aware of the pandemic and take precautions to prevent its spread but fear a negative impact on their businesses. The low volume and value of transactions have managed to significantly reduce their income. As a result, many have begun to use their capital to meet their basic needs. Our report also offers ideas for additional support to these agents and efforts to help them recover and enhance rebuilding efforts once the crisis is over. Read to explore the full impact of COVID-19 on CICO agents in Uganda.
AgTechs in India – Growing landscape and challenges
The AgTech landscape in India is on a growth path
Over the past few years, the presence of AgTechs has increased. As per data from Startup India, the country has nearly 3,116 registered food and agriculture start-ups. This number has increased 25% to 30% annually. Most of these start-ups emerged over the past five years and at least 500 have crossed the Proof of Concept[1] (PoC) stage.
Globally, India ranks second, based on the number of AgTechs, behind only the US. A 2018 PwC report estimated the overall target market for AgTechs in India to be more than USD 350 billion yet the combined revenue of all food and agri start-ups in India is less than 100 million USD, indicating a huge opportunity for AgTechs to disrupt the market.
Investors are also increasingly interested in AgTechs in India. The sector currently has more than 90 active institutional investors and 250 angel investors. This interest has translated into higher investment sizes—the sector has seen investments worth about USD 500 million since 2014, with more than 50% of this amount invested in 2019. AgTech in India received a major boost early last year with Tiger Global investing USD 89.5 million in NinjaCart. Furthermore, the sector has received renewed attention as a result of COVID-19 as AgTechs supply essential products and services. The pandemic has presented an opportunity for growth for many AgTechs and has demonstrated their resilience and relevance.
Our analysis further suggests that seed and early-stage funding comprises nearly 70% of AgTech investment deals whereas the remaining 30% represent investments in series A stock and beyond. With an agrarian economy and the world’s second-most populous country, funding has facilitated AgTech innovations and improved the productivity of farms and farmers.
AgTechs offer diverse solutions across the agri value chain
Innovative AgTechs in India offer solutions to problems permeating the entire agri value chain, both upstream (close to farmers) and downstream (close to consumers). For the purpose of MSC’s study, AgTechs in India were classified into six broad categories, as discussed below, based on the solutions offered. Farmers require financial services for various purposes across each of these six categories:
- AgTechs in farm management and data analytics facilitate data collection and decision-making using drones, sensors, Internet of Things (IoT) technology, and data analytics. These AgTechs use this data to build models around price forecasting and the management and monitoring of crops, among other areas.
- Agri-input marketplaces provide farmers and merchants a platform where they can purchase agriculture inputs and facilitate last-mile delivery.
- Agri–output marketplaces are business models that aggregate demand in the supply chain. They typically source produce from farmers or farmer producer organizations (FPOs) and sell to Kirana stores, supermarkets, and hypermarkets, among others.
- Agri financing companies offer applications and platforms that connect farmers digitally. They offer digital payment solutions, lending services, and insurance services. Most FinTechs in India have built interesting models around farmer onboarding and credit scoring using alternate data, such as farmer behavior. Agri-FinTechs have huge potential to meet the unmet credit needs for farmers with their innovative models.
- Livestock management AgTechs digitize supply chains for allied activities such as cattle, poultry, and fisheries to introduce efficiency and reduce costs.
- Mechanization or novel farming systems are a category of AgTechs that include 1) companies offering farming-as-a-service, in other words, they rent services and machinery to reduce capital expenditures thereby increasing efficiency and affordability, and 2) companies that offer alternate farming techniques such as aeroponics[2], hydroponics, and aquaponics.
Three key factors limit the growth of AgTechs in India
Despite their immense potential, AgTechs in India are limited by challenges around funding, strategic partnerships, and data. The following graphic looks at these challenges in detail:
AgTechs continue to innovate with the goal of improving farmers’ lives. Yet, the complexity of the agriculture sector makes it difficult for AgTechs to remedy these challenges independently. The answer, in part, lies in collaboration. Some AgTechs have realized this and are actively scouting for ways to collaborate with financial institutions and government bodies. In the third and final blog of this series, we highlight ways AgTechs can successfully work with financial institutions and overcome collaboration challenges, as well as discuss ideas behind the development of innovative solutions to finance the farmers.
About the blog series
This is the second blog in a three-blog series for a study entitled the “Role of tech-enabled formal financing in agriculture in India” conducted by MSC (MicroSave Consulting) and ThinkAg, with support from Rabo Foundation. Read the first blog of this series here.
[1] Proof of Concepts are used for testing the feasibility of a design idea or concept for application to real-world challenges and problem statements.
[2] Aquaponics is an indoor gardening practice whereby plants are grown and nourished by suspending their roots in the air and spraying them regularly with nutrients and water solution. Hydroponics is the science of growing plants without using soil, while feeding them with mineral nutrients dissolved in water. Aeroponics is the field of agriculture that uses technology for data collection, analytics and automation in farming activities.
Agtechs and financial institutions: Financing farmers in India
AgTechs are the missing link that can facilitate financing for SMFs
Financial institutions in India have historically lacked the expertise or capacity to generate granular farm and farmer-related data needed to offer credit to farmers. However, the digital revolution in India has paved the way for banks and other financial institutions to use technology to target and service customers, reduce costs and reach previously untapped segments such as SMFs.
A typical financial institution’s credit cycle consists of four stages: loan origination, underwriting or credit assessment, servicing and monitoring, and collection. AgTechs have the ability to provide financial institutions with data and technology at various stages during the credit cycle as illustrated below.
Upon loan origination, financial institutions are primarily concerned with client details such as the borrower’s personal information, income details, and credit history—if available. AgTechs like FarmGuide, Jai Kisan, PayAgri, and Skymet support financial institutions in this process by undertaking data collection including historical data on crop type and quality, weather forecasting, and soil quality assessments.
For the underwriting or credit assessment process, financial institutions require details about the agriculture land holdings and crops, as well as information on the movable assets or properties held by the farmer. AgTechs like FarmGuide and Jai Kisan have a unique role to play in developing solutions to digitize land records and gathering farmer-specific data. Moreover, they can also tap into their existing physical networks such as their field staff or other local partners, who deal with farmers, to source further information.
For servicing and monitoring, financial institutions typically require details about sowing and harvesting along with information on historical cropping patterns to generate yield estimates. AgTechs like CropIn, SatSure, AgroStar, and Gramophone generate data on overall yield estimates, forecast demand, monitor crops to predict non-performing assets and use of farmer credit—all by analyzing satellite imagery and agri-input data based on farmers’ online purchase patterns.
Finally, to collect their loans, financial institutions need visibility on crop harvest and prices to estimate the repayment capacity of farmers. AgTechs like NinjaCart, Jumbotail, and Agricx play a significant role in this process by offering forward market linkages and grading and sorting produce for farmers thereby allowing them to sell their produce at the market price and generate a sufficient return. Banks can then use this information on pricing captured by AgTechs to estimate the repayment capacity of farmers.
Despite the potential, several challenges limit meaningful partnerships between AgTechs and financial institutions
Collaboration between AgTechs and financial institutions are at a nascent stage and will require time to scale primarily due to the following hurdles:
- Lack of a full stack solution for banks: Most AgTechs offer independent solutions that solve a small part of a larger problem along the agri value chain. Banks, however, want to partner with AgTechs that offer a “full stack of solutions,” thus eliminating the need for them to partner with multiple AgTechs.
- Challenges with the non-risk-sharing model of AgTechs: Banks want to work with AgTechs that share the associated risks and resulting liability of agri financing. Since financing farmers, particularly SMFs, entails the provision of data and the assumption of risk, banks hesitate to forge partnerships or conduct pilots with AgTechs that want to be indemnified from assuming liability.
- Limited understanding of AgTech solutions: Most banks have a limited understanding of the solutions offered by AgTechs and believe that AgTechs are only confined to generating data points using satellite imagery. Banks are not aware of the value proposition and potential of AgTechs to inform their credit cycle and, hence, often disregard their solutions.
- Limited trust of data captured by AgTechs: Traditional financial institutions are dependent on their staff and their local-level understanding for sourcing and verifying information related to farmers and their crops. Since AgTechs collect most data using technology such as satellite imagery, spectrometry, etc., banks are skeptical of the reliability of data that AgTechs generate. Moreover, banks require historical trends and data points over the past four to five years to gain a reliable picture of their borrower; however, nascent AgTechs are not yet capable of providing such historical data points.
Suggestions to improve the AgTech ecosystem
The recommendations below address the myriad challenges AgTechs in India face, as individual players in the agriculture ecosystem and in collaboration with other AgTech players. These recommendations should serve to enhance opportunities for AgTechs to finance the untapped SMF segment:
- Build an AgriStack model: AgriStack is envisioned as a public, digital platform that offers access to all farmer-related information at three levels: farm, farmer, and crop(s). AgTechs, banks and other ecosystem players could use the AgriStack platform to generate precise farmer and farm-level data to design products, solutions, and policies/schemes targeted toward the welfare of farmers, particularly SMFs. An enhanced AgriStack, with the fourth element around the market, could also pave the way for AgTechs to develop a full stack of solutions based on the farm, farmer, crop-level data, and market access.
- Create digital GPS-tagged land boundaries: Currently, only a few states have digitized their land records. The government, both central and state, should take the lead in creating GPS-tagged boundaries and digital records to help identify the rightful land owner thereby guaranteeing land title. Open APIs[I]could be shared with AgTechs to harvest this government-owned data to create lending solutions for financial institutions and promote access to finance for SMFs. This would also ensure that banks trust the authenticity of the data and solutions provided by AgTechs as the Government of India (GoI) would be the original source of the data.
- Create a single-window approach to address AgTech concerns: State governments could set-up a “single window” approach for AgTechs to raise their concerns, receive responses to their questions, and resolve grievances around delayed payments for government projects undertaken by AgTechs. This approach will streamline the communication between AgTechs and government bodies thereby encouraging effective partnerships.
- Creation of a separate fund for financing SMFs: Development financial institutions should come together to offer capital to financial institutions lending to SMFs or explore the creation of a separate fund similar to the Rural Infrastructure Development Fund (RIDF)[I]. This would enable financial institutions lending to SMFs to borrow capital at a low cost, which they could ultimately on-lend to SMFs at a lower cost.
India could become a global hub for Agri-FinTech innovations
With the recent spate of investment deals, the AgTech sector has come into the spotlight. It is an opportune time for ecosystem players to capitalize on this renewed attention. With increasing traction, AgTechs will continue to provide viable solutions to farmers by making use of innovative technology. However, creating new collaborative platforms, such as AgriStack, is of utmost importance so there can be seamless sharing of data among multiple stakeholders including governments and financial institutions, as well as a culture of transparency and accountability across the agri value chain. Effective partnerships between financial institutions, the central and state governments, and AgTechs present an opportunity to conduct pilots and Proof of Concepts (PoCs) while addressing the dearth of financing available to SMFs. Such collaborations could also reinforce India’s emergence as a global hub for digital financial service solutions for farmers.
About the blog series
This is the third blog in a three-blog series for a study entitled the “Role of tech-enabled formal financing in agriculture in India” conducted by MSC (MicroSave Consulting) and ThinkAg, with support from Rabo Foundation. Blog 1 and Blog 2 of this series can be found here and here, respectively.
[1] Open APIs are publicly available software that allows developers to communicate with each other and share data freely. They allow universal access to data, thus promoting the creation of innovative solutions.
[2] RIDF was set up by the Government of India to provide loans to state governments and state-owned corporations to finance rural infrastructure projects. The fund is maintained by National Bank for Agriculture and Rural Development (NABARD).
Why do financial institutions shy away from financing farmers in India?
Despite an increase in penetration of agricultural credit, most SMFs continue to remain excluded
While agriculture remains a key economic activity in India, employing close to 55% of the population, most farmers find it challenging to access finance. Farmers rely on both formal, as well as informal, sources[1] to fulfill their needs for activities such as purchasing inputs, machinery, and improving the quality of their land. During the course of MSC’s study, farmers in India were divided into three categories based on the size of their landholdings. These categories included small and marginal farmers owning less than 2 hectares of land, medium farmers owning between 2 and 10 hectares of land, and large farmers owning more than 10 hectares of land.
A significant finding from this study was the disparity in access to formal and informal finance that was prevalent in the three farmer categories. Our analysis indicates that, despite the Government of India’s policy to encourage agricultural lending, only approximately 29% of farmers enjoy access to credit from formal sources. Of the SMFs, who comprise 86.2% of the total farmer population, approximately half were unable to borrow from either formal or informal sources. Of those SMFs that do borrow, 59% or 36 million accessed formal credit while 41% relied on informal credit.
Banks are reluctant to offer credit to SMFs
Agricultural credit disbursed by banks increased by 27% from 2016-17 to 2018-19 as a result of mandated priority sector lending (PSL) policies of the Reserve Bank of India (RBI). In 2018-19, banks disbursed agriculture credit worth USD 168 billion, three-fourths of which came from commercial banks with the remainder disbursed in equal proportion by cooperative banks and regional rural banks. All these banks disbursed nearly 50% of their credit to large farmers and were unable to meet their mandated PSL criteria of disbursing 8% of their credit to SMFs.
In India, the RBI mandates banks that are unable to attain their PSL target to either purchase priority sector loans from other banks or contribute to the Rural Infrastructure Development Fund (RIDF)[2]. As more and more banks struggle to meet their PSL targets, the sale of priority sector lending certificates (PSLCs) has gained traction. PSLCs help banks fulfill their shortfall by trading the certificates from the seller to the buyer bank for a fee. Private and foreign banks, which often lack a presence in rural areas and find it costly to lend to PSL target segments, have emerged as the predominant buyers; while public sector banks, rural regional banks, and small finance banks have emerged as the major sellers of PSLCs. As per RBI data, the trading volume of PSLCs increased by 78% to USD 44 billion in FY 2019, up from USD 26.5 billion the previous year. The sale of PSLCs for SMFs grew 62% to USD 15 billion in FY 2019 as compared to FY 2018.
Our interactions with banks during the study highlighted that their reluctance to offer credit to SMFs is driven by the following reasons:
- High cost of service: Banks find it costly to serve SMFs with low ticket-size transactions, and difficult to reach out to them as the farms and farmers are located in remote areas. Banks also perceive an inherent risk of default associated with lending to SMFs.
- Limited mechanisms to assess SMFs creditworthiness: Banks have limited access to farmers’ financial information such as cash flows and credit history. Most farmers have either had no or negligible experience banking with formal financial institutions. Further, banks are unable to verify whether the information provided by SMFs, such as income from other sources, is reliable for financing decisions.
- Uncertainty in the policy environment: Banks hesitate to serve SMFs due to the farm loan waivers offered by state governments. Since the government assumes the liability of the farmer and repays the bank in the case of default, banks feel that such loan waivers reduce the credit discipline of farmers and create a moral hazard. Loan waivers coupled with banks’ perceptions of high non-performing assets in agricultural lending make financial institutions reluctant to serve SMFs.
Banks would be remiss to disregard the potential opportunity to offer credit to 90 million SMFs, which represent a relatively untapped segment in India. Although the challenges cited above are, in part, driven by costs and the policy environment, many hurdles could be overcome with access to reliable farm-level data. This creates an opportunity for technological interventions in the agriculture sector that could improve banks’ abilities to obtain and verify farmer data resulting in greater access to finance for SMFs. In our next blog, we unpack the AgTech landscape in India and focus on technological innovations across the Agri value chain.
About the blog series
This is the first blog in a three-blog series for a study entitled the “Role of tech-enabled formal financing in agriculture in India” conducted by MSC (MicroSave Consulting) and ThinkAg, with support from the Rabo Foundation.
The second blog covers the AgTech landscape in India and highlights three key challenges limiting their growth. The third blog focuses on partnerships between AgTechs and financial institutions and offers recommendations on improving the AgTech ecosystem in India.
About the study
MSC (MicroSave Consulting) and ThinkAg studied the AgTech landscape in India focusing on innovations in financing small and marginal farmers (SMF). The study, conducted in June 2019, looked at technology-led solutions in the AgTech space and examined how financial institutions could adopt such solutions to finance SMFs. We consulted over 50 stakeholders for the study representing AgTechs, financial institutions, investors, donors, input suppliers, agri-corporates, industry experts, and incubator managers. In May 2020, the results of the study were disseminated via a webinar organized by the World Bank.
[1] Farmers rely on both formal, as well as informal sources to fulfill needs and requirements for activities such as purchasing inputs, machinery, and improving the quality of their land, among others.
[2] RIDF was set up by the Government of India to provide loans to state governments and state-owned corporations to finance rural infrastructure projects. The fund is maintained by National Bank for Agriculture and Rural Development (NABARD).