The financial technology sector is slowly becoming a critical integrator of agricultural operations globally. The rapidly evolving technological landscape opens up new possibilities to target and price credit, share risk, and harness information technology to enhance agricultural productivity. Despite advancements, several socio-economic and cultural obstacles need to be overcome to harness the full potential of FinTech in Agriculture. Some of the specific areas where agri FinTech is driving agriculture are new credit and risk markets products. The core features of agricultural production are the time lag between input and supply and the risks involved in agricultural production by weather shocks like extreme heat/cold, flooding, etc. These dimensions lead to several challenges on the supply and demand side. Luckily for stakeholders, the provision of financial services is poised to move away from legacy finance systems in several ways. We discuss here some of the recent technological advances that can be helpful to underwrite credit and risk in agriculture and a set of policy recommendations focusing on India.

India is amongst the fastest growing FinTech markets globally; amongst more than 2,100 FinTechs in India, over 67% have been set up in the last five years[1]. The Indian Fintech ecosystem includes various subsegments such as Payments, Lending, Wealth Technology (WealthTech), Personal Finance Management, Insurance Technology (InsurTech), Regulation Technology (RegTech) and Agricultural Technology (Agri-FinTech) etc. Agri-Financial technology (FinTech) generates new ways to target and collateralize credit, price and spread risk, and organize agricultural value chains. An ADB report[2] mentions that digital payment systems could close 40% of the unmet requirements for payment services and 20% of the credit needs. FinTech represents a space where innovation can be made to serve the marginalized in ways that generate both welfare and economic growth. Some of the companies providing agri-FinTech solutions in India are:

FarMart began to connect farmers who required machinery to other farmers who could provide it on rent. Then they expanded their operations to offering loans. The platform has helped smallholder farmers gain low-cost digital credit by providing them with a virtual credit card to purchase farm inputs at its offline retail channels. FarMart is India’s first micro-SaaS platform for agriculture. The mobile app allows agri-retailers to serve their farmers better by providing access to information, market linkages and input. Large food businesses also leverage their agri-retailer network for sourcing quality produce directly from the farmers at affordable prices.

Jai Kisan aims to empower the rural community focusing on farmers, and provides low-cost and timely financing for agricultural equipment, dairy equipment and other rural yield generational assets. The financing provided by Jai Kisan is more flexible and transparent than other credit options available in the country. They provide equipment, input and invoice finance to various stakeholders across the agricultural value chain. Jain Kisan’s platform utilizes a comprehensive credit score assessing farmer’s financial, market, agronomic and environmental, psychometric, individual, social, and satellite data.

Samunnati is focused on solving the working capital requirements of smallholder farmers and agri-SMEs. It has impacted 54 agri value chains in 20 Indian states. It brings in an innovative value chain approach to agricultural lending, offering customized financial and non-financial. Samunnati leverages the strength of transactions and the existing buyer-seller relationships by following a cash-flow based approach where products are tailor-made to the clients’ needs.

Likewise, several start-ups focus on providing access to credit at reasonable rates to smallholder farmers for their farming operations and beyond, helping to increase the stakeholders’ profitability across the value chain. This has also been growing steadily due to better access to mobile phones and increasing data speed and availability, changing how farmers access price information, search for buyers, and build brands to move up the value chain.

Some of the core policy interventions to expand the role of Agri-FinTech solutions in India could include

• Building sandbox for agri-FinTech solutions: The cost of capital in Indian agriculture is prohibitively high, making farming and value chain businesses unviable. The digitization of agriculture and food supply can help make the data accessible to bankers reducing their risk and cost of capital. Several agritech and FinTech start-ups are working in this sector. Still, there is a need for a dedicated sandbox where public and private sector banks can be incentivized to work with start-ups and build and pilot innovative agri-FinTech solutions to scale them faster.
• Development of climate-finance products: India is amongst the most water-stressed and climate-vulnerable countries in the world. Several agritech players are trying to address climate change risks, including building climate-predictive data-driven models, solutions for resource conservation and reducing carbon footprints. But, the big question remains that why farmers will adopt these practices. One option could be to build credit and insurance products that incentivize farmers to adopt climate-resilient solutions. For this, regulators will need to work with banks, insurance companies and start-ups to conceive such products.
• Piloting Agristack, a public digital platform for ready, authenticated and almost instant access to farmers. The platform can be the hotbed for driving disruptive innovations and can optimize time and cost. The building of AgriStack should be a collaborative effort including governments (both central and state) and innovators.
• Building incubation support for rural India that helps develop rural incubators. This will motivate and support rural youth to build their entrepreneurial model. The building of these incubators can be taken up by state agricultural universities and Krishi Vigyan Kendras (KVKs).
• Catalytic funding for young agri-FinTech start-ups will be required to develop a high-velocity catalytic fund for investments at the seed stage with funding from the government in this sector.
• Incorporating agri entrepreneurship courses in agricultural education: There is a need for nurturing talent at the college and university level and can be made possible by including courses on entrepreneurship across all agricultural streams. An internship can support these courses with agritech/Agri-FinTech start-ups to familiarize young graduates with the start-up culture.

With a huge base for agricultural and allied industries in the country that employs about 41.9 % (2020) of the workforce, FinTech solutions most be utilized to help farmers and other stakeholders across the value chain. The time is right to push it and provide nurturing and training for changing mindsets and move away from legacy lending solutions.

[1] India-A global FinTech Superpower. https://www.investindia.gov.in/sector/bfsi-fintech-financial-services

[2] McIntosh, C. and Mansini, C.S. 2018. The use of Financial Technology in the Agriculture sector. ADBI Working Paper Series No. 872.

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