India plays an important role in the global agricultural sector, providing livelihood for a large part of its population. In 2022-23, the agriculture sector employed about 45% of the labor force and contributed 18% to India’s Gross Value Added (GVA), according to a report by PRS India.
However, the complexity of agricultural supply chains remains a significant challenge. This value chain starts with suppliers and extends through manufacturing, trading, processing, food logistics, and finally, the retail sector.
At each stage, the need for funding is both urgent and significantly challenging. For example, farmers need sufficient capital to buy essential inputs such as seeds, fertilizers and equipment – costs that can be particularly burdensome for small and marginal farmers. During production, they must also manage running costs including labor, water, and machinery maintenance. These financial demands often create cash flow problems as farmers struggle to meet their obligations while waiting for their crops to be harvested.
Economic challenges are not limited to this. A major issue is the difficulty of achieving economies of scale. Large-scale agricultural innovations require large agricultural areas to be cost-effective and justify their high initial investment. This presents substantial economic barriers to small and marginal farmers, limiting their ability to grow and improve productivity. They also face difficulty in securing loans from traditional financial institutions due to poor credit history and insufficient collateral.
In many districts, less than half the credit comes from formal sources, with the rest — over 51.5% — coming from informal channels, according to NABARD. This often forces farmers to turn to moneylenders, which can be both costly and risky. On top of that, they struggle to maintain funds for unexpected emergencies, further complicating their situation.
To meet these financial challenges, solutions such as supply chain finance (SCF) are emerging, bringing much-needed innovation. It has already proven effective in addressing funding issues in various industries, but its potential is yet to be fully realized in agriculture. This gives farmers the funds they need to purchase inputs, increase production and ultimately generate income.
In addition, SCF solutions such as Payable Finance enable merchants to pay farmers and commission agents instantly, ensuring timely transactions. Bill of sale discounts allow merchants to receive early payments from reputable corporations, increasing liquidity.
Finally, dealer finance is essential to enable retailers and distributors to operate efficiently by providing them with liquidity and extended credit. SCF thus not only addresses financial challenges but also inspires and motivates the growth of the sector by increasing productivity and supporting a comprehensive supply chain in India.
The government is actively working to increase access to funds for the agricultural sector. The Ministry of Agriculture has allocated Rs 1,32,470 crore for 2024-25, representing 2.7% of the total central government budget. However, challenges such as complex procedures, regional imbalances and high interest rates persist, making it difficult for many farmers to access these loans.
This is where fintech companies and financial service providers come in. They are developing innovative business models to expand SCF’s reach and improve its effectiveness. For example, invoice discounting platforms are one such innovation that enables farmers and traders to receive early payments based on invoices, improve cash flow and reduce reliance on informal credit.
In addition, digital farmer credit cards, integrated with SCF, provide easy, short-term credit combined with seasonal cash flow, allowing farmers to purchase inputs and repay them after harvest. Furthermore, warehouse receipt financing is an option that enables farmers to use stored goods as collateral to access funds, allowing them to sell at better market prices rather than during periods of low demand.
These alternative models provide efficient solutions to financial challenges faced by farmers. By offering customized SCF products beyond traditional banking, they address key issues in Indian agriculture, such as cost and speed of financing, seasonal cash flow requirements, and prevention of misuse of funds. These fintechs are emerging as both competitors and partners to banks, providing low-cost financing options that help bridge the trust gap and effectively manage credit risk.
Additionally, by leveraging digital data and partnerships, fintech is making SCF accessible to small businesses that are often overlooked by traditional lenders. The availability of verifiable KYC data and the ability to assess actual transaction data between buyers and sellers provides a robust mechanism to manage credit risk both during the onboarding of borrowers and throughout the loan lifecycle.
As a result, financial institutions are increasingly collaborating with technology platform providers to offer tailored solutions. One such approach, embedded finance, integrates financing options directly into agricultural digital platforms or marketplaces that farmers use to buy inputs or sell produce.
For example, a farmer buying seeds through a digital platform can get instant financing at the time of purchase, made possible by embedded SCF options that take into account their purchase history and creditworthiness. Ultimately, these platforms enable customized credit assessments and financing options by leveraging transaction data.
In essence, the future of agri-finance truly lies in the SCF, as it reshapes how the entire ecosystem is financed. SCF’s potential to transform India’s agriculture sector is huge, with the market expected to reach $13.4 billion by 2031. This growth could bring significant positive change to the sector, offering hope for an economically stable and prosperous future. For agriculture sector.
(Arun Pujari is the CEO and co-founder of CassinVoice, a digital supply chain finance platform)