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Why Agri-Fintech Startups Have Failed To Cash In On Rural Finance Needs

India is a country where a startup is set up almost every day. They try to enter various fields and also try to come up with their own fields. But agri-tech is a field which hasn't seen or had much improvement over the past decade. There are around 1000 plus agri-tech startups in India and out of those only a handful are operating in the Agri financial space. This sector is the least funded due to the number of challenges involved in achieving profit scales such as those of informal credit, repayment in cash and non-availability of customer data.

Startups such as Samunnati, Jai Kisan and FarMarts are studying and innovating their approaches and looking for alternative business models such as working with FPOs and retailers rather than farmers and partnering with market-linkage startups, all these are done only to fix multiple challenges in the agri-fintech space.

What is challenging India's small and marginal farmers, once considered the economic backbone of the country?

As most people now know, the top problem affecting both farmers and cultivation is the lack of timely and sufficient investment. Be it drought, flood or pest generation, a bad product would often drive small-scale farmers to ask for quick, small loans, but the interest rate could be as great as 10% per week. The reason: Financial addition rates have always been low in the farming sector, and farmers are often moved out of the regular credit system.

Most banks provide collateral loans at 8-12% interest per annum but some non-banking financial companies (NBFCs) may give non-collateral loans, but the yearly interest scale could be 13-26% due to the high-risk nature of these loans.

Rural credit comes from two main sources, private and institutional. The previous includes private money lenders, landlords or maybe relatives who can, at times, exploit the people in need. The second category includes rural co-operatives, commercial banks which give short-to-medium term credit and therefore the commercial bank for Agricultural and rural development (NABARD) that takes care of long-term credit requirements. The choices don't seem to be many when it involves 'affordable credit' from formal sources.

Many experts suggest that the 'lack of lenders' presence on the ground, or their outreach, could be a key reason behind the lack of formal credit access.