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Comparative analysis of prospects for delivering sustainable agricultural finance, expanding agricultural market opportunties & promotion of disadvantaged small farmers and MSMEs. Presented By: Manoj K. Sharma November, 2012. Sustainable agriculture development – Key for economic development.

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presented by manoj k sharma november 2012

Comparative analysisofprospects for delivering sustainable agricultural finance, expanding agricultural market opportunties&promotion of disadvantaged small farmers and MSMEs

Presented By:

Manoj K. Sharma

November, 2012

sustainable agriculture development key for economic development
Sustainable agriculture development – Key for economic development

Indicates that

Sustainable agriculture will be key for economic development

The sector needs more financing – GRANTS and CAPITAL INVESTMENT to meet the requirement of the population with higher purchasing power than ever

Technological intervention to ensure that small farmers are viable and contributes significantly

65% of total population directly dependent on agriculture

what ails small holder agriculture
What ails small-holder agriculture?

Aggregation is a solution which can provide a better bargaining power and access to credit and quality input

  • Skewed market linkages and the consequent poor price realisation
  • Lack of access to credit by smallholders leads to sub-optimal inputs and methods, and to lower productivity
agriculture finance the transformative potential
Agriculture finance – The transformative potential

Structural changes in Agriculture from subsistence to commercial requires supportive market enabling greater role of financial services

value chain agricultural finance linkage

Actors

Actors

Value Chain – Agricultural Finance Linkage

Consumer

Consumer

Without external finance

With external finance

Retailer

Retailer

Wholesaler

Wholesaler

Short term working capital loans for inventory

Bank/FI

Short term credit financing

Working capital loans

Bank guarantee

Letter of credit

Bank/FI

Processor

Processor

Purchase in credit and repayment after sales to retailers

Equipment financing

Working capital loans

Bank/FI

Aggregator

Aggregator

Working capital loans

Equipment financing

Short term working capital loan

Bank/FI

Short term working capital loans

Savings

Insurance

Producer/farmer

Producer/farmer

Bank/FI

Input financing (on kind payment or in-cash)

Working capital loans for inventory

Bank/FI

Input supplier

Input supplier

four key drivers of sustainable value chain finance model
Four key drivers of sustainable value chain finance model

1

Sustainability of small farm holders through diversification

2

Availability of support services- farm extension, finance, market information

Multi-activity chain actor

Market linked chain actors

Agri production support

Agri food industry support

Activity

Simple chain actors

Specialised chain actors

Value Chain players

Agri-logistics and processing support

Management

3

Contractual Agreement between value chain players

4

Participatory Business Model engaging small farm holders

Value Chain players

Spot market based relationship

Contracts based relationship

Informal trust based relationship

agribusiness msme financing constraints and way forward
Agribusiness MSME financing, constraints and way forward

Less than 20% of commercial lending in Asia is financing agriculture

integrating mobile money in agriculture value chains value chain payments through mobile banking
Integrating Mobile Money in Agriculture Value Chains – Value chain payments through mobile banking

Low cost of transaction

High security of the transactions

Solving the “last mile” problem

Seamless integration of buyers and sellers

Reduced leakages

Enhanced immediacy and increased frequency of the transactions

Improved economics for value chain players

Accountability

One of the commercial banks in India, through its Rural Finance Division is focussing on increasing its presence in rural markets by structured interventions in agriculture value chains.

kisan credit card most affordable and accesible agricultural finance product in india
Kisan Credit Card: Most affordable and accesible agricultural finance product in India

High uptake by farmers. About 100 million KCC distributed since inception

  • Product feature in sync with the requirement of Small Farmers
  • Revolving cash credit facility
  • Card valid for 3 to 5 years subject to annual review. Credit limits could be enhanced annually
  • Conversion/re-scheduling of loans

Initiative: Started by the Government of India, Reserve Bank of India (RBI), and National Bank for Agricultural and Rural Development (NABARD) in 1998-99 with an objective to help farmers access timely and adequate credit

itc e choupal ict initiative of itc to provide a market access to small and marginal farmers 1 2

Information

(e.g., Price Discovery)

Knowledge (Customized)

Extension services

Input

FMCG good

Financial services

Farmer

ChoupalSaagar

Samyojak

Sanchalak

PAN-INDIAN

VILLAGE

TOWN

ITC e-choupal – ICT initiative of ITC to provide a market access to small and marginal farmers (1/2)

A USD 900 Million Venture

The Model

Transactions

Collaboration with

160 partners

itc e choupal ict initiative of itc to provide a market access to small and marginal farmers 2 2
ITC e-choupal – ICT initiative of ITC to provide a market access to small and marginal farmers (2/2)

A hub and spoke model for procurement of various commodities

Growth

hariyali kisaan bazaar corporate initiative to provide 24x7 support services to farmers
HariyaliKisaan Bazaar: Corporate initiative to provide 24x7 support services to farmers

Typically operates in the catchment area of 25-30 kms

A typical Hariyali Bazaar

Caters to agriculture holdings of about 60,000 to 80,000 acres

Covering 15,000 to 20,000 households

Retailing

Farming Products

Household Products

Insurance services

Farm Fuels

Farm Output buy-back

Simple Procurement- At harvest time a farmer can directly sell to Hariyali depending on the storage facilities of the Hariyali outlets

  • Agri-Services
  • 24X7 technical support
  • Critical last-mile delivery
  • Subsistence farming to technology led commercial farming
potato value chain finance innovative model for financing through front end integration
Potato Value Chain Finance – Innovative model for financing through front end integration

Operational Standalone Value Chain Finance Model (Most Prevalent)

Stakeholder Mapping and Stakeholder Risk Analysis

  • The outcomes:
  • Risk sharing and insulation to market fluctuations
  • Streamlining of operations and discipline in arrangement
  • Increased creditworthiness of the system
  • Better follow up and speedy recovery of loans
  • Better Management Information System (MIS)
  • Integrated Finance Model
key lessons for africa
Key Lessons for Africa
  • Integrate supply of adequate and timely finance with value chains: Government, Donors and investors will have to support nascent value chains till such that that they grow and are able to attract commercial banks and entities
  • Design of financial products:Financial products that are poorly designed are of limited use to the value chain players and severely limit the growth of the sector.
  • Technical assistance and financial literacy for smallholders and SMEs: Extension services for smallholders and management support for SMEs will strengthen individual players as also the overall value chain.
key lessons for africa1
Key Lessons for Africa
  • Backward and Forward linkages and Market Access: Markets are key to value realisation for all the players in the chain. The linkage of the chain to the market will determine the price realisation and hence the revenue that will flow to different players down the chain
  • Preventing Information Asymmetry: African countries can try and address the problem of information asymmetry by utilising information technology to enable value chain players to get access to real time information on markets.
  • Integrating Mobile Money with Value Chains: Mobile money has immense potential to smoothen the flow of value across the chain, in real time and at a lower cost than conventional banking and/or cash transactions. Coupled with ICT based information dissemination, such a model can address some of the challenges of flow of value across the chain.