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Financing Agri Value Chain Indian Experience

Financing Agri Value Chain Indian Experience. March 16th 2007. ‘Prajápatye Kasyapáya déváya namah. Sadá Sítá medhyatám déví bíjéshu cha dhanéshu cha. Chandaváta hé." Translation:

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Financing Agri Value Chain Indian Experience

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  1. Financing Agri Value ChainIndian Experience March 16th 2007

  2. ‘Prajápatye Kasyapáya déváya namah. Sadá Sítá medhyatám déví bíjéshu cha dhanéshu cha. Chandaváta hé." Translation: Salutation to God Prajápati Kasyapa. Agriculture may always flourish and the Goddess (may reside) in seeds and wealth. Channdavata he." 

  3. Theme Post Independence Government extended the World War II Grow More Food Campaign Credit Reach remains a Huge Challenge, across the value chain Social Responsibility to Business Opportunity :Changing Perception of Banks Corporates Taking a huge plunge in offering value adds to the Value chain.

  4. 14 Major Commercial Banks ,Nationalised Land Improvement Loans Act- consolidated Law intended to provide advancement of Agriculture Enactment of Co-operative Credit Societies Act- to meet short term credit CRAFICARD recommends formations of a separate Apex bank for agri credit: NABARD Innovative Financial Models targeting Farmers 1860 1975 1990-2007 1950 1969 1833 1904 Nov 1979 Current Status Primary Agriculture Co-operatives Societies formed Tacavai’ loans from the land revenue collected (British Govt) Regional Rural Banks (RRB) formed Micro Finance/ Financial Inslusion Evolution of Structured Credit

  5. Institutional Structure- Agriculture & Rural Credit in India

  6. Extension services Providing value adds Integrated Services Aggregation of Farmers exposure Focus on Cash Flows Hedging Structured Finance Insurance Bundling , it along with lending Farmer New delivery channel Technology Increasing exposure Agency Tie ups Credit Delivery Channels Securitisation, Portfolio buyouts MFI/SGH/Cooperatives Commodity Boards as conduits Over the years financial institutions are exploring innovative ways to reach the entire value chain

  7. SEEDS Lending against offtake contract Contract Seed Growers Term lending/ WC Contractual agreement Seed Company Lending against stop sales agreement Distributor Short term lending against liquid collateral Preferred distributors Credit sales Dealer Crop loans Credit/ forward contract Farmer EDIBLE OIL Crop loan Farmer Spot market price Village level CA WR finance Warehouse Receipt Mandi/ Warehouse Wholesaler Vendor bill discounting Warehouse Receipt Miller Customized Products to stakeholders across the value chain Credit

  8. Credit Flow to Agri & allied Activities As of Jan 2007 Rs.Crs USD/ bln

  9. Expensive Credit Transaction Cost • Distribution network • Paper work High Risk Charge Low technology penetration • To cover the credit risk, premiums are charged. • Credit delivery platforms need to be developed to reach the masses Prohibitive costs Low Profitability Legal Issues • Despite the spreads, lending often remains unviable • In case of default no legal recourse Need for viable Credit Delivery Model

  10. Price Risk Yield Risk Crop Risk Liquidity Constraints Corporate Payment Risk No Sale Trans. by Farmer Farmer Payment Risk Diversion of Funds Non Delivery of Crop … with varied risks Risk Elements

  11. Market Development Production Handling & Mrktg. Processing Wholesaler Retailer Price competitiveness Streamlined supply chain Need for a Holistic Development Approach – along the Agri Value Chain Consumer Orientation Regulatory Reforms Infrastructure Development Credit Deliverance Innovative Business Modeling Market Linkage Commodity Trading Agri Infrastructure & Logistics Insurance at various stages Financial Services Research & Extension Farmer linkages Action steps

  12. The hand that feeds is shrinking, and if it is not supported any further, it will soon become extinct

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