VALUE CHAIN FINANCING FOR INCLUSIVE GROWTH
Just two decades ago, providing credit to low income people was seen as unviable in India. The scale and the reach that Microfinance as a model achieved, amply demonstrated the ability to replicate an approach that made small credits available to excluded markets as well as households. However these excluded households are not operating in vacuum but are dependent on the value chain of the economic activity that they are engaged in. And if that value chain happens to be Agri and Allied activities then the challenge of these households to access formal financial services becomes even more pronounced given that there is no focused intervention to cater to this segment. Their financial needs are generally too large for microfinance, but too small for commercial banks. This gap hampers growth and limits agricultural development. Agricultural value chain actors need access to finance to develop their businesses. For example take smallholder farmers with fragmented land holdings. Smallholder farmers have very restricted access to markets and lack access to warehouses or storage facilities to store their harvest. Consequently, they are strained to sell their surplus produce during the harvest season, when the prices are low. Intermediaries (traders) who can invest their capital as well as access storage space, time and again take advantage of smallholders‘ limitations: they accumulate agricultural harvest at very low prices and sell them during the most beneficial market conditions. In addition, farmers face enormous difficulties in obtaining credit for their agricultural activities because of the lack of financial services in rural areas. Existing products from formal financial institutions like Banks, MFIs are usually ill suited to the smallholder farmers‘ livelihoods and frequently on account of their cash flows. Hence these farmers are constrained to resort to borrowing from informal sources. Even for small enterprises that constitute the MSMEs (Micro Small and Medium Enterprises), which play a vital role in the nation’s economy, the lack of access to finance and timely credit is the most important reasons for below than normal utilization of their capabilities. The MSMEs which add value to the agricultural produce and also play intermediation role in an Agri value chain, need finance to increase their capacity. MSMEs that operate in activities like dairy farms, trading of commodities need funds to procure raw materials, and stock, pay wages to staff, meet other working capital requirements and at the same time for expansion of business.
Despite various efforts of stakeholders in this area, there continues to be huge demand-supply mismatches in financing these value chains and enterprises. Traditionally informal sources have been the main source of internal and external finance for Agriculture value chains and MSMEs. Major challenges constraining Financial Institutions from financing enterprises in agri-value chains in a traditional manner are:
APPROACH AND METHODOLOGY
In other usual forms of agri finance, whether internal financing within the value chain, such as traditional trader credit, or financing originating externally, such as banking finance, MFI lending etc, the view of the overall activity that the borrower is engaged in, is less comprehensive, and therefore encompasses significant risk. The additional risk is due in large part to uncertainty; not being able to fully understand the risks and consequently not being able to assess and mitigate against those risks.
Under Swikriti Agro‘s Value Chain Finance approach the decisions about financing are based on the health of the entire value chain, including market demand, and not just on the financial health of the individual borrower. This means that in order to offer value chain-based finance, knowledge of the agricultural system is required.
In general, Swikriti Agro caters to the following needs of different value chain actors:
Providers of feeds, fertilizers, chemicals, agri equipment etc. Swikriti Agro provides them with small, short-term loans for working capital: and long term, Term-loans to expand business. Through its financial relationships with farmers, Swikriti Agro creates compatible incentives for farmers to buy from empanelled input suppliers thereby mitigating the business risks of suppliers.
Farmers, producers and their families manage the crops or animals, and are involved in sowing to post-harvesting activities including marketing. For Agri-farmers specifically, a lot of pre-harvest risks can be taken care of by seeking group guarantees or third party guarantees, and by say, making equipment available through leasing or asset finance. Using these mechanisms, Swikriti Agro finances the working capital to buy seeds and other inputs and asset loans to buy equipment.
VALUE CHAIN METHODOLOGY
- Also using the network relation with suppliers, Swikriti Agro helps farmers procure required supplies, at discounted rates. Swikriti Agro provides access to finance to farmers to purchase livestock/animals or invest in storage spaces and offers them insurance products to protect the assets, price guarantees or derivatives to lock in better revenues.
- For post harvest activities, Swikrti Agro provides traders access to short term finance and help farmers avail liquidity using warehouse receipts and other collateralized lending. These products and mechanisms help farmers and traders manage their working capital needs.
- Traders play an important market linkage role. They buy produce from the farmers or co-ops and aggregate them before selling them to procurers, processors and marketing firms. Swikriti Agro through financial intermediation will assist traders to manage their working capital flow. It will also provide traders access to finance to invest in assets that allow traders to aggregate and store.
- Processors/ Aggregators who buy products in bulk from farmers or traders, are provided working capital loans to allow them to buy the produce. Through Swikriti Agro, these processors/aggregators can pay farmers and traders electronically. Swikriti Agro through its customized produce solutions helps , processors/aggregators to invest in or lease out processing equipment.
Through tailored value chain solutions based on deeper understanding of the local value chains, Swikriti Agro helps expand the financing for agri activities and improves efficiency through customized financial solutions. These customized solutions strengthen or solidify linkages among participants in the chain. It improves the quality and efficiency of financing agricultural chains by:
The various financial instruments that Samunnati uses for Agriculture Value chain finance are as following:
CUSTOMERS ABOUT US
Swikriti Agro has created a benchmark in terms of their projects aimed for the welfare of the farmers. I wish more people look forward to this idea and get associated with Swikriti.
It is a wonderful company! I like the approach and their mission to uplift the farmers of India by allocating the needful resources at the required time.
The concept of Swikriti Agro is fabulous. I wish more and more farmers get associated with Swikriti and work for the welfare of our farmers.
India is an agrarian economy where the condition of farmers is very poor. This company helps the farmers throughout in all kinds of their operations and financials.
Swikriti Agro the only one in its own kind. We hardly find companies working for the welfare of the society. Good luck to the team of Swikriti Agro.
Swikriti Agro is the best company I have ever seen in terms of working for the upliftment and development of the farmers as well as the society.
Swikriti Agro is a diversified entity with turnover in excess of one billion dollars. We have a global presence with 30 manufacturing bases spread over four continents.
S-18, Shalimar Garden, Ext.1,
Sahibabad, Ghaziabad Uttar Pradesh -201005
Monday to Saturday 10:00 to 18:00