The Farmer Producer Organization (FPO) ecosystem in India, established with a specific purpose, has evolved into a transformative force within the agricultural landscape. Conceived to address the challenges faced by smallholder farmers, the FPO framework was designed to empower these agricultural entities and mitigate the vulnerabilities inherent in the predominantly production-driven and fragmented nature of Indian agriculture. 

Initially conceptualized to provide a collective voice and market-led approach to smallholder farmers, FPOs have played a pivotal role in enhancing the capacity and socio-economic resilience of this vital segment of the population. The woes of Indian farmers, particularly those with small and marginal landholdings, necessitated the creation of FPOs as a vehicle for aggregation, enabling them to navigate the complexities of the agricultural value chain more effectively. 

In a country where agriculture plays a pivotal role and employs over 56% of the workforce, the sustainability and prosperity of the farming sector are paramount. However, the majority of landholdings in India are small and fragmented, making agriculture a vulnerable sector in the Indian economy.  

This article delves into the importance of Instant Pre-Approved Loans (IPLs) for Farmer Producer Organisations (FPOs), the challenges they face, and how innovative products like IPLs are addressing these challenges. 

The landscape of FPOs in India has undergone a remarkable transformation in recent years. In the fiscal year 2022, a notable surge was witnessed, with the registration of 7,059 FPOs, a substantial increase catalysed by initiatives like the 10,000 FPO Scheme. As FY22 drew to a close, the nation boasted a staggering 15,948 active FPOs, representing an unprecedented growth of 284% since FY19. 

Before the paradigm shift in 2020, a mere 5% of FPOs, comprising 510 Farmer Producer Companies (FPCs), had formal access to credit. Nabkisan emerged as the primary lender in this category, followed by Ananya and Samunnati. Fast forward to the current scenario, and the FPO ecosystem has experienced a significant evolution. 

More than 100 formal finance providers, including NBFCs and banks, now operate in this space, offering a diverse array of solutions spanning from working capital to infrastructure support. Samunnati’s Instant Pre-Approved Loan (IPL) has played a pivotal role in this transformation, becoming a beacon of financial support for FPOs. 

In FY22, Samunnati’s IPL made a substantial impact on the FPO ecosystem. A staggering 1,262 FPOs benefited directly from IPL, while an additional 366 FPOs leveraged a combination of IPL and other financial solutions. Remarkably, over 30% of the FPOs that embarked on their credit journey with Samunnati have witnessed a significant enhancement in their initial credit limits, soaring from 0.5 million to upwards of 1 million. 

One of the most compelling outcomes of Sam IPL is the formalization of credit access for FPOs. Previously lacking any credit history, more than 15% of the FPO ecosystem has now gained formal access to credit through this innovative solution. 

From 2019 to 2021, Samunnati, through the Instant Pre-approved Solution (IPL), has not only provided crucial financial support but has also succeeded in establishing FPOs as a recognized and creditworthy asset class for formal lenders in the ecosystem. This shift marks a fundamental change, heralding a new era where FPOs are not only essential contributors to Indian agriculture but also recognized entities in the formal financial landscape. 

Challenges Faced by FPOs 

One of the most significant obstacles faced by FPOs in India is the persistent funding shortfall. This challenge stems from various factors, but it primarily arises due to the unique nature of FPOs. Unlike individual farmers or large agricultural enterprises, FPOs operate as collective entities, making them a relatively new and less understood segment of the agricultural landscape. 

Low Capital Base: Many FPOs initiate operations with limited capital, constraining investments in crucial areas like infrastructure and value chain enhancement. This hampers growth potential and effective utilization of economies of scale. 

Limited Credit Access: FPOs face hurdles in obtaining institutional credit due to concerns about creditworthiness and lack of collateral. This restriction curtails their expansion, input procurement, and adoption of technologies for improved productivity. 

Business Expertise Gap: Comprising smallholder farmers, FPOs often lack business expertise, affecting their ability to present compelling loan applications. Moreover, deficient financial management and risk assessment skills make them less attractive to lenders. 

Skilled Manpower Shortage: FPOs struggle with a shortage of skilled professionals in financial planning, market analysis, and supply chain management. This scarcity impedes their growth prospects. 

Bridging the Financial Gap 

Samunnati, with its mission to make markets work for smallholder farmers, has placed FPOs at the core of its operations. It has empowered over 500 FPOs across 19 states, giving them better bargaining power and market linkages. To address the challenges to access to finance for FPOs, Samunnati has introduced the innovative Sam IPL (Samunnati Instant Pre-Approved Loan) product.  

In an ecosystem where much remains nascent and eludes formal financial lenders, Sam IPL emerges as a catalyst, broadening engagement with FPOs. Samunnati’s goal is ambitious – to construct an asset class of FPOs. Traditionally excluded from credit avenues, these FPOs faced barriers in developing products. Enter IPL, a transformative solution that not only extends Samunnati’s outreach to FPOs but also delves deeper, fostering agricultural growth. 

In the past, FPOs often found themselves ensnared in debt traps. Products like IPL change this narrative, providing a means for FPOs to borrow responsibly. This shift in mindset is pivotal. Farmers now recognize that borrowing is essential for the expansion of their operations and businesses. This newfound understanding fuels their motivation to borrow, amplifying their capacity to invest and grow. 

Sam IPL serves as a bridge across the funding gap that FPOs face. It is a digitally enabled process designed to provide short and medium-term credit to FPOs. The loan offers in-principle credit for purposes such as input purchase, output procurement, seed production, and infrastructure development, with a maximum limit of INR 5 lakhs per FPO. The process involves in-principle sanction and final sanction. 

This product provides FPOs with tailored financial solutions designed to meet their specific needs. Whether it’s acquiring inputs, procuring outputs, expanding infrastructure, or investing in seed production, Sam IPL empowers FPOs with the necessary capital to drive their growth and development initiatives. The loan can be utilized for various purposes, including short-term loans for input purchase, procurement, and seed production, and medium-term loans for agricultural machinery and equipment. This financial support is pivotal in enabling FPOs to serve smallholder farmers effectively.  

One of the standout features of Sam IPL is its fully digitised and streamlined process. From the initial application to the final disbursement, the entire process is efficient and transparent. While providing financial support, Sam IPL also places a strong emphasis on risk mitigation. Stringent evaluation criteria, including proof of FPO’s active existence, credit checks, and personal guarantees, are put in place to safeguard the interests of all stakeholders. These include the collection of proof of FPO’s active existence from the MCA site, Commercial & BOD Personal CIBIL, personal guarantees from the FPO Board, and bank statements. Furthermore, a maximum ticket size of 5 lakhs has been set to reduce exposure. These measures ensure responsible lending and reduce the exposure for both FPOs and the lender. 

Within six months, 782 FPOs have been onboarded, creating a potential clientele that Samunnati caters to. This elevation and impact have the potential to integrate these FPOs into regular products or connect them with other lenders, further solidifying their status as lendable business entities. 

Success Stories of Sam IPL 

Baliharchandi FPC, incorporated in August 2020, stands as a testament to the transformative power of IPLs. In a short span, the FPO has doubled its member base from 252 in Nov 21 to 519 in Jan 2022. Primarily engaged in input sales and output aggregation for crops like Coconut, Cashew nuts, and Casuarina, Baliharchandi has become a beacon of success. Multiple lenders, including Nabkisan and Shriram Transport Finance, have supported this nascent FPO. 

The IPL played a pivotal role in Baliharchandi’s remarkable 615% increase in turnover within two years of inception. Notably, the FPO’s engagement in output procurement, particularly high-value crops, has been a driving force. The increased sanction limits, nearly tripling from the initial level, signify the FPO’s expanding financial capabilities. 

Baliharchandi’s success extends beyond financial metrics. Through Sam IPL, the FPO has embraced community empowerment, gender equity, and environmental stewardship. Activities such as the promotion of Rainfed Agriculture and engagement with Farmers Clubs showcase a holistic approach to development. 

For Damoh Mahila Kisan Producer Company Limited, an all-women FPO in Madhya Pradesh, Sam IPL has been instrumental in overcoming financial as well as cultural barriers. With nearly 80% of women actively participating, this nascent FPC has received INR 1.5 million from Nabkisan. The FPO’s focus on output procurement of commodities like Soybean, Gram, Black gram, Pulses, Mustard, and Linseed reflects a commitment to women-led and women-centered market linkages. 

Samunnati’s IPL has not only fueled Damoh Mahila Kisan’s turnover growth but also facilitated increased sanction limits. The FPO’s engagement in providing agri-inputs, coupled with the utilization of SAN and IPL from Samunnati, exemplifies the diverse avenues for growth. 

In a departure from the conventional focus on output procurement, Ambhaji Durga FPC has strategically utilized Sam IPL for input sales and value linkages in procurement. With Samunnati as the sole lender, Ambhaji Durga has secured multiple grants from various sources, including the Department of Agriculture and Farmer Welfare, Sub-Mission on Agricultural Mechanization, and the Government of Karnataka. 

The FPO’s engagement in capacity building, including crop POP training and practical knowledge dissemination, underscores the multifaceted benefits of IPLs beyond financial considerations. Ambhaji Durga’s approach exemplifies how IPLs can be tailored to meet the unique needs of FPOs engaged in diverse agricultural activities. 

For mature FPOs like Vijaymata, Sam IPL has been a cornerstone for exponential growth. With Samunnati as the first lender, this FPC has multiplied its membership and engagement threefold within just two years. The FPO’s turnover, consistently increasing and reaching 50 times the initial sanctions, showcases the enduring impact of IPLs. 

Vijaymata’s primary business engagements, including input sales, output aggregation, crop advisory, and value additions, have created significant tie-ups with major players in the agricultural sector, such as Coramandel, OLAM, and Syngenta. Alongside IPL, Samunnati’s advisory services have further enhanced the FPO’s capabilities, providing timely advice on Coconut production via the Department of Horticulture and fostering collaborations with progressive farmers. Moreover, training Programs were conducted for 15 groups of farmers by Samunnati with the support of the Department of Horticulture and Krishi Vigyan Kendra (KVK) on cultivation practices of coconut. 

Similar to Vijaymata, a mature FPC since 2015, Jan Nayak FPCL of Bihar has strategically leveraged IPLs in conjunction with multiple financial products of Samunnati, such as SAN, SAFAL, SBI Co-Lending, PayCard, and STL. Due to excellent repayment and governance, the FPO has witnessed substantial turnover growth and increased sanction limits. 

Jan Nayak FPCL’s diverse revenue streams, including agri-input supplies, procurement, and sale of paddy, turmeric, wheat, and vegetables, showcase the versatility of IPLs in supporting varied business models. The FPO’s engagement in capacity building and market linkages further exemplifies how IPLs contribute to holistic development. 

By helping these mature FPCs Sam IPL not only addresses the immediate financial needs of FPOs but also plays a crucial role in fostering trust and catalysing their growth by capacity building, owning streams, and offering multiple services to their member farmers. With access to timely credit, FPOs can confidently serve their farmer members and expand their operations. This trust-building process extends beyond existing members and encourages non-members to join FPOs, further strengthening their collective impact. 

The success stories outlined herein showcase a paradigm shift in how FPOs approach financial matters. Sam IPL not only provides immediate financial solutions but also acts as a catalyst for a broader behavioral change. FPOs are embracing financial tools more strategically, diversifying their engagements, and fostering a culture of responsible borrowing and lending. This behavioral change is not confined to financial transactions but permeates the entire fabric of FPOs, influencing decision-making and fostering a sense of financial prudence. 

The transformative impact of Sam IPL goes beyond the financial realm; it extends to the very core of how FPOs perceive and navigate the world of credit. It signals a shift towards a future where farmers are not just beneficiaries of financial products but active participants in their economic destinies. The journey of Sam IPL is a journey of empowerment, trust-building, and sustainable growth—a journey that leaves an indelible mark on the fabric of Indian agriculture.