Access to financial services is a fundamental necessity for farmers in India. It extends far beyond the realm of securing working capital; it encompasses building assets, mitigating risks, and fostering overall growth. 

However, the current scenario in India paints a stark reality: the credit-to-GDP ratio in the agricultural sector significantly lags behind other sectors. Despite the implementation of various government schemes, an alarming 40-45% of farm households still lack access to credit. This pervasive financial exclusion has acted as a substantial impediment to the sector’s development, particularly affecting small and marginal farmers, who bear the brunt of this predicament. Samunnati was founded against this backdrop with a vision of ‘making markets work for smallholder farmers. 

FPOs as a ray of hope 

Samunnati’s strong belief is that collectivization is the only way to transform Indian agri and to positively impact the livelihood of small and marginal farmers. Building a resilient FPO ecosystem is vital to achieving the objectives of collectivization by making them the conduit to underserved sections of society. They provide a means of consolidation, allowing farmers to overcome the scale limitations and in addition enable reachability of efforts by Government and Institutions to the underserved. 

Technology as an enabler for Inclusion 

Financial inclusion in a country of the scale of India presents a unique set of complexities that can be overcome only by the application of technology. Lack of credit history, challenges in assessing creditworthiness and the perceived risk of defaults in a pen-and-paper world have traditionally deterred financial institutions from extending their services to this segment. These obstacles have further deepened the financial exclusion that plagues the agricultural sector. It is in this context a marriage of technological innovation and financial expertise, designed to surmount these formidable hurdles becomes indispensable. With 9 years of deep expertise and connection with over 5500 FPOs on our tech platform FPO Gateway, Samunnati uses tech and data as a twin engine to surmount these hurdles. 

Building a New Asset Class 

One of the key advantages of this convergence is the rich trove of data that it generates. Fintech platforms are instrumental in collecting and analysing data related to agricultural practices, market trends, and individual farmer profiles. This leads to customising financial and non-financial solutions to address their business challenges rather than just offering loans. As an example, Samunnati’s IPL(Instant Pre-approved Loan) is a small ticket loan product that helps FPOs in the early stage of their life cycle to avail quick working capital assistance and build their financial acumen and credit history. IPL since launch has brought in thousands of FPOs into the credit fold thereby building them as an asset class for other lenders. 

Intelligence-driven Assessment & Process Efficiency 

Blockchain and AI offer opportunities to further revolutionise financial access by introducing cutting-edge solutions in the core areas of operations like risk assessment, financial management, etc., all tailor-made for the agricultural domain. Samunnati is the first to embrace these developments and provide a transformative bridge between financial institutions and the often underserved small farmers. 

With an AI-powered credit modelling platform, Samunnati will be able to develop high-accuracy custom credit models on demand, enabling them to scale our agri and MSME supply chain financing business with reduced risk. We will also be able to process new applications instantly, resulting in improved efficiency and greater agility in operations. 

Another tangible benefit is the significant reduction in transaction costs. The use of such cutting-edge technology minimises the need for physical infrastructure paperwork, and faster TAT resulting in substantial cost savings for financial institutions. These savings can then be passed on to farmers in the form of lower interest rates and reduced fees, making financial services more affordable and accessible. 

Extending the reach of ‘Inclusion’  

Crucially, this transformation needs to reach the remotest areas of India’s vast agricultural expanse. Historically, rural and remote regions faced the brunt of financial exclusion, with limited access to banking and financial services. Farmers in even the most remote villages can now access banking services, apply for loans, and engage in digital payments, levelling the financial playing field and ensuring that the benefits of financial inclusion are truly inclusive. Samunnati in an effort to achieve the above-mentioned has collaborated with a 3rd party to bring digital solutions to the FPO premises that make financial services available to everyone, everywhere. With a meagre investment and a few minutes of training, this solution makes an FPO into a bankless branch, that can accept and make payments with or without a debit card, through a pocket-sized micro ATM, authenticated by a finger-sized biometric pad.  

Additionally, FPO members and non-members can walk in to open bank accounts, buy insurance, travel, book hotels, shop online, and apply for loans. Furthermore, it provides an additional revenue source to FPOs via fee income on Gross Transaction Value (GTV) from 0.10% to 7% of GTV.  

Extending Affordable Finance to Last Mile 

At the heart of financial inclusion lies the access to affordable financial resources necessary for FPOs to expand their operations, stimulate productivity, and embark on new and innovative initiatives. It’s akin to providing the fuel needed to propel their growth trajectory. With the ability to secure funding at reasonable rates, FPOs are no longer hamstrung by financial constraints; instead, they have the financial wherewithal to explore new horizons and push the boundaries of their agricultural enterprises. 

Despite persistent and commendable efforts by both the Government of India and the Reserve Bank of India (RBI) to foster financial inclusion, challenges persist in extending access to financial products to the grassroots of society. The government, in addition, has mandated PSU Financial Institutions to make affordable finance available to the underserved through various PSL initiatives. However, these institutions often find themselves constrained when it comes to allocating the necessary resources to reach the furthest corners of the nation. Underwriting loan applications, processing loans, and managing repayments in these remote areas are demanding tasks that require substantial infrastructure and manpower, which many traditional banks find difficult to provide.  

Conversely, Samunnati over the last 9 years has built a large network and the technical capabilities to venture into the hinterland. We have the potential to reach the last mile and connect with historically underserved agri sections by traditional banking institutions. Collaboration among financial institutions is not just a strategic choice; it has become imperative in the quest to address India’s financial inclusion challenge.  

The Government’s introduction of co-lending programs, facilitating partnerships between traditional banks and agile Non-Banking Financial Companies (NBFCs), represents a promising stride in the right direction. Samunnati is among the pioneers to forge co-lending relationships to tap into the PSL mandate of PSU banks to extend the reach of affordable credit. This is a double-win collaboration for these institutions who ride on Samunnati’s network to reach and deliver on their PSL mandate, while the FPOs on the other hand get access to affordable credit. These collaborative models have already demonstrated their potential to yield significant results. Samunnati’s co-lending partnership aimed at issuing low-cost loans to FPOs succeeded in decreasing the lending base rate by 300 basis points. This marked reduction in interest rates was warmly received by FPOs, and it is evident in the considerable growth potential of their portfolio within this domain. 

Protection & Risk Mitigation 

The significance of financial inclusion has to go beyond liquidity need fulfilment. It has to be a robust shield guarding FPOs against the inherent risks embedded in agriculture. The agricultural sector is characterised by its unpredictability, subject to uncertainties, market fluctuations, and natural disasters. By effectively managing these risks and securing insurance coverage, FPOs reinforce their stability and resilience. They are better equipped to weather the storm during challenging times and continue their mission of promoting sustainable agriculture. Samunnati through capacity building programs evangelises the importance of crop insurance for members to mitigate risks of the climate vagaries and also as an additional revenue stream as an insurance distributor. In addition, Samunnati has curated one of its kind insurance plans called Annadata Suraksha which protects a farmer in unfortunate cases of occupational accidents and snake bites, etc., which are very common. 

A Comprehensive Approach that Includes ‘Inclusion’ 

Samunnati’s belief is that for FPOs to truly thrive and serve as effective catalysts for financial inclusion in India’s agricultural sector, a comprehensive value chain approach is paramount. This should encompass critical aspects beyond liquidity infusion in areas like infrastructure development, capacity building, and the establishment of vital market connections. We have evolved a comprehensive AMLA model(Aggregation – Market Linkage – Advisory) to address the challenges of the FPOs and smallholder farmers in its totality. Through Samunnati Foundation we deliver this multi-pronged approach that holds the potential to reshape the financial landscape for the sector dominated by small and marginal farmers. 

One of the primary ways in which this support manifests is through comprehensive training programs by organisations such as Samunnati. These programs are carefully designed to equip FPOs with a diverse set of essential business skills. FPOs often operate in complex and dynamic agricultural markets, and acquiring the necessary business acumen is vital for their success. These training programs cover a wide spectrum of topics, ranging from financial management and business planning to marketing strategies and value chain analysis. By imparting these skills, financial institutions and development organisations empower FPOs to make informed decisions, navigate market challenges, and seize opportunities with confidence. 

In addition to training programs, workshops conducted by Samunnati play a pivotal role in the growth of FPOs. These workshops provide a platform for knowledge sharing, peer learning, and the exchange of best practices. They serve as forums where FPOs can gain insights from successful models, learn from the experiences of their peers, and adapt proven strategies to their unique contexts.  

Moreover, via Samunnati’s mentorship initiatives, experienced professionals guide FPOs in developing effective governance structures. Governance is the backbone of any successful organisation, and for FPOs, it is critical to ensure transparency, accountability, and efficient decision-making. Mentors provide valuable guidance on governance practices, helping FPOs establish robust systems that can withstand the test of time. 

Financial literacy is a key component of this support framework. FPOs often need to navigate complex financial landscapes, including managing loans, investments, and financial reporting. Institutions such as Samunnati, financial institutions, and development organisations work diligently to enhance the financial literacy of FPO members.  

Effective marketing strategies are yet another realm where support is invaluable. Samunnati, for instance, assists FPOs in devising and executing marketing strategies that are tailored to the unique characteristics of their agricultural produce. This includes market research, branding, and reaching out to potential buyers. By honing their marketing prowess, FPOs can unlock greater market access and achieve better price realisation for their products. 

Paving the Way for India’s Agricultural Prosperity 

In a nation as diverse and vibrant as India, the growth of the agricultural sector is intertwined with the nation’s overall prosperity. The challenges faced by small and marginal farmers, who form the backbone of this sector, are deeply rooted and multifaceted. Financial inclusion, or rather the lack thereof, has acted as a significant hurdle on their path to progress. 

The 20th Global Inclusive Finance Summit stands as a testament to the gravity of these issues within the financial landscape. It assumes a pivotal role in the financial world, serving as a crucible for transformation. This summit transcends mere gatherings; it is a milestone in the journey toward true financial inclusion. It provides a platform where the collective wisdom, determination, and innovation of diverse stakeholders converge. 

 India’s growth narrative is intricately linked to the empowerment of its agricultural sector, and addressing these grassroots challenges is paramount. Only by working together, sharing knowledge, and forging innovative solutions can we surmount the obstacles that hinder the financial inclusion of small and marginal farmers. This summit sets the stage for a financial future that embraces all segments of society and fosters sustainable and equitable growth for everyone.