Tech-enabled innovation has become crucial for sustainable growth and efficiency in the agricultural landscape. India’s agritech sector is booming with startups building innovative solutions to revolutionise agriculture.

However, the journey from ideation to implementation requires substantial financial backing. This is where Agricultural Non-Banking Financial Companies (Agri NBFCs) come into play serving as integral enablers for these ventures.

Agricultural Financing Landscape 

Agritech startups have unique business models focused on increasing productivity, efficiency, and transparency across the agricultural value chain. India’s agritech sector is projected to grow to $24 Bn by 2025. However, their innovative solutions come with execution risks that make banks and other institutional lenders hesitant.

Agri NBFCs are strategically filling this financing gap. Their specialised sectoral expertise allows for more customised risk evaluation and products like revenue-based financing. 

By understanding the unique challenges faced by startups, these financial entities are becoming strategic partners in the growth journey of agritech ventures. NBFCs ability to offer quick and flexible financial solutions allows startups to focus on research, development, and implementation rather than being bogged down by financial constraints.

Employing Risk Mitigation Strategies

Over 1300 agriculture startups In India are actively using artificial intelligence (AI), machine learning (ML), the Internet of Things (IoT), and other technologies to boost efficiency and productivity in the sector. By their very nature, agritech startups carry significant business risks given their exposure to agri value chain disruptions. 

Managing risks across such a fragmented landscape requires localised knowledge and tailored solutions. Agri NBFCs mitigate these risks through calibrated capital infusion aligned with milestones, extensive due diligence of promoter credentials, and deep sectoral knowledge to identify viable business models. Revenue-based financing models with variable repayments as per cashflows also ensure risk sharing. 

The regulatory push for priority sector lending is also expanding the role of Agri NBFCs. Still nascent, the agritech financing space offers immense potential for growth and impact.

Empowering Farmers Through Simplified Financing

With approximately 70% of small and marginal farmers deprived of formal credit, digital lending can transform access. Agri startups, in collaboration with Agri NBFCs, are playing a crucial role in empowering farmers. 

By establishing digitised systems and ensuring a hassle-free application and approval process, these initiatives simplify access to loans for farmers. This not only fosters financial inclusion but also contributes to the adoption of sustainable agricultural practices. 

Easy access to funds can be used for machinery and equipment, cutting-edge irrigation techniques, and other elements of the agricultural value chain. Farmers can invest in modern technologies and practices that enhance productivity, reduce environmental impact, and improve overall livelihoods.

Using alternative credit evaluation models based on agricultural cash flows and digital data, digital lending platforms by NBFCs are providing faster approval and disbursal. This tech integration not only enhances the efficiency of loan disbursals but also facilitates a more accurate evaluation of risk, enabling Agri NBFCs to make informed lending decisions. 

This in turn, makes obtaining funds easier for farmers, especially for those deprived of institutional credit. It delivers significant socio-economic benefits while advancing financial inclusion.

The operations of Agri NBFCs and their role in fostering innovation are greatly shaped by the regulatory environment. India’s Budget 2022-23 includes measures to support ‘digital agriculture,’ and there are plans to introduce a fund with blended capital aimed at financing startups in agriculture and rural enterprises, particularly those emphasising the farm-produce value chain. This initiative is expected to open up favorable financing options for agritech ventures.

The Road Ahead

The future of agritech financing is poised for significant transformations. Agri NBFCs are expected to witness substantial growth as more startups enter the space. Emerging financial models, such as revenue-based financing and impact investing, are likely to gain prominence. Additionally, advancements in financial technology will continue to shape the landscape, making financing more accessible and efficient for agritech startups.

Technology integration through digital platforms and big data analytics will continue reshaping the agricultural financing landscape making credit accessible to all stakeholders, especially farmers. With the growing convergence of agritech and financing, data-based credit evaluation models can expand financial inclusion for Indian farmers in the coming years. 

Dhanashree Mandhani, founder and CEO of Salam Kisan