How digital technologies can yield economic growth for rural communities

As agriculture transforms in India through technology and digital adoption, the finance sector has a key role to play in enabling economic growth.
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Agritech startups in India have been at the forefront of disrupting the sector and transforming it across all stages of the value chain. This includes blending farm inputs with physical infrastructure for greater price certainty, engaging in predictive analysis to improve yields, enabling farm management and precision agriculture, eliminating inefficiencies in supply change, and helping farm owners access credit and crop insurance.

While the possibilities are ever expanding, the discussion titled ‘Role of tech in accelerating agriculture financing’, co-presented by Cropin, YourStory and Think AG, highlighted how technology has particularly accelerated financial access in the agriculture sector across the agri lending and crop protection value chains.

Moderated by Sujit Janardan Chief Marketing Officer, CropIn, the panel featured domain experts Hemendra Mathur, Partner, Bharat Innovation Fund and Co-founder, ThinkAg; Azad Mishra, Senior Vice President for Rural and Agri-business Group, HDFC Ergo GIC; and Balachandran M K, Head, Rural Retail and Microinsurance, SBI General Insurance.

Evolution of agri fintech

As agriculture transforms in India through technology and digital adoption, the finance sector has a key role to play in enabling economic growth. “Today, an evolving technology landscape is bringing in new possibilities for credit and risk sharing that can expand agricultural productivity,” said Sujit.

With internet adoption increasing in rural India, agriculture is witnessing a sea change in its approach towards crop production and the evolution of its entire value chain. Allied segments like agriculture financing are also a part of this process, with mainstream banks now partnering with agritech startups in building models for innovative financing to farmers and value chains. ThinkAg’s Hemendra said, “I think it's a mega shift, as most of these banks have been following conventional Priority Sector Lending (PSL) lending framework. But what has changed in the last 18 months is their openness to work with startups. So, I think that is, first and foremost, I would say a game changer as far as the evolution of agri fintech is concerned.”

Among other trends that Hemendra foresees in the agri fintech space is the productisation of fintech solutions and asset financing. He said, “Productisation is a result of a lot of data available to credit score a farm. The segment will see multiple players like credit rating agencies and become more mature in future. Another change will be seen in working capital financing to farmers for agri input purchase, invoice discounting and asset financing, which I think has a huge potential.”

Transactional costs of lending and insuring is another aspect that technology will iron out in future. Five years back, documentation, claims, verification were a physical process, which was time consuming and cumbersome. However, with agritech startups entering the space, the system is more agile now. “Most of the agri tech startups have a presence on the ground who collect various data points for market linkage, farmer advisory, etc. This can then double up for risk assessment. Banks and startups can also decide on additional data points, which can also be captured for the future,” said Hemendra. The use of satellite imagery to capture harvest data to build risk monitoring, strong market linkages through institutional buyers, are some other changes in the future, he added.

The rise of public-private partnerships (PPP)

The push from the Union Budget 2022 on PPP will also become a bridge for the government, farming communities, and private sector to build intelligent and smart solutions for the future. “I foresee the role of private sector players, especially companies which are in the warehousing space, which is currently primarily under the public sector, to be optimised better. Digitisation through the private sector involvement will help farmers access loans against commodities, as this will cut down on physical audits of stocks,” said Hemendra.

“The PPP model will also make open source data more accessible, which can then come under the ambit of artificial intelligence, machine learning, and blockchain under the proposed AgriStack database, for building solutions. The PPP model can be a game changer for the sector, in such cases,” he added.

Data-driven and agile farm insurance

One of the most effective ways to tackle agricultural risks is to have a robust insurance system. In spite of the public crop insurance program since 1972, the sector has been plagued by issues like lack of transparency, inefficient crop cutting experiments, delayed claims payments to farmers, among others. However, the Pradhan Mantri Fasal Bima Yojna (PMFBY) launched in 2016 has opened up avenues for private players to grow their rural portfolio and help in acquiring new customer base, so that crop insurance is available to every single small and medium farmer in India.

“When we talk about rural and agricultural insurance, I feel that the product should be simple, affordable, and there should be an important aspect of servicing. The service that I am highlighting here is claims. Claims lack transparency. And it is here that new-age technology needs to play a role for insurance players. The government is giving more thrust on satellite-based claim settlement process as well as field-based calculations for foreclaims settlement to bring in transparency and faster data transfer,” said SBI’s Balachandran.

Added to this are other market needs for insurance such as cattle and livestock insurance, home and health insurance, among others. According to Bala, technology has already been a disruptor in how insurance is being offered now. “Cattle insurance is offered through a mobile-based solution. Claim settlements also happen over a mobile app. This has reduced the turnaround time for claim settlements, which is the value addition that has come in. Similarly, today WhatsApp is used for policy issuance. These technological disruptions are bridging the gap of insurance penetration in the rural areas,” he added.

PMFBY has a comprehensive crop insurance scheme, said Azad. “Prior to the PMFBY, farmer declarations used to be in physical formats and the entire process of booking was manual. Now, the farmer's enrollment is done in the national portal which provides an end-to-end digital platform to banks, agents, brokers, customer claims centers, and individual farmers,” he noted.

There has also been an increase in localised intimation under the new insurance schemes, along with remote sensing for crop estimation, study of flood maps, crop health monitoring which has helped in risk assessments. “Technologies like ML and AI have really made scheme implementations so seamlessly,” he added.

Becoming future forward with risk assessment

As climate plays a very important role in cropping patterns across India's diverse geography, financial institutions are also tailor-making their services based on weather station information and geo-tagged images to make claim settlements seamless.

“For restructured weather-based provisional schemes which are majorly implemented for horticulture crops in Maharashtra, UP, Rajasthan and Karnataka, states are developing location-specific schemes in consultation with agriculture and horticulture scientists and technical experts. Most of these offerings are customised at a zonal or district level, depending on the climate condition,” said Azad.

Besides this, insurance is also being looked at, as a value-added service to farmers through agritechs. “The biggest advantage from an insurance perspective is the captive customer base that is available. Farmers are registered on these platforms for multiple services like weather advisory, farm practices, and better yield. For insurance companies, agritech platforms are a new distribution mechanism to reach out to farmers and for farmers. As per Insurance Regulatory and Development Authority of India (IRDA) regulations, the tech partners should eventually become an agent to source insurance, which can be a value-added service,’ said Bala.

Technology partners

Adapting to the change in the marketplace is really critical to the effectiveness of financial services markets, with new risks and data that needs to be ingested everyday. AWS, which is partnering with startups like Cropin, are helping to modernise, innovate, and transform financial inclusion for the agriculture sector.

“We know that many of our customers, especially when we're thinking about the complexity of the agricultural supply chain, require first-party data to be enriched with third-party data and make that data move easily in order to assess potential risk or potential upside in the market. We also know that there are expectations for that data to move quickly and for credit risk decisions and loan extensions to be in increasingly real-time manner. We want to be sensitive to the ways in which data can move rapidly, and that we can ensure we are being risk tolerant, where necessary and risk averse, where it's important for our food supply,” said Dr Karen Hildebrand, Worldwide head of Solutions Architecture, Agriculture, AWS.

“Agritech is poised for a revolution and the focus is to offer solutions across the entire value chain. Tech platforms becoming intermediaries will definitely help the problem and the end goal remains to make it easier for the end users to sign up for these services. Players like Cropin and others are trying to work with insurance providers, partners like AWS, and the government to collaborate and bring solutions to market that help us solve some of these real-world problems on ground,” said Sujith, rounding off the discussion.


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