Serving the underserved: How tech-enabled trade finance is helping India’s agri sector
The agricultural sector has been the backbone of India’s economy for years. But, managing the agri sector comes with its share of challenges. Amongst many of them are the hindrances in the supply chain, storage facilities, and financing.
Think of the harvest sector as having two pillars: product and trading, and storage. Both the pillars are interrelated and disequilibrium directly impacts the country’s production, manufacturing, and service sectors.
Moreover, the use of the same old methods of warehousing, distribution, and financing practices deprive the stakeholders of any substantial gain. Reports suggest that with over half of the working population employed in the agriculture sector, their contribution to GDP ranges to just 20 percent.
This gives us an overview of the potential growth if worked with the right strategy and resources. India needs to step up and adopt new-age solutions to pave the way for sustainable financial growth.
Building a more robust ecosystem
For years, the lack of financial support impacted the potential for growth in the agricultural sector. Stakeholders from small and medium-sized enterprises face a shortage of financing opportunities. Trying to satisfy the financial needs, many small-scale farmers, labourers, and distributors usually rely on traditional money lenders who charge hefty interest rates.
There is no official contract in most cases, and the borrowers remain in debt for multiple years. It further impacts the supply chain efficiency as well as trading practices.
Few tech-enabled agri trade finance companies are coming up to fill these gaps. On one level, these trade finance companies ensure a seamless supply chain ecosystem.
On the other hand, the farmers, as well as distributors, are enabled with financial support. These tech-enabled enterprises provide transparency when it comes to the financial aspect of trading.
Emerging trade finance and agri commodities
With the advent of technological transformation, more emerging enterprises in the agritech sector simplify trading by managing the end-to-end supply chain. They have brought in mobile applications that provide transparency of transactions.
As a result, all stakeholders can keep track of transactions, buying and selling of agricultural commodities. Along with this, some trade finance companies are also catering to alternative financial opportunities with off-balance sheet, short-term credit as solutions to serve the SME segment.
It opens the door for financing the agricultural commodities ecosystem by institutional investors. The securitised instruments like PTC or Covered Bonds are backed by physical commodities with a trust or custodian.
As a result, liquidity in the agricultural ecosystem increases. An enhanced capital flow further leads to seamless buying and selling, thereby providing further financial stability to the small and medium enterprises in the agricultural sector.
Given the current state of agriculture, many agritech companies are coming into the picture by providing transparency and seamless management of the complete supply chain, from procurement, storage to financing. It will allow better management of the agricultural infrastructure while improving the economic prospects of the involved stakeholders.
With the emergence of trade financing facilitated by digital platforms and agri-commodities in the capital markets, the sector will benefit from higher liquidity in the coming years.
Edited by Saheli Sen Gupta
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)