How Banks Can Use Agritech Startups To Better Financial Inclusion Of Rural India
Agriculture Non-Performing Assets (NPAs) account for only 8.3% of the total banking NPA in India, however an alarming trend has been emerging. According to the Reserve Bank of India, Agriculture NPA has increased 242.74% in 5 years from Rs 24,800 crore in 2012 to Rs 60,200 crore in 2017.
Studies have found that most farmers do not intentionally default on loans. Farmers are unable to payback loans as most have negative incomes. They are then forced resort to exploitative loans from non-institutional sources to repay banks, which creates a vicious cycle of debt in which the farmers and their families are trapped for generations. Thus, the solution to NPA is not listing and shaming farmers as defaulters, but looking for innovate technology solutions.
Agritech startups can not only help banks reduce NPA, but also optimize their business functions like credit lead generation, farmer credit rating, expansion of coverage of institutionalised credit to small and marginal farmers along with value added services, SaaS and technological integration.
Information Services using IVRS
To deal with poor credit leads, financial institutions can engage agritech startups with ICT-based interactive voice response system (IVRS). The platform can help generate reliable leads based on credit demands raised directly by farmers during the IVRS calls. This platform can also be used by banks to give farmers timely reminders about their outstanding loan amounts and payment dates. Also financial institutions can use the system to monitor if farmers are using the loans for their intended purpose or redirecting it based on the input of the farmers during calls, thus identifying potential defaulters. Banks can offer agro-advisory to farmers as a value-added service for timely payment of loans.
Image Processing & Data Analytics
Agtech startups have been heavily investing in the research and development for image processing using machine learning. Using satellite image processing, financial institutions can monitor the health of a loanee farmer’s crop and provide them remedial advise through the IVRS. When farmers have a successful crop their credit history would also improve. Financial institutions can get farm-level insights to optimise their credit coverage based on data-backed market reports.
Software for Poor Network Areas
Agritech startups can also develop softwares to improve banking services in poor network areas with innovations that on-board rural branches into the core banking system (CBS).
Single-Point Loan Application
FarmGuide is developing a solution whereby once a farmer seeks a loan, they would not have to run from bank to bank. We have developed an algorithm that creates the farmer credit rating based on combination of several factors like farm size, financial discipline, cropping pattern, and irrigation status. Once rural banks adopt this system, the farmer would simply have to visit the village common service centre with the proofs for the loan and fill a single loan application form. The common service centre staff will collect the processing fee based on the number of banks that the farmer wants to apply for the loan. The completed form is uploaded to the selected bank’s CBS, where it is approved or rejected by the authorised personnel based on the farmers credit rating.
Our design architecture would speed up delivery of financial services, unify fragmented databases, achieve single view of all banking information, and eliminate manual processes.
Our system will enable peer to peer lending, central loan application, farmer credit score, and wider coverage of agriculture insurance scheme which mitigates farm income risk thus ensuring farmers do not default on loans. Financial institutions should invest in innovative agritech startups and take advantage of their innovative solutions to ensure that rural India is financially secure.
