How FarmGuide Can Fill the Gap of Lack of Credit Rating in Agriculture
A recent study by the Reserve Bank of India disclosed that rural India still depends heavily on informal credit markets (ICMs) for about 70% of its credit needs. This market is not as transparent, sincere or organized as the formal or institutionalized sector.
The interest rates charged in the informal markets are sometimes over 30% and the stakes of loss for the farmer much higher and much less discrete. With almost 60% of the Indian population directly or indirectly involved in agriculture, this is a huge portion of opportunity lost both for the formal credit market and the farmer.
How is deprivation from organized lending hurting the farmer?
A. The farmer pays a higher cost of borrowing, more than double the interest rate of the institutionalized sector.
B. A higher cost of borrowing necessitates that a large part of the farmer’s earnings are used to repay the loan interest and never the principal and he is still the starving poor farmer.
C. Farmer is always caught in the devious debt-trap.
D. He mortgages unreasonably and immeasurably and is thereby exploited.
E. If the farmer wishes to augment his earnings by adding to his current means of income with additional farming equipment or poultry farming, he invariably cannot again because of high cost of borrowing.
F. There is no systematic repayment system and no intimation, alerts thereof either.
How is informal lending hurting the organized lender?
A. First and foremost, banks and financial institutions are losing out on a huge customer base
B. They do not even have a foothold in some of these markets
C. There is no data on the prospects of these farmers
Great spender or bad lender — what’s your CIBIL Score?
Last year I was house hunting and when I found the perfect apartment within my budget, I found that there was one more contender for that property and I could do nothing but cross my fingers. And then I was pleasantly surprised when I was offered the first right to accept or reject the property because I had a better CIBIL score.
I had a car loan and personal loan before I had applied for the home loan and I had been diligently paying it and hence had a respectable record. A farmer does not have that privilege, for small scale farmers one inhibiting factor is the lack of access to adequate bank credit because he needs a specific credit rating.
I had presented the bank my 6-month bank statements, a farmer does not have such transactional data that will assess his ability to repay a loan or even his eligibility of it. It’s a catch-22 situation, ‘don’t have’ and so ‘can’t have’.
FarmGuide’s satellite data asserts to change the status quo
Since the behaviour of the rural user is different from an urban user, it warrants special treatment. As such, there is a variety of different data points that will define the credit rating of the farmer. Through geospatial tagging, the performance of the farm can be assessed by farm coordinates like crop sown, irrigation probability, harvest period.
Likewise, non-performing assets are evaluated by the forecast of crop failure or infestation or bad weather. These parameters draw the prospectus completing the dossier for the bank’s loan approval criteria. For farmers, if they have been repaying in time, their rating could also improve making them illegible for an increased loan amount.
However, no such thing exists for farmers. This class of society that most need monetary help is bereft of it for want of all the documents and parameters that would help them qualify for the loan.
Kisan Credit Card is only one option
Kisan Credit Card (KCC) was launched in 1998 by the Reserve Bank of India and NABARD to enable farmers to have quick and timely access to affordable credit and to reduce farmer dependence on the informal banking sector for credit which sucks them into a debt spiral. It is offered by cooperative banks, regional rural banks and public sector banks.
But did KCC address the issues facing the farmer or the government when the bad debts exerted mounting pressure on the economy?
Besides farmers can use them for the purchase of seeds, fertilizers and pesticides, besides production needs, but in many cases, this doesn’t happen and farmers use them for raising money to take care of family weddings and medical needs.
FarmGuide’s alternative rating factors could be the best bet
Alternative credit rating parameters that help the farmer strengthen their case to procure a loan, also helps the banks to divest one and supervise it. Satellite imaging helps the loaner get veritable feedback periodically.
Besides FarmGuide’s Image Labs provision of providing all this data to you, they have the info services option of getting multipoint data through their IVRS facility which collects secondary data like the number of cattle a farmer has or his supplementary sources of income like fisheries.
Agri-tech companies can be the answer that could modernize the way business is done in this country and starting yesterday wouldn’t be too soon.
