How many lifetimes does it take ?
How many lifetimes does it take – for a farmer to become financially independent?
The earliest known rice cultivation was around 5,700 BC, though about 2 billion people still depended on subsistence agriculture. In India alone we have around 160 – 180 million active farmers around 85% of them are marginal farmers having less than 3 acres.
There are hundreds of issues farmers face on a daily basis having multiple variable factors affecting the yield. Among them one of the most unrealistic problems that they face is CREDIT!
Traditional underwriting criteria of banks or lending agencies can never qualify farming as a business, prominent reasons can be – farming is seasonal, farmers prefer cash transactions over the digital transaction and much more… Over and above some of the loan waiver schemes have probably pushed farmers to default on their loans expecting for a waiver!
In 2017, at least four states Uttar Pradesh, Maharashtra, Punjab and Karnataka, announced farmer loan waivers, with an estimated cost of about US$13.6 billion. Experts project that if the loan waivers are implemented nationally, will cost about 2–2.6% of GDP (US$40–50 billion). The RBI opposes loan waivers. The waivers hurt India’s public sector banks which are already under stress.
Many farmers in other states have stopped paying loans and are withdrawing deposits from banks in anticipation of waivers. In some states, the default rate has increased to 50% – 60%.
While the default rates are increasing farmer’s credit score is taking a major hit making them not eligible for any other loans from formal banking – which is pushing them to borrow from local money lenders and other financial institutes charging a much higher rate of interest.
One of my personal experiences was when a farmer who fell in this trap borrowed 20 thousand rupees from a local lender at a 40% interest rate and ended up selling his land after a couple of year to the same money lender.
Does this mean that farmers are very bad borrowers ?
Definitely not! Similarly, if you see the same farmers who are borrowing from SHG and other trusts are paying on time and there are consistent records of up to 98% of full repayment. Notably when women are leading these groups consistently 100% repayment has been recorded.
What is that government or banks waiting for ?
The entire underwriting criteria for farmers have to change considering variable factors and the repayment schedules have to be accordingly addressed. If we keep asking for a farmer for a formal credit score and expect that farmer would have excellent scores just like any salary-earning individual it will be too late and we all would be pushing farmers indirectly into a debt trap – eventually losing interest in farming!
What at AgriFi we are doing to address the problem?
At AgriFi we are building the world’s first “FARMER CREDIT SCORE (FCS)” – this is an alternative score for existing formal credit scores. We are using many alternative datasets to rate a farmer and his/her intention to repay or ability to repay. Of many, we can name some of them as Psychometric Analysis, Remote Sensing, Price Prediction etc…
Along with this our mobile application Krishi Khata is the one-stop solution for both Agri knowledge and credit requirements – in turn, usage of the app itself can throw a lot of interesting insights about the farmer which can further aid in finetuning FCS.
Can AgriFi credit score ever become mainstream scoring for farmers?
Probably not, The existing/formal credit score is evolution over decades to arrive at the current stage, however, we believe down the line few years AgriFi’s FCS can contribute up to 80% of the decision-making of the banks and financial institutes to qualify the farmer’s eligibility for the loans. If not directly AgriFi score can immediately help as an alternative score for farmers, to get loans for farmers who have no credit score/borderline scores.
We believe with these efforts farmers can create an effective digital profile of themselves making themselves eligible for formal credit.
So far with our current partnerships, we have been able to lend around 200K USD as loans to farmers with sharp spiked projections in the coming months.
Are you interested in knowing more about AgriFi?
I would be very happy to schedule a call and discuss this. Kindly drop me a mail or schedule a 30 min call using the coordinates below.
raghu@agrifi.in or https://calendly.com/raghuchandra/30min
Thanks
Raghuchandra K R
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