Financing Agri Value Chain

Indian Experience

March 16th 2007

Prajpatye Kasyapya dvya namah.

Sad St medhyatm dv bjshu cha
dhanshu cha. Chandavta h."
Translation:
Salutation to God Prajpati Kasyapa. Agriculture may always
flourish and the Goddess (may reside) in seeds and wealth.
Channdavata he."

Theme
Post Independence Government extended the World War II Grow More Food
Campaign

Credit Reach remains a Huge Challenge, across the value chain

Social Responsibility to Business Opportunity :Changing Perception of Banks

Corporates Taking a huge plunge in offering value adds to the Value chain.

Evolution of Structured Credit

Land Improvement
Loans Actconsolidated Law
intended to
provide
advancement of
Agriculture

Enactment of
Co-operative
Credit
Societies Actto meet short
term credit

1860
1833

Tacavai loans
from the land
revenue collected
(British Govt)

14 Major
Commercial
Banks
,Nationalised

1975

1950
1904

Primary
Agriculture Cooperatives
Societies formed

CRAFICARD
recommends
formations of a
separate Apex
bank for agri
credit:
NABARD

1969

Nov 1979

Regional Rural
Banks (RRB)
formed

Innovative
Financial
Models
targeting
Farmers

1990-2007
Current Status

Micro Finance/
Financial
Inslusion

Institutional StructureAgriculture & Rural Credit in

India
NABARD

SCHD Comm. Banks

( 88)

Co-operative Banks

Short Term Structure

Long Term Structure

SCBs
( 29)

SCARDBs
(19)

Branches
(823)

DCCBs
(367)

Branches
(12407)

PACS
( 92000 Approx)

Branches
(1219)

Metropolitan Branches Metropolitan Branches

(8507)
(6)

Urban Branches
(10006)

PCARDBs
(755)

Regional Rural Banks

(133)

Urban Branches
(348)

Semi-Urban Branches Semi-Urban Branches

(12633)
(1875)

Branches
(689)

Rural Branches
(20449)

Rural Branches
(12084)

Extension services
Providing value adds
Aggregation of
Farmers
Hedging
exposure

Bundling , it along Insurance

with lending

Integrated
Services
Structured
Finance

Farmer

Increasing
exposure
Securitisation,
Portfolio buyouts

Credit Delivery
Channels

Focus on
Cash Flows

Technology

New
delivery
channel

Agency
Tie ups
MFI/SGH/Cooperatives

Commodity Boards
as conduits

Over the years financial institutions are exploring innovative ways

to reach the entire value chain

Customized Products to stakeholders across the

value chain
SEEDS

Lending against
offtake contract

Contract Seed Growers

Term lending/ WC

Seed Company

Contractual
agreement

Lending against stop

sales agreement

Distributor

Preferred
distributors

Short term lending

against liquid collateral

Credit sales

EDIBLE OIL

Dealer
Credit/
forward
contract

Crop loan

Crop loans

Farmer

Farmer
Spot market
price

Village level CA
WR finance
Warehouse
Receipt

Mandi/ Warehouse

Warehouse
Receipt

Wholesaler
Credit

Vendor bill
discounting

Miller

Credit Flow to Agri & allied Activities

Crs
($ Bln)

Agency

1998-99

1999-2000

2000-2001

2001-02

2002-03

2003-04

Cooperative
Banks

15,957.00
(3.59)

18,260.00
(4.10)

20,718.00
(4.66)

23,524.00
(5.29)

RRBs

2,,460.00
(0.55)

3,172.00
(0.71)

4,220.00
(0.95)

4,854.00
(1.09)

6,070.00
(1.36)

7,581.00
(1.70)

Commercial
Banks

18,443.00
(4.14)

24,733.00
(5.56)

27,807.00
(6.25)

33,587.00
(7.55)

39,774.00
(8.94)

52,441.00
(11.78)

1,030.00
(0.23)

82.00
(0.02)

80.00
(0.02)

80.00
(0.02)

47,195.00
(10.61)

52,827.00
(11.87)

62,045.00
(13.94)

69,560.00
(15.63)

Other Agencies
Total

36,860.00
(8.28)

As of Jan 2007

Rs.Crs

USD/ bln

Total O/s Bank

Credit

1,757,497.00

% of
Credit

394.94

Non-food

1,714,396.00

98%

385.26

Food

43,083.00

2%

9.68

Agri & Allied

1,86,533.00

11%

41.92

23,636.00
(5.31)

26,959.00
(6.06)

86,981.00
(19.55)

Expensive Credit
Transaction Cost

Distribution network

Paper work

High Risk Charge

Low technology penetration

To cover the credit risk,

premiums are charged.

Prohibitive
Prohibitive
costs
costs

Low Profitability

Despite the spreads, lending

often remains unviable

Credit delivery platforms

need to be developed to
reach the masses

Legal Issues

In case of default no legal

recourse

Need for viable Credit Delivery Model

 with varied risks

Price
PriceRisk
Risk

Yield
YieldRisk
Risk

Risk
Elements

Crop
Crop Risk
Risk
Liquidity
Liquidity
Constraints
Constraints
Corporate
CorporatePayment
PaymentRisk
Risk
No
NoSale
SaleTrans.
Trans.
by
Farmer
by Farmer

Farmer
FarmerPayment
PaymentRisk
Risk

Diversion
Diversionof
of
Funds
Funds

Non
NonDelivery
Delivery
of
ofCrop
Crop

Need for a Holistic Development Approach

along the Agri Value Chain
Wholesaler
Wholesaler

s
nt
m
r
e
Consumer
fo
m
e
p
R
o
Orientation
g
y
el
r
e
v
c
e
lin
to
n
e
D
a
a
ul
od
Market Linkage
re
er
g
u
v
M
e
i
t
l
c
R
e
ss
D
ru
e
t
it
s
in
a
d
s
r
e
f
Commodity Trading
Bu
In
Cr
e
es
it v
g
a
Agri Infrastructure
va
st
o
n
us
& Logistics
In
o
ri
a
v
Financial
at
ce
Services
n
ra
u
s
Research &
In
Extension
Farmer
linkages
Action steps

Retailer
Retailer

Market
Developme
nt

Processing
Processing

Price
competitiveness

Handling
Handling
&&Mrktg.
Mrktg.

Streamlin
ed supply
chain

Production
Production

The hand that feeds is shrinking, and if it is not

supported any further, it will soon become
extinct