About Author: Prabhat Chaturvedi has over two decades of diverse experience in the financial services sector and has held key management positions at leading global financial institutions. Under his strong leadership, NAFA is witnessing rapid progress to become one of the prestigious NBFC offering customized financial solutions to the entire value chain of the smart irrigation system in India. Having strong roots in finance & planning, strategy building, and analytical strengths, Prabhat has managed to achieve significant milestones across his professional journey.
Agriculture is a dominant sector of the Indian economy, with approximately 85 percent of farm holdings being less than 2 ha in size, still producing sufficient food and fiber for our large population of 1.41 billion. In addition, it generates some net export surplus. It would not have been possible without a massive credit infusion to farmers. Access to adequate, timely, low-cost credit from institutional sources is essential, especially for small and marginal farmers.
The policymakers have initiated several measures to improve the accessibility of farmers to institutional sources of credit. These policies have emphasized progressive institutionalization for providing timely and adequate credit support to all farmers. Thus, focusing on enabling small and marginal farmers to improve agricultural practices.
Even though the country has taken some proactive steps in heralding reforms in agri-credit to provide financial assistance to the farmer community, it is still behind compared to some neighboring nations. While the volume of credit has improved over the decades, its quality and impact on agriculture have only weakened. Agriculture requires substantial capital commitment, as procurement of equipment remains a significant spend for most farmers. Still, most agricultural credit extended to farmers is of a working capital nature, thus stagnating more than 80 percent of farmers’ income.
Current scenario
The analysis of Indian credit demand suggests that even though the banks and other financial institutions are aggressively increasing their reach to the farmer community under priority sector lending, the penetration continues to be low. In this scenario, the Non-Banking Finance Companies (NBFC) sector focusing on Agriculture mechanization has scripted a remarkable success story. It is a testimony to the truly diverse and entrepreneurial spirit of India. From large Agri infrastructure financing to small farmers’ microfinance, these NBFCs have innovated over time and found ways to address the debt requirements of the farmer community as a whole. Over time, agri-focused NBFCs & Fintechs have evolved to be well regulated and, in many instances, adopted best practices in technology, innovation, risk management, and governance. Thus, act as conduits and have furthered the Government’s agenda on financial inclusion.
The agri-focused NBFCs & Fintechs can meet the long-term credit needs of the farmers as most of them have high penetration in rural India, and the bulk of their credit disbursements are focused only on small and marginal farmers. Public domain data suggests that only 30 percent of total small and marginal farmers have access to banks and other formal credit channels. Some of the issues faced by banks in providing credit to the farmers are difficulty in reaching far-flung and remote areas and lack of critical technology.
“Public domain data suggests that only 30 percent of total small and marginal farmers have access to banks and other formal credit channels”
