State Bank of India, the country’s largest commercial bank, on Wednesday said it has launched a loan product for the horticulture sector to help farmers avail finance against receivables. At present, SBI has signed the memorandum of understanding (MoU) with Jain Farm Fresh for its farmers, the scheme will gradually be extended to all horticulture farmers associated with an anchor.
Designed for the horticulture industry, SBI will provide finance to farmers who supply their agricultural products to large food processing companies and are reimbursed during a fixed time. To finance them in the intervening period, the bank extends funds based on the receivables. When the food processing company pays, it does directly to the bank to square off the money extended to the farmers.
The scheme is similar to vendor financing that SBI is involved with in the small and medium enterprises (SMEs). The average ticket size of loans is in the Rs 5 lakh to Rs 50 lakh range.
The loan product uses proprietary historical performance data and information from public domain to assess farmer’s eligibility and credit worthiness to sanction the loan, instead of the traditional method of farmers’ assets, land holding and financial history. The loan product will use the corporate’s ecosystem data to digitally enable lending solutions to the customers. Farmers’ past performance data with the associated anchor company will be used to assess eligibility and enable loan sanction.
“We are pioneering the combined potential of the rural economy, disruptive digital innovation, and leveraging the strength of corporate partnerships,” said managing director (national banking group) Rajnish Kumar. “The government is also taking many steps for reviving the farm sector – new crop insurance scheme, promotion of irrigation facilities, Kisan Suvidha app, electronic mandi portal etc. All of these will help revive the agriculture sector and boost our GDP. Our corporate customers will see great value in this programme and will look to strengthen their ecosystem.”
The product is aimed at helping farmers to invest in modern agricultural technologies such as mechanisation, and irrigation for higher productivity, and relies on minimal documentation and liquid assets as security.
“The farmer financing against company’s receivables product is an innovative product. The solution provides quick and easy credit access to farmers, reducing reliance on informal money lending channels,” said SBI chief general manager (rural business) KM Trivedi.
The main feature of the SBI product is that with access to capital, farmers will be able to invest in the upcoming cultivation cycle. The digital process has helped facilitate assessment and the usage of technology has reduced human intervention, especially for a segment that has high costs, longer customer turnaround time and manual processes.
This is part of the SBI plan to strengthen the ‘farm-to-fork’ programme and increase agricultural lending through corporate partnerships. The affiliation and comfort from the anchor company will increase the risk mitigation for loans given to various stakeholders.
SBI also plans to expand the product suite across sectors to offer customised solutions to the corporate players and their associated farmers and vendors. Recently, SBI signed MoUs with NIF Private Limited (Namaste Dairy), PepsiCo India Holdings, Siddhivinayak Agri Processing and Origo Commodities for ecosystem financing in the agri-value chain.
SBI has over 10 million rural customers with a loan book of more than Rs 1.25 lac crore as on March 2016. There is a branch network of around 11,000 rural, semi-urban (RUSU) branches, 20,000 ATMs and around 58,000 business correspondents.