An Ecosystem Approach To Financial Inclusion For India’s Smallest Farmers

In emerging markets, expanding access to financial services for small- to medium-sized businesses (SMBs) is imperative to promoting wider economic growth.

FinTech has made significant strides in promoting financial inclusion for SMBs in need of access to capital and supply chain payments technology to optimize operations and drive expansion, but technology is not the end-all solution to underbanked SMBs.

That’s particularly true for small, independent farmers in India, which, according to Jane Loginova, chief operating officer at digital banking technology provider BPC Group, lag behind other verticals in the country when it comes to technological maturity — particularly when it comes to financial processes.

While the agriculture industry makes up a significant portion of the nation’s gross domestic product (GDP) and employs the majority of its labor force, a lack of digitization makes this market high risk for traditional lenders, she said.

“They lack financing with which, if they had it, they would be able to grow their business and fuel up the economy,” she told PYMNTS in a recent interview. “The reason they’re lacking capital is because the desire to lend to small businesses or farmers by traditional lenders is very little because there are no traditional records, no accounts for lenders to do credit assessment, and hence, they aren’t comfortable lending to them.”

Technology is certainly important to filling this credit gap. But as Loginova explained, to truly prop up India’s small farming businesses, technology must also promote collaboration — and not just between farmers and financiers, but between all players in the industry.

Mixing B2B eCommerce With Finance

Traditionally, small farmers are left to develop a trusting relationship with some kind of lender or investor on their own. Loginova explained that this means small farmers often rely on farmers associations or organizations, but this often lacks standard underwriting and risk mitigation efforts — and, despite India’s advances in digital payments, often relies on cash transactions.

To tackle this pain point, BPC recently formed a new entity, Safal Fasal, an SMB marketplace upon which small farmers in India can connect to providers of capital as well as key suppliers, like equipment vendors or advisory service providers.

The strategy mixes financing, B2B eCommerce and payments to develop a holistic ecosystem of collaborators that can mitigate risk and accelerate cash flow in the farming supply chain, said Loginova.

“To provide [working capital], you need to get lending institutions comfortable,” she said. “You get them comfortable by providing visibility, and you provide visibility by putting [SMBs] and farmers on a transparent, level playing field — in this case, a marketplace where you can connect to other players.”

The initiative aims to create a “closed loop” environment in which all financing, payments and trade occur in a single portal, which can promote transparency for all players involved while also accelerating capital disbursements to farmers and payments to their suppliers.

Easing The Payments Transition

A high mobile penetration rate in India means platforms like Safal Fasal can take advantage of the platform to connect farmers to the technology they traditionally lack, like digital financing and payments capabilities. But digitization isn’t the silver bullet necessary to ensure SMBs in India’s farming arena are successfully equipped with access to financing, payments technologies and suppliers.

For instance, while connecting SMBs with electronic payments technologies that can facilitate payment to a supplier’s mobile wallet, or loan disbursement to a farmer’s own mobile wallet, for any solution to gain traction it must also support payment methods with which SMBs are familiar.

“In India, there is a transfer to the wallet and instant payment,” Loginova explained about the platform’s support for various transaction methods. “But to some degree, there is also cash-on-delivery. You can’t just come into a place and make everything cash-less. You first get people comfortable to transact, and some are not yet equipped with electronic payments infrastructure.”

It’s an example of the shortcomings of digitization. Simply providing businesses with technology won’t necessarily solve a problem. In the instance of payments digitization, ensuring businesses get comfortable enough with each other to transact means fostering trust between all industry stakeholders: buyers, suppliers, financiers and even local regulators.

With BPC successfully launching this platform in India, Loginova noted that this business model can be applied to other verticals and in other emerging markets, particularly Latin America, Egypt and the Middle East. In each industry and geography, any marketplace ecosystem must address the nuances and unique needs of business participants. That includes enabling payments with the tools businesses are familiar with and wish to use, and fostering connections between businesses.

“The key ingredient is less about technology; it’s all about partnerships and collaboration,” said Loginova. “You need to have motivation for all players in a vertical to use the platform. You can’t force anybody to use an instrument that may look pretty but serves no purpose. It should become mission-critical and solve a problem.”