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How Tech-led Supply Chain Financing Bridges The Finance Gap In India’s Agri Industry

MSMEs contribute more than 35% of India’s GDP, and yet they routinely struggle to attract financing from banks and NBFCs. As per a 2021 Economic Times article, there is a collective credit gap of approximately INR 16 lakh crore (USD$215 billion) among MSMEs in India. This problem is felt across several sectors, especially agriculture — wherein more than 85% of farmers operate on a small scale and own less than 2 acres of land.

As a result, individuals and businesses in India may find agriculture to be less and less lucrative as a source of livelihood, leading some to believe that the occupation may be dying in the country. In an economy wherein 58% of the workforce is involved in one or another capacity in farming, and about a fifth of the GDP depends on agriculture, a dwindling of farmers and agribusinesses spells doom for the overall financial health of the country. 

Gaps in credit financing affect agribusinesses and their partners by creating bottlenecks in the supply chain. Supply chain technology or procurement tech solves this problem in the following ways: 

Redefining business assessment and offering customized  financing

Small and medium-sized businesses have historically found it challenging to secure credit from banks, NBFCs, and other formal sources. This is a trend that can be seen in the 4th MSME census, which specified that only 5.18% of MSMEs got institutional credit to sustain themselves. This trend inevitably carries on to small and medium-sized agribusinesses too. Rigid creditworthiness-gauging metrics make it highly difficult for agricultural businesses to attract credit. One of the main problems with existing credit score gauging methods is their one-dimensional nature. In such methods, banks use the standard parameters listed by local credit bureaus to measure a credit seeker's creditworthiness. By not deeply analyzing other parameters, such as future expenses, forecasted cash flows, and other financial metrics, banks would simply be prone to rejecting loan applications from the vast majority of agricultural businesses.

Additionally, existing lending cycles are time-consuming due to the excessive amount of documentation involved in the process. Banks and NBFCs make it necessary for credit-seekers to carry their MSME certificate, income proof documents, bank statements, address proof, registration proof, and several other documents. Apart from that, lenders need businesses to have a steady and sizeable income, collateral, and other assurance-based elements that MSME agribusinesses may not have. 

Existing evaluation methods of an organization’s creditworthiness heavily focus on its past payment records, market performance, and credit behavior, with minimal to zero emphasis on prospective future growth trends and returns it may have in the near or distant future. Choosing a tech-first platform to address your financial needs helps to change this trend. Such entities employ financial analysts and credit experts to assess the current and likely future financial performance of agricultural MSMEs. To predict future financial health, experts assess factors like market size, mission and vision of the business, the overall scalability, resilience, and continuity of credit-seeking businesses. This future-based approach makes the process of securing credit marginally simpler for small and medium-sized agricultural businesses as compared to the existing evaluation methods.

Basically, to help agribusinesses flourish, it is of paramount importance that lenders relook at the assessment criteria of credit and make them more in line with future growth rather than past history or credit scores.

Optimizing working capital management through collateral-free quick vendor disbursals 

Agriculture-based businesses, like several others, need near-constant access to finances to keep their supply chains ticking along and eventually achieve economies of scale. But, how would that be possible through existing collateral or cash-based loan systems? The answer is, it wouldn’t. In fact, traditional supply chain financing constantly slows down the production process for farmers and agriculture-based companies. 

Collateral-free Quick Disbursals

In its place, tech-enabled supply chain financing platforms are helpful for agribusinesses in multiple ways. Firstly, by eliminating the need to wait for longer durations (60-90 days) before receiving the payments from their customers. Using the services of a B2B tech platform seeking to simplify supply chain management, agribusinesses can maintain a steady working capital with quick and hassle-free disbursals not requiring any collateral or extensive paperwork. Thus, balancing out any delay in transactions. Automating the management of working capital provides immunity against elements such as seasonal production issues, disruptions,  payment delays, dramatic rise or fall in demand, and other debilitative factors in agriculture-based operations. 

Eliminating growth bottlenecks for agribusinesses 

Financial barriers often hold back small and medium agribusinesses. The non-availability of liquidity acts as a major bottleneck in meeting current demands by slowing down the supply chain. In such a scenario, it becomes difficult to reach out to new customers or to expand in different geographies. This breaks the growth momentum and chokes the business. 

To this end, tech platforms offering supply chain financing enable agribusinesses to get quick access to supply chain finance to keep the momentum of their operations going. This maintains the continuity of logistics operations even in the case of disruptions and delays in material procurement and other operations. Technology platforms also facilitate acquiring crop insurance for farmers, eliminating the need for manual processes and physical paperwork. 

Bringing transparency to overall trade operations

Financial inclusivity, the ability to make or receive cashless payments at a click of a button regardless of location-based or other constraints, is arguably the greatest advantage of using technology for bridging financial gaps. In addition to that, agribusinesses can also get e-invoices, purchase orders, and shipment records with digitized payments to save time and money. Most importantly, digitized payments are safe, as businesses can track payments in real-time and keep a digitized record of payables and receivables. This safeguards operations such as material procurement, provenance, and shipments in terms of finances. 

This information-heavy aspect of finance made possible with technologies like agtech or agri-tech makes overall trade operations highly transparent for all stakeholders involved in agricultural logistics. As a result, businesses would not need to worry about instances of financial fraud or cheating that they may face during day-to-day business and trade operations. Greater transparency in material procurement, manufacturing, and other logistics-based phases gives agribusinesses the freedom and flexibility to scale their operations over the long term without worries.

Conclusion

Agriculture-based businesses can get these benefits only if they partner with a reliable tech-led supply chain platform. This is where Bizongo enters the picture. Our tech-first approach in supply chain management enables you to improve supplier relations via early payments and also transform their performance. Making early payments to vendors can also help you extract cash discounts from them, thereby reducing substantial structural costs in your business. Apart from receiving quality services from your vendors, you will maintain a steady working capital even during uncertain, disruptive times.

Contact us to know more about how our tech-led supply chain financing makes your agricultural operations more assured and eliminates existing financial gaps.

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