Farming is vital to India’s socio-economic development, and 42.3 per cent of its population depends on it for livelihood. What is more, it has a share of 18.2 per cent of the country’s GDP.
Over time, the sector has shown consistency given its average annual growth rate of 4.18 per cent at constant prices over the last five years and its provisional estimates for 2023-24 being 1.4 per cent.
Looking at this positive growth trajectory, it can be said that strategic investments, technology, research, and government support have helped Indian farmers.
However, for them to thrive, improvement in production methods and marketing infrastructure still require urgent attention. Adding to this is a critical pain point which remains the income security of farmers since their harvest and subsequent profits remain subject to uncertainties of weather, yields, market prices and changes in global economies.
Often, when faced with crop losses, farmers do not have access to credit history and it becomes difficult for them to obtain loans. Even when that does become possible, these loans include high interest rates which they find hard to pay.
Besides, farmers lack insurance in the event of financial issues and there exists a dearth of infrastructure, water rights, and remunerative income for them. In light of these pressing challenges, the potential of Indian agriculture remains furtive. This poses a necessity to dwell upon ways to help farmers achieve economic independence and self-sufficiency.
The upswing of microfinance
Microfinance in the agricultural domain can be diversified into three broad categories, namely: crop loans, term loans for operations and post-harvest loans.
These are designed to suit the needs of farmers based on the cyclical nature of farming. These days, several microfinance institutions have become instrumental in offering specialised financial products ensuring that smallholder farmers have access to financial resources without being fraught by burdensome repayment conditions.
Thus, institutions providing microfinance schemes can advance the livelihood of farmers, especially in the rural belts of India.
At present, in achieving this, the role of Non-Banking Financial Companies (NBFCs) is undeniable, especially for Tier-II and Tier-III cities where banking opportunities are limited for farmers. Their significant contribution has led to financial inclusion, enhanced productivity, timely management of risks and the reduction of poverty in several areas of the nation.
Unravelling opportunities in the rural sector
Microfinance institutions have a crucial role to play in rural economies as they offer customised crop insurance policies. When faced with crop challenges, it gives farmers a chance to cultivate another crop in their fields. To ease their access to attaining loans, today a range of such institutions have also simplified their loan process by investing in cutting-edge technologies. Now, minimal data processing and faster loan applications have been made possible by them.
Additionally, microfinance institutions can aid farmers in augmenting the supply chains by funding transportation and storage amenities. Many institutions are also enabling farmers with newer technologies in agriculture as well as providing expertise on crop insights, pest control, harvest techniques etc.
In the current scenario, microfinance institutions are witnessing an upsurge by disseminating a large number of loans, contributing to the financial well-being of farmers. Among these institutions, NBFCs have a share of 41% in the number of loans disbursed and 41% in the portfolio outstanding. The total number of loans disbursed by these institutions has reached 205 lakhs, highlighting its major impact in meeting the credit needs of Indian farmers.
Thus, microfinance has the potential to paint a promising picture for rural economies, empowering underserved and economically vulnerable segments. Since it provides tailored financial products to cater to all kinds of needs of farmers, it can uncover newer prospects by integrating financial services with agricultural training, market insights, and technology to benefit farmers. Besides, it can augment sustainable practices, ensuring the longevity of farming operations and reducing the risks involved in it.
In sum, the significance of microfinance is immense as it can unlock new opportunities for farmers. In doing so, it ensures proper livelihood and gives them a chance to attain income security. In times to come, such initiatives will be critical to enhancing the productivity, efficiency and sustainability of Indian farming.
The author is MD and Co-Founder, SAVE Solutions Private Limited