In the evolving landscape of agricultural finance, non-banking financial companies (NBFCs) have become pivotal agents of change. Traditionally underserved by conventional banking institutions, the agricultural sector is now empowered by the innovative and tailored financial solutions provided by NBFCs. These entities are not merely filling gaps but are actively revolutionising agricultural finance.

Last year, over ₹18 lakh crore was disbursed for agricultural loans by banks, NBFCs, and other institutions. The share of agricultural sector loans in the overall outstanding loans by NBFCs increased to 1.9 per cent in September 2023, up from 1.7 per cent a year ago.

Facilitating modernisation through tailored equipment and machinery loans

NBFCs bring to the table a unique agility and understanding of the sector’s intricacies. One significant area where NBFCs have made a substantial impact is in providing loans for agricultural equipment and machinery. Access to modern equipment is crucial for enhancing productivity and efficiency in farming practices. However, the high upfront costs often deter farmers from investing in these vital resources. NBFCs address this challenge by offering structured loans specifically designed for the acquisition of machinery and equipment.

These loans come with flexible repayment terms that align with the seasonal income patterns of farmers. Unlike traditional banks, which may impose rigid repayment schedules, NBFCs offer grace periods and seasonal repayment plans. This approach ensures that farmers are not financially overburdened during off-peak seasons and can manage their cash flow more effectively. The availability of such customized financial products not only facilitates the modernization of agricultural practices but also contributes to increased productivity and profitability.

Moreover, NBFCs often employ field agents who possess in-depth knowledge of local agricultural practices and conditions. These agents play a crucial role in assessing the specific needs of farmers, enabling NBFCs to offer personalised financial solutions. The presence of these agents builds trust and ensures that the financial products are well-suited to the farmers’ requirements. This on-ground support is instrumental in helping farmers make informed decisions about investments in equipment and machinery.

Enhancing liquidity and supporting the agricultural value chain

Beyond providing loans for equipment, NBFCs are also actively involved in offering working capital solutions. Agriculture is a sector characterized by significant cash flow fluctuations due to the seasonal nature of production and market volatility. NBFCs understand these dynamics and offer working capital loans that help farmers manage their operational expenses throughout the year. These loans ensure that farmers have the necessary liquidity to purchase seeds, fertilizers, and other inputs, thereby maintaining continuity in their farming activities.

Another critical contribution of NBFCs is their support for agribusinesses involved in the supply chain, including processing, storage, and distribution. These businesses play a vital role in ensuring that agricultural produce reaches markets efficiently and retains its quality. NBFCs provide financial products that cater to the specific needs of these entities, facilitating their growth and contributing to the overall robustness of the agricultural value chain.

Furthermore, NBFCs are often more willing to extend credit to farmers with limited or no credit history, a common scenario in rural areas. By adopting innovative risk assessment methodologies and leveraging their local expertise, NBFCs can evaluate the creditworthiness of farmers more accurately. This inclusivity ensures that even small and marginal farmers have access to the financial resources necessary for growth and development.

Collaborations with government schemes and initiatives also enhance the impact of NBFCs in agricultural finance. By aligning their products with government subsidies and incentives, NBFCs ensure that farmers can maximize the benefits of these programs. This synergy not only amplifies the reach of public initiatives but also ensures that financial support is accessible to those who need it the most.

Paving the way for a resilient agricultural future

NBFCs are revolutionising agricultural finance through their flexible, tailored, and inclusive financial solutions. By offering loans for equipment and machinery, working capital, and supporting the entire agricultural value chain, NBFCs are driving significant improvements in productivity and sustainability within the sector. Their deep engagement with the farming community, combined with an innovative approach to financial services, positions NBFCs as critical enablers of agricultural growth and economic development. As the sector continues to evolve, the role of NBFCs will undoubtedly become even more integral, working towards a prosperous and resilient agricultural economy.

(The author is MD and Co-Founder, SAVE Solutions Pvt. Ltd)

Related Topics