Dr. M. Ramanan, Director, Deen Dayal Institute of Rural Development, Chennai, Tamil Nadu, discusses the new financial avenues for Agri business.
India has come a long way to become the 3rd largest economy in the world. But the sad part of it is though an agrarian country, we still do not have the storage facility, and the farmer sells his produce at a very low price, and the consumer pays a high price for the produce. In the MBA Agri Business program started by TNAU, there are so many branches like Agri business, human relations, technology, marketing arrangements, and finance. We find that students who study in management courses do not want to take up Agri business as it is not profitable. It is important that these students go to the manufacturing units and convert the produce into value added products to sell them at a higher price. Agri business has to cater to the needs of the main 6 parties – promoters, government, public, employees, suppliers, and creditors. The main purpose of business is to earn profit. Our request to include Agri business as an infrastructure sector to the government is not yet taken up. There is lot of wastage as we lack infrastructure to store the produce. Agri business is a fertile sector where an entrepreneur can start with a low investment to earn huge profits. Many companies like Aichi Masala and ITC have ventured into Agri business and proved to be highly successful.
There are many avenues for funding an Agri business project. Many of the successful entrepreneurs have had money to invest in the business initially. Now the options are many. First one is funding our own money or boot strapping. We have to collect money from people and start the business which a retailer or an ordinary person does generally by converting the produce into value added products. No institutional credit is involved here. Next is Angel investors who are high net worth individuals who want projects to finance in India. The project should have a good business plan depending on what we want to start so that the Angel investors are ready to invest. They are high net worth individuals who fund enterprises such as film industry. These people want to invest their excess fund in business and projects to earn good profits. Our company can arrange meetings with such investors if you have good business plans with all details, components, and how effective it would be. If they are satisfied with your layout, they will fund you with due diligence. Next one is Venture Capital Funds who give private equity for long term growth potential. Angel investors will not invest for a long time and will go away once the project takes off. Venture capital stays with you for a long time, take the private equity in you, and do many rounds of payments.
There is also crowd funding where a vast network of people fund the project. Crowd funding by means of equity, reward based, and donation based funding are possible. Next is Initial Public Offering which is very important and a recent one since the last few years. There are many companies floating IPOs and collecting money. If you hold a share in the company, you can sell it someone else, it is transferable but equity need not be repaid. Since the last one year, many Agri marketing companies like Kaleesuwari have gone public. You can have more funds, and you can borrow 4 times. The banks usually ask your stake in the business as they will not finance the whole project. Only 80% they will finance maximum. You can go IPO and raise the money from public who have large quantity of money but looking for avenues. The best means of investing is business. But the problem is people feel businesses will fail and want to use the funds for their personal benefits.
Subsidies from the government is the next source of funds. NFDB and NABARD are giving subsidy which many people are not aware of. About 25% of the cost of the project can be funded through subsidies. Next is Debt financing by Banks and FINTECH. Banks have arrangement with FINTECH companies who offer funds based on technology. These companies prepare the project report and arrange for finance for you. They mentor you, provide all handholding support. Under the MUDRA scheme, up to Rs. 10 lakhs no collateral security is needed. The Agri projects are treated as priority sector and advanced by RBI. You should know your rights. The application has to be complete in all respects so that processing becomes easy for banks. Private equity funding is also an additional source of funding. If the company is 3 years old, this is cheaper than the private financiers. Factoring comes in when you have raised a bill on a suppler who will pay after 90 days, but till then you cannot stop your activity. So to run the company, factoring discounts the bill and gives the money the same day. Once the money comes from purchaser, the amount is returned. Leasing is a common thing. You can lease the machinery and pay only the rent. Suppliers credit is another method available everywhere. You can use the suppliers credit and pay them after 90 days. It is expensive, but to run the business you may need it. Advance payment has to be made to the seller. In the method of Initial Coin Offering, people fund the project in the beginning for any small project, it is a cash flow based financing. Banks look at the cash flow, the source of funds, and they finance the shortage of funds. This is for companies that have a good CIBIL rating and have not defaulted in repayment. With the help of AI and Business analytics, banks know everything about your activities.
VIT, IIT, ANGAUR, AND TNAU are business incubators. Once you join them, you can take the project which is already incubated or grown to some extent and start off on your own. If your project is technically feasible and economically viable, you can avail the collateral free loans. There are many institutions that offer equity funds such as SBI or SIDBI. As a promoter they approach you as they can prosper when you do. NSIC raw material scheme for Agri business is available. For all the Agri projects, you need MSME registration as only then you can get funds from banks and become eligible for subsidies. It is advisable to start the business organisation as a private limited company as people do not prefer to fund proprietorship or partnership which has huge risk. For this, you can take the help of a chartered accountant or company secretary as the foundation should be strong. Agri business consortium is another means where all food processing units are combined and sell the product in an online platform. It is a teamwork. Finance, HR, technology, and marketing are important for any organisation, and money has to be spent judiciously. NABCON and ITCOT help in preparing the project and fund at a moderate fees. Finance has undergone tremendous change in the recent past. You have to make use of the excellent ecosystem available now. The purpose of technology incubator is to provide 6 week intensive program to get knowledge and get funds from a bank for the project. When you prepare a business plan and put it in Udyam Mitra portal, many people will approach you. You need to attend conferences and establish contacts and stay positive in approach.
What is the role of Agri insurance in securing financial stability for Agri business?
Agri insurance has a role to play as our climatic conditions have lot of vagaries, but it is not very active. Because of the government intervention, Agriculture Insurance Corporation ensures all crops are fully insured, but the question is how far they settle the claims of the farmers. It is not like vehicle or health insurance. The prices are changing, and there is market volatility, and so even though there is some problem, we can avail the insurance and pay the premium as the bank insists on insurance.
What are the potential benefits of integrating blockchain technology into Agri business financing?
To know the marketing, blockchain technology is used in agriculture. Messages are passed on to the farmers, and the agriculture marketing federations use the technology. The growers should get the benefit and not the middlemen. Since there is low income in Agri business, nobody is coming forward. We have to motivate the youngsters that Agri business is a profitable one. We mainly focus on services and less on manufacturing. We are insisting that Agri business should be treated as infrastructure to get the subsidies and benefits. Supply chain is important for Agri business. We are not selling value added products. Many governments have waived off crop loans. Many large industries are buying from small farmers and selling it with a brand. Agri business should get MSME registration, subsidy, lower interest, to prosper. Though we are exporting flowers, we do not convert them into value added products to get higher income.
Are there specific financial instruments tailored for small scale Agri entrepreneurs?
In Mudra loan, it is up to Rs. 10 lakhs, and the borrower will scale up after sometime. People are not prepared to invest in Agri business as they think it is loss making. No collateral is insisted under this scheme. Karnataka has the maximum beneficiaries. The next scheme is up to Rs. 5 crores which also does not need any collateral security. Next one is subsidy scheme for Agri business. The main condition is that they will not give the subsidy in the beginning itself, they will watch the progress, keep the money as deposit, and if found successful, they will pay. Under Credit Guarantee Scheme, if there is a loss, up to Rs. 5 crores, the government will reimburse the bank. We have to prove that the business is not running according to the plans due to various reasons. We give the entrepreneurs training on how to run a business free of cost under our Bhartiya Yuva shakti Trust. Mentors also will advise, implement, and execute.
Can you provide examples of successful Agri businesses that have diversified their income streams through innovative financial strategies?
Ministry of Food Processing and CFTRI, Mysore, have lot of projects and technologies. There are many innovative methods to do the business. We should be ready to diversify our business strategies, financial strategies, and find new ethics and not follow the same old way of getting money from banks. We have to approach the lenders who want to fund industries in India at a lower rate of interest. We have to get external commercial borrowing which is innovative. Many direct investment projects are coming up. ITC for example is into Agri business. We have suppliers get the raw materials, and for exports, there is a Agri Products Committee who offer innovative products. The buyer gives money in advance, you get the packing credit and export credit. So it is essential that we should know where to invest, how to invest, and what to use. We should be alert about business always and look for means of developing it.
What are the challenges Agri business face when seeking financing, and how can they overcome them?
You must know your business thoroughly and get involved fully. You should know the latest technology. You should know the low cost funding, where it is available, subsidies, incentives given by the government, how to get it etc, which can be guided by a mentor. You can approach SIDBI for mentor or credit counsellor for bank loans and project reports. You should know the 3 aspects of financing which are lending, promoting, and coordinating. You should be able to convince the lender. eCommerce platforms are available, and you should change the business to such platforms. Look for incentives in Agri business. We should know how to convert the products into value added ones. We can prepare them, pack them well, and give to big companies to sell. You will find FPO for jaggery manufacturing unit. They sell sugarcane to factories, and their income is good. FPOs are practically industries and get 45% support from government. There are about 300 FPOs in Agri business all over the country, and the number is increasing. You should know the tactics, strategies, and awareness about the Agri business. Apply technology and marketing strategies. A lender is a major stakeholder in your business with 75% holding, and so you should be careful to run the business successfully and return the money without any default.
Dr M Ramanan
Email: sainathramanan@gmail.com
Telephone: 9380408052
India has come a long way to become the 3rd largest economy in the world. But the sad part of it is though an agrarian country, we still do not have the storage facility, and the farmer sells his produce at a very low price, and the consumer pays a high price for the produce. In the MBA Agri Business program started by TNAU, there are so many branches like Agri business, human relations, technology, marketing arrangements, and finance. We find that students who study in management courses do not want to take up Agri business as it is not profitable. It is important that these students go to the manufacturing units and convert the produce into value added products to sell them at a higher price. Agri business has to cater to the needs of the main 6 parties – promoters, government, public, employees, suppliers, and creditors. The main purpose of business is to earn profit. Our request to include Agri business as an infrastructure sector to the government is not yet taken up. There is lot of wastage as we lack infrastructure to store the produce. Agri business is a fertile sector where an entrepreneur can start with a low investment to earn huge profits. Many companies like Aichi Masala and ITC have ventured into Agri business and proved to be highly successful.
There are many avenues for funding an Agri business project. Many of the successful entrepreneurs have had money to invest in the business initially. Now the options are many. First one is funding our own money or boot strapping. We have to collect money from people and start the business which a retailer or an ordinary person does generally by converting the produce into value added products. No institutional credit is involved here. Next is Angel investors who are high net worth individuals who want projects to finance in India. The project should have a good business plan depending on what we want to start so that the Angel investors are ready to invest. They are high net worth individuals who fund enterprises such as film industry. These people want to invest their excess fund in business and projects to earn good profits. Our company can arrange meetings with such investors if you have good business plans with all details, components, and how effective it would be. If they are satisfied with your layout, they will fund you with due diligence. Next one is Venture Capital Funds who give private equity for long term growth potential. Angel investors will not invest for a long time and will go away once the project takes off. Venture capital stays with you for a long time, take the private equity in you, and do many rounds of payments.
There is also crowd funding where a vast network of people fund the project. Crowd funding by means of equity, reward based, and donation based funding are possible. Next is Initial Public Offering which is very important and a recent one since the last few years. There are many companies floating IPOs and collecting money. If you hold a share in the company, you can sell it someone else, it is transferable but equity need not be repaid. Since the last one year, many Agri marketing companies like Kaleesuwari have gone public. You can have more funds, and you can borrow 4 times. The banks usually ask your stake in the business as they will not finance the whole project. Only 80% they will finance maximum. You can go IPO and raise the money from public who have large quantity of money but looking for avenues. The best means of investing is business. But the problem is people feel businesses will fail and want to use the funds for their personal benefits.
Subsidies from the government is the next source of funds. NFDB and NABARD are giving subsidy which many people are not aware of. About 25% of the cost of the project can be funded through subsidies. Next is Debt financing by Banks and FINTECH. Banks have arrangement with FINTECH companies who offer funds based on technology. These companies prepare the project report and arrange for finance for you. They mentor you, provide all handholding support. Under the MUDRA scheme, up to Rs. 10 lakhs no collateral security is needed. The Agri projects are treated as priority sector and advanced by RBI. You should know your rights. The application has to be complete in all respects so that processing becomes easy for banks. Private equity funding is also an additional source of funding. If the company is 3 years old, this is cheaper than the private financiers. Factoring comes in when you have raised a bill on a suppler who will pay after 90 days, but till then you cannot stop your activity. So to run the company, factoring discounts the bill and gives the money the same day. Once the money comes from purchaser, the amount is returned. Leasing is a common thing. You can lease the machinery and pay only the rent. Suppliers credit is another method available everywhere. You can use the suppliers credit and pay them after 90 days. It is expensive, but to run the business you may need it. Advance payment has to be made to the seller. In the method of Initial Coin Offering, people fund the project in the beginning for any small project, it is a cash flow based financing. Banks look at the cash flow, the source of funds, and they finance the shortage of funds. This is for companies that have a good CIBIL rating and have not defaulted in repayment. With the help of AI and Business analytics, banks know everything about your activities.
VIT, IIT, ANGAUR, AND TNAU are business incubators. Once you join them, you can take the project which is already incubated or grown to some extent and start off on your own. If your project is technically feasible and economically viable, you can avail the collateral free loans. There are many institutions that offer equity funds such as SBI or SIDBI. As a promoter they approach you as they can prosper when you do. NSIC raw material scheme for Agri business is available. For all the Agri projects, you need MSME registration as only then you can get funds from banks and become eligible for subsidies. It is advisable to start the business organisation as a private limited company as people do not prefer to fund proprietorship or partnership which has huge risk. For this, you can take the help of a chartered accountant or company secretary as the foundation should be strong. Agri business consortium is another means where all food processing units are combined and sell the product in an online platform. It is a teamwork. Finance, HR, technology, and marketing are important for any organisation, and money has to be spent judiciously. NABCON and ITCOT help in preparing the project and fund at a moderate fees. Finance has undergone tremendous change in the recent past. You have to make use of the excellent ecosystem available now. The purpose of technology incubator is to provide 6 week intensive program to get knowledge and get funds from a bank for the project. When you prepare a business plan and put it in Udyam Mitra portal, many people will approach you. You need to attend conferences and establish contacts and stay positive in approach.
What is the role of Agri insurance in securing financial stability for Agri business?
Agri insurance has a role to play as our climatic conditions have lot of vagaries, but it is not very active. Because of the government intervention, Agriculture Insurance Corporation ensures all crops are fully insured, but the question is how far they settle the claims of the farmers. It is not like vehicle or health insurance. The prices are changing, and there is market volatility, and so even though there is some problem, we can avail the insurance and pay the premium as the bank insists on insurance.
What are the potential benefits of integrating blockchain technology into Agri business financing?
To know the marketing, blockchain technology is used in agriculture. Messages are passed on to the farmers, and the agriculture marketing federations use the technology. The growers should get the benefit and not the middlemen. Since there is low income in Agri business, nobody is coming forward. We have to motivate the youngsters that Agri business is a profitable one. We mainly focus on services and less on manufacturing. We are insisting that Agri business should be treated as infrastructure to get the subsidies and benefits. Supply chain is important for Agri business. We are not selling value added products. Many governments have waived off crop loans. Many large industries are buying from small farmers and selling it with a brand. Agri business should get MSME registration, subsidy, lower interest, to prosper. Though we are exporting flowers, we do not convert them into value added products to get higher income.
Are there specific financial instruments tailored for small scale Agri entrepreneurs?
In Mudra loan, it is up to Rs. 10 lakhs, and the borrower will scale up after sometime. People are not prepared to invest in Agri business as they think it is loss making. No collateral is insisted under this scheme. Karnataka has the maximum beneficiaries. The next scheme is up to Rs. 5 crores which also does not need any collateral security. Next one is subsidy scheme for Agri business. The main condition is that they will not give the subsidy in the beginning itself, they will watch the progress, keep the money as deposit, and if found successful, they will pay. Under Credit Guarantee Scheme, if there is a loss, up to Rs. 5 crores, the government will reimburse the bank. We have to prove that the business is not running according to the plans due to various reasons. We give the entrepreneurs training on how to run a business free of cost under our Bhartiya Yuva shakti Trust. Mentors also will advise, implement, and execute.
Can you provide examples of successful Agri businesses that have diversified their income streams through innovative financial strategies?
Ministry of Food Processing and CFTRI, Mysore, have lot of projects and technologies. There are many innovative methods to do the business. We should be ready to diversify our business strategies, financial strategies, and find new ethics and not follow the same old way of getting money from banks. We have to approach the lenders who want to fund industries in India at a lower rate of interest. We have to get external commercial borrowing which is innovative. Many direct investment projects are coming up. ITC for example is into Agri business. We have suppliers get the raw materials, and for exports, there is a Agri Products Committee who offer innovative products. The buyer gives money in advance, you get the packing credit and export credit. So it is essential that we should know where to invest, how to invest, and what to use. We should be alert about business always and look for means of developing it.
What are the challenges Agri business face when seeking financing, and how can they overcome them?
You must know your business thoroughly and get involved fully. You should know the latest technology. You should know the low cost funding, where it is available, subsidies, incentives given by the government, how to get it etc, which can be guided by a mentor. You can approach SIDBI for mentor or credit counsellor for bank loans and project reports. You should know the 3 aspects of financing which are lending, promoting, and coordinating. You should be able to convince the lender. eCommerce platforms are available, and you should change the business to such platforms. Look for incentives in Agri business. We should know how to convert the products into value added ones. We can prepare them, pack them well, and give to big companies to sell. You will find FPO for jaggery manufacturing unit. They sell sugarcane to factories, and their income is good. FPOs are practically industries and get 45% support from government. There are about 300 FPOs in Agri business all over the country, and the number is increasing. You should know the tactics, strategies, and awareness about the Agri business. Apply technology and marketing strategies. A lender is a major stakeholder in your business with 75% holding, and so you should be careful to run the business successfully and return the money without any default.
Dr M Ramanan
Email: sainathramanan@gmail.com
Telephone: 9380408052