The Rise of Agrifintech

Published on 05 Nov 2022

Rise, Agrifintech

The acceptance of technology and digital advancements is driving change in agriculture, with the financial sector playing a crucial part in the process. The financial technology market is one of the most rapidly expanding in the world. The industry's market size was evaluated at $50 billion in 2021, expected to increase to approximately $150 billion by 2025. The term "agri-fintech," which stands for agricultural technology, is one of the numerous sub-segments in the ecosystem. Other sub-segments include loans, payments, personal financial management, wealth technology, insurance technology, regulatory technology, and various digital payment methods.

Because of the increasing importance of agricultural technology finance, agri-fintech has emerged in recent years. It refers to using various fintech trends to enhance farmer and farm economics through improving farmer and value chain finance for farmers. This may be accomplished via the use of several types of technology.

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Who Is Looking for Financial Support in the Agriculture Industry?

The term "agriculture" refers to a broad category of endeavors, some of which include farming on a smaller scale, the construction of agricultural facilities, and research and development. Farmers and other small agricultural businesses comprise one segment of the target market for agricultural financing. Different segments include participants throughout the value chain, rural infrastructure, and research and development.

Farmers need access to loans and credit to acquire agricultural supplies, purchase machinery, invest in agricultural technology, and sell their output to food corporations. Wholesalers and other small agricultural business owners that conduct their operations from APMC marketplaces need access to operating cash to effectively handle huge volumes of products, enhance storage capabilities, and deliver items to retailers. Irrigation systems, rural roads, bridges, railways, health centers, and marketplaces are all examples of infrastructure projects that might benefit from financial backing from investors. To propel agricultural innovations, the research and development department has to make financial investments to get information about next-generation solutions that are straightforward, scalable, and cost-effective.

Agrifintech is where innovations may be created to benefit underserved populations in ways that contribute to economic development and social welfare. A wide variety of financial apparatus may be used to meet the requirements of the agricultural industry. Additionally, each of these industries has unique challenges when attempting to get funding from bankers and other financial organizations. A look at how technology and the answers it provides are altering the landscape of agricultural financing is presented here.

The Value Chain For Finance For Farmers

The term "value chain finance" refers to allocating money to various links within a value chain and moving monies between those connections. It is established in the world of agriculture via the interconnected relationships that exist between purchasers, producers, suppliers, and financiers. Instead of providing direct financial assistance to farmers or company owners, Agrifintech focuses on the commercial transaction between two or more participants in the chain.

The increased use of value chain finance for farmers has been significantly aided by the many technological advancements that have taken place in recent years. They include information and communication technology in mobile banking, electronic networks, mobile technical assistance, and other similar areas, all of which have enhanced management information systems to accommodate customized financial services.

Blockchain & Other Digital Agrifintech Payment Methods

The blockchain is a distributed ledger that records financial transactions and accounts and is shared among all parties participating in the process. It is a dependable source of information regarding the current status of agricultural farms, contracts, and inventory. Other than that, the acquisition of such information is a very costly endeavor. Blockchain technology and other digital payment trends are a more reliable for storing data, improving agricultural efficiency.

In addition, other fintech trends assist in the timely management of payments between different stakeholders when used in conjunction with smart contracts, using trends in digital payments. From a theoretical and practical standpoint, blockchain technology offers potential applications in agricultural insurance, food supply networks, intelligent farming, and agricultural goods transactions.

The Part Played by FinTech Companies

NBFCs and agrotech have shown that lending to farmers, value chain players, and FPOs can be carried out on a large scale using a mix of smart data intervention, partnerships, market connections, and a physical approach. Post-harvest, agricultural input, and data-centric models are the primary areas of concentration for many well-established agritech companies. They have expanded their primary product to include financing options and credit management services. In addition, several of the major companies in the agritech sector have created original models and algorithms for use in agri-fintech and Agri-insuretech.

Fintech companies have a significant part to play in providing agricultural financing on a large scale. The development of digital technology has resulted in a major reduction in the cost of delivering services on the margin, which has made it possible for these services to be given in more compact packages to clients with lower incomes. Fintech has created new methods for pricing, distributing risk, and organizing agricultural value networks. These methods include targeting and collateralizing credit, pricing and targeting risk, and organizing agricultural value chains.

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The use of financial resources in agricultural production is just as important as the use of other types of inputs. If the farmer does not have finances, they cannot invest in technological inputs. However, a farmer's revenue is often insufficient, and they almost always need financing or loans from other sources. Up to 1935, the only people who provided loans to the agricultural sector were seasoned moneylenders. 

Numerous agricultural startups are at the forefront of the industry's disruption, which they are accomplishing by combining farm inputs and physical infrastructure for increased price certainty, eradicating inefficiencies in supply chain change, enabling farm management and precision agriculture, and assisting farm owners in gaining access to credit and crop insurance. The process has been sped even more by technology, which has helped bankers overcome typical issues such as data digitization and demand. The use of digitization assists in establishing creditworthiness by collecting information such as input utilization, pricing, crop health, quality of product, and more. 


Featured image: Image by jcomp


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