There are some interesting developments in the crypto / DeFi space, notably protocols like Goldfinch which are pooling capital from investors who want to invest in real-world assets. Recently, Branch, which provides unsecured consumer loans via mobile, secured $10mn to deploy in India at 17% via Goldfinch from Cauris and Almavest.
Given the amount of capital sloshing around in the crypto space, the challenges of rural / farmer group credit in India, we are curious about whether there may be an opportunity here.
Practically, the idea is to come up with a couple “financial product” ideas and gauge liquidity provider (crypto-speak for lender or donor) interest. There are also a bunch of regulatory and currency exchange issues we need to work on in parallel.
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Farmer pitch and benefit
(For FPOs): Get a working capital loan for this upcoming kharif season with a turnaround time of [two weeks] between completing forms and money in the bank, super light due-diligence, [40]% cheaper vs current options
Product design: What is a standardized product offering that would benefit FPOs and could be pitched to DeFi "liquidity providers" (lenders)?
Need a simple, short duration offering that is easy for lenders to understand and also benefits farmer groups. FPO management capacity is limited and we want something that is easy for FPO staff to manage even in the absence of POPI/CBBO handholding.
Re: loan size, I expect the needs / borrowing capacity of most individual FPOs are pretty small so having something standard that could be pooled and even tranched / securitized and then listed through to investors could be compelling
My sense is that a product to start with might be a single season, single commodity working capital line. The reality we see is that farmer "member" participation in FPO procurement is pretty limited as the farmers don't see a compelling reason to switch away from their existing trader relationship. One idea I am intrigued about is whether an FPO can use loan proceeds to pre-pay farmers, say 25%, of their expected yield at the time of planting and commit to clear terms on pricing and quality expectations for the full procurement. Per research like this, seems like this would engender a lot of trust/goodwill and I haven't seen anything like this in the FPOs we have come across.
A couple things that would add cost / complexity but may be worth doing to de-risk
Use a portion of proceeds to cover cost of an insurance premium which ensures the FPO can payout to members even if there is an adverse weather or other event
Enter into a price hedging contract to limit variability in what lenders would expect in terms of returns
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