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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, Ticket size will be based on use of proceeds. I expect the needs / borrowing capacity of most individual FPOs are pretty small so having something a bunch of standard loans that could be pooled and even tranched / securitized and then listed through to investors could be compellingMy sense is that a product to start with might be a . Some ideas:
Working capital: 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.
Aggregation finance which is a few week stretch between delivery of product to a buyer and receipt of payment may be a relatively low risk and compelling entry point (h/t Alesha)
Loans for purchasing capital equipment: The government announced a 1 lakh crore or ~$13.5bn agri-infrastructure fund (details on eligibility and financing amounts here). My sense is that application process and funds disbursal is time consuming to maybe there is a way to top-up or do a bridge loan to accelerate time to receive the funds for such a
etc
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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Cost of Capital: What cost of capital / terms would make a product super compelling relative to current options available to FPOs?
Our sense is that most FPO lenders raise from NBFCs in the mid to high teens and then lend to farmer groups in the mid twenties. Banks likely have a lower cost of capital but not sure how much lending they are doing. Need to validate these data points. Kunal Tiwari (UnlicensedSome comps from a Jan 2021 w Samunnati. Need more intel on products and cost of capital
Product 1: Working capital for FPOs; proceeds used to stock input shops and purchase from farmers. 6 month duration. 14% (annualized). Need to confirm ticket size
Product 2: “Safal” loan for member farmers. INR 30-50k ticket size, farmer can use it however they see fit. 12-18 month term loan with equal installments. 20% interest, 3% goes to the FPO. They also have a paycard solution whehere farmer can buy input from the FPO on credit (closed loop)
The Goldfinch model is that borrowers put out a bid and lenders can choose to meet it so the idea would be to seek capital at a ~50% discount vs current rates.
No idea what the demand will be for this but want to have a sense for the benchmark that needs to be beat for this to benefit farmer groups.
Regulatory / Legal / Fees
The movement of cash from a crypto token to an INR stablecoin, into fiat and then retracing this back to the lenders seems complicated and fraught with issues, especially fees and currency risk
For now, we are not too fussed about this and are trying to discern if there is something worth pursuing based on based on the points above
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