Notes from Mar 17 call w Sandeep (CEO). If we continue down the financing path, could be a good partner to engage with though they are pretty locked in to using their own tech platform (Dvaara e-registry) as they feel its comprehensive in what it collects and necessary for driving FPO ops and building lender trust
Dvara is Banking Correspondent (BC) that provides First Loss Default Guarantee (FLDG) and capacity building to FPOs / borrowers
Dvara invests heavily in the orchestration role; coordinate between FPO, buyer and lender; they need to do this as the FPOs capacity to do so themselves is limited
Two products that Dvara is working towards:
“Insurance-like” loan: This is priced like insurance with an up-front “premium” or commitment payment by the farmer and if there is an adverse event, the product pays out enough to cover a farmers’ existing loan (so they don’t end up in default). Its basically a committed pool of money to be drawn when a bad event happens. Apparently this is at a design phase right now with some partner.
Sandeep feels an actual insurance offering can’t work in India bc PMFBY is a bad but heavily subsidized product that distorts the market: its yield-area index based which relies on crop cutting experiments (which are rife with lots of issues) and payouts are set at a village level rather than tied to the experience of an individual farmer.
Further farmers only pay ~2% of the cover amount as premium which means other products which are more tailored but expensive cannot get a foot in the market. Dvara piloted an insurance product whose premium is at 7% of coverage amount but found it cannot compete
Re-wire payment flows so that cash goes from lenders directly to farmers (say, for input purchases) rather than lending to the FPO which is institutionally weak. This is more aspirational, right now, Dvara is managing movement of cash between lenders / FPOs / buyers.
What lenders want to see from Dvara / FPO to issue a loan?
Which farmers am I funding? Over what time period? What’s the price? How secure is the buyer connect (need to see a history of purchases)? How much can the FPO put up as collateral? How much is the FLDG?
Dvara’s take on the value of data to various “data consumers”. Headline is that these actors don’t have the sophistication to work with data but need products that are built using the data that solve a problem:
Lenders: Regional Rural Banks (RRBs), PSUs are not in the picture; Ag focused NBFCs and small biz finance banks don't know how to use this data, want a readymade product. Dvara creates a “khet score”
Insurers: dysfunctional market (see above); govt feels the opportunity lies in digitizing crop cutting experiments using remote sensing which doesn’t address the core issues
Input sellers: have established chains already
Buyers: Data itself is not useful; want help finding/product, make sure grading/sorting is done, get at least a truckload at each visit. This is the “orchestration” work that Dvara is doing right now and its expensive
Is there value in asset financing or is opportunity entirely in working capital?
For cereals, warehouses + sorting / grading infra is used sparingly and utilization will be low so doesn’t make sense for FPO to own
For horticulture, cold-storage has value but Dvara doesn’t currently work with in this space
Notes from Feb 2 demo w Tarun Katoch
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