Potential Instruments
- Ashu Sikri (Unlicensed)
Organizing some initial thinking on how farmer orgs can access capital for collective assets.
During the pilot phase we will buy assets and let FOs use them but need to think about a replicable / scalable approach going forward.
Context
We believe a combination of advisory, investment in collective assets and data will create market ready farmer organizations who can increase member income and climate resilience.
We are deliberately keeping a wide in lens on what type of collective assets for now; anything with quick ROI and a clear story on income increase, climate resilience and gender empowerment is under consideration. For a longer list, see here. Not looking at working capital loans
Our approach is shared or collective asset ownership; others often focus on local service providers / entrepreneurs or individual members within the FPO given capacity / systems / governance issues with FPOs. Need to better understand what hasn’t worked with org level ownership from prior initiatives and design our program in a way that responds to those issues.
In all scenarios, assume some “skin in the game” whereby farmer orgs will need to put up some portion of the investment amount themselves (5 to 25%)
Options
#) [Instrument]: [Description] | Benefits | Drawbacks | Examples and other notes |
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1) Cash transfer: We give cash to FPO members, there is no formal agreement but idea is that they contribute this as share capital to the FPO. FPOs can get matching grants on their share capital and it is an important criteria for banks so multiple benefits / leverage from this approach. |
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2) Paygo: DG buys the asset and makes it available to FPO on a rental basis with a path to eventually transferring over |
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3) Risk capital for FOs. Debt that sits between equity (member contribution) and normal bank debt (working capital and term loans). Venture or Mezzanine. No fixed repayment rate, investor return varies based on FO earnings.
Can create a structure where a bunch of such loans are pooled and more senior / risk averse lenders get repaid first and more impact oriented investors (philanthropies, impact investors) are paid last. This could be a fund or issue a green bond organized around this theme |
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4) P2P Loan: Retail investors directly support FOs by offering capital at preferential terms in exchange for impact outcomes |
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| Can test by signing up as an impact partner and listing FO as a borrower on RD |
5) Become a banking correspondent for an existing bank or NBFC |
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| A related model is Aceli who provides first loss guarantees and bonus payments to banks who lend to small famers / agri MSMEs / coops. NABARD and Dept of Agri play this role in India already; our value add could be coupling FLDG with capacity building / TA? Also look at MCE Social Capital as a reference |
6) Help farmers groups access government grants. Piggyback on SRLM programs where capital is already being given to FOs and the issue is lack of proper governance and documentation; we help ensure FPO investments are ultimately successful and layer in the digitization bit |
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| NABARD's E-Shakti program which was focused on digitizing SHGs and linking them with banks. |