Samunnati's playbook to create a holistic agri-lending ecosystem

Nearly 58% of India’s population relies on agriculture as the primary source of livelihood, as per data from government-backed India Brand Equity Foundation. And it’s not news to anyone how cash-strapped the agriculture ecosystem is.  

While there are government schemes that aim to support them, several startups have also shown interest in the sector.  

One such startup is Chennai-based Samunnati, which calls itself a specialised agri value chain solutions provider. 

According to its founder and CEO Anilkumar SG, finance enables agri value chains to operate at a higher equilibrium and make markets accessible for small-holder farmers. To achieve these goals, the startup uses what it calls an AMLA, or aggregation, market linkage, and advisory services, approach.

But what does 2014-founded Samunnati do? 

It works with farmers. But not directly. Instead, it underwrites loans for Farmer Producer Organizations (FPOs), which in turn engage with farmers. 

FPOs are organised entities run by farmers. These agricultural cooperatives engage with small holder farmers, but are severely underserved by the formal financial system.  

This is where Samunnati comes in.  

The startup works with FPOs on the supply side. Its proprietary technology tool analyses an FPO's execution capabilities, taking into consideration 106 parameters such as governance, capability, team, operations, financial metrics and member engagement capabilities. With this data, the startup customises financial products and plans for the FPO. 

“We would like to work with every FPO out there. The tech tool is not a section tool but a mechanism to decide where to begin working with the entity. Once that’s decided, the relationship manager works closely with it to design a plan for the FPO. We do not have to look at previous balance sheet, profitability, tax returns etc because we are not lending to the institution or the entity’s balance sheet, we are underwriting that particular transaction,”  Anilkumar said. 

The customised loan products help the FPOs source inputs in bulk, at low costs. The company currently has access to about four million farmers through its network of over 700 FPOs and claims to have helped them reduce their production costs by 7-15% through this financial assistance service. 

On the demand side are agricultural enterprises -- traders and processors who procure commodities and goods in bulk to pass it on to the next entity in the value chain. These players too are severely constrained by working capital requirements. Their revenue depends on the market sentiment and the number of units of produce, which is directly proportionate to agri enterprises' available working capital. 

Samunnati helps these players tackle working capital constraints by offering short term loans. The tenure and quantum of the loans are customised to specific value chains based on market practices.  

Nearly 70% of the startup’s financial products are short-term loans. The asset creation loan, the only long-term offering, caters to the capex requirements of FPO members.  

The average loan ticket for an FPO is about Rs 30 lakh and for agri enterprises, it about Rs 75-80 lakh. 

Inadequate access to market is another challenge for FPOs, as startups and other agri-enterprise ecosystems are unable to reach the consumers of their services, i.e, the farmers.

Samunnati acts as a bridge, connecting agri businesses on the demand side with FPOs on the supply side, offering market linkage. 

The startup currently clocks about Rs 220 crore through its market linkage services and loan disbursement per month. It operates 30 offices in 20 states.  

For financial year 2019-20, Samunnati reported consolidated net sales of about Rs 714 crore and net profit of around Rs 12 crore, as per VCCEdge data. The company, which has been profitable since November 2017, charges interest in the range of 12.5%-18% per annum and enjoys a high repayment efficiency of about 98.5%, as it works with FPOs directly. 

It recently strengthened its loan book, with a fresh €10 million infusion from Dutch development finance institutions FMO and Triodos Investment Management. Its loan book under management is worth Rs 1,000 crore and the loan disbursement so far has been about Rs 6,000 crore. 

Samunnati has raised a total of Rs 587 crore in equity funding so far from marquee investors, including Elevar, Accel, ResponsAbility and Nuveen.

The startup also offers advisory services to assist stakeholders in the value chain on responding to demand, developing operational excellence to increase production and building capabilities for risk mitigation.  

It provides skills training such as situation analysis, business planning, agricultural finance literacy and disaster preparedness. It looks to create centres for excellence to demonstrate new cropping techniques and modern technologies in agriculture.   

This larger ecosystem focus led to the creation of two new initiatives – Samaarambh and Agri Elevate.  

Samaarambh is an agri startup engagement platform. The programme offers financial solutions, advisory and solution deployment, as well as market linkage assistance to startups that have proof of concept or production-level ideas.  

“A lot of equity and seed money is available today, but venture debt or early debt is not available for agri startups. That is where Samaarambh as a platform comes in to picture. Here, we work with startups on three dimensions, such as customised solution for their working capital needs, which could include early-stage debt or market linkages; mentoring services where required and access to distribution network,” Anilkumar said.

Samaarambh has seen over 230 registrations – mostly from tech startups -- since its launch in August. 

In the past, the company worked with 35 startups in the areas of supply chain through e-distribution, information dissemination, farm management solutions, field operations, and integrated software platforms. It has provided about Rs 100 crore in credit financing to agritech startups such as WayCool and DeHaat. 

In December, Samunnati launched a digital platform called Agri Elevate, which aims to bring together all agri value chain stakeholders under one roof and enable partnerships.  

It acts as an online directory, where any entity interested in showcasing a product, technology or solution to its intended customers can list them and get connected. It’s purely an ecosystem builder and doesn’t support transactions.