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AGROBALANCEUnleashing Agricultural Productivity through Financial Inclusion

April 2011

Help us transform the lives of 500,000 small farming households in India by 2016, by empowering them to access markets and affordable capital (~$200 MM)

AGROBALANCE Team: Meetu Kapur, Susana Ortega-Valle, Lucinio MuñozCommunity Partner: eKutir Rural Management Services Pvt.

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CONTEXT(1)

INDIA unmet need - a large financing gap in Agriculture

What? Integrated offering also enabling Financial Institutions access farmers at lower cost by• enabling individual farmer risk assessment,• introducing risk mitigating tools, and• providing monitoring capabilities

How? Farmer’s data collection + Analytics + Financial Innovation

What? Introduction of efficiencies in the supply chain to improve small farmers’ productivity• cost-effective aggregation at the farmer level,• access to quality agri-inputs• access of markets, and• capability building

How? ICT platform + Digitized Agri-Intelligence + Viable Business Model

De-Risk the Farmer Base

– Mandate to lend to the Agricultural sector • 50% of Banks cannot comply to this mandate• $2 Bln shortfall in mandated agricultural lending

– Cost pressure• Interest Rates capped at 24% v/s 31-50%

– Changing portfolio mix requirements• Lending for income generating purposes from 25% to 75%

– Stagnating Agricultural productivity, 2.5% v/s 5% potential

– Limited access to agri-inputs, technology and markets– ~100 MM small farmers have no access to formal credit

– Local money lender rates hover at 150%

Small FarmersNo leverage to growth

Financial Institutions Changing Regulation

SOLUTION - A TWO STEP APPROACH

“Huge financing gap due to the lack of viable

models enabling financial inclusion”

THE PROBLEM

1

2 Enable Farmers Access Capital

(1) NABARD; Reserve Bank of India - Priority Sector Lending Status 2009-10; Reserve Bank of India 2011- Malegam Comittee(2) Community partner - eKutir, a grass root organization backed by Grameen-Intel Social Venture

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Introduction of supply chain efficiencies at the farmer level by leveraging ICT technologies Demonstrated positive impact on productivity (farmer income) and economical viability

Step 1 – De-Risk the Farmer Base

Size and Impact 12 entrepreneurs, 6,000 farmer catchment area 40 to 400% income increase per farmer

Financials Entrepreneurs breakeven in 6 months $50K+ turnover per entrepreneur $5K+ entrepreneur profitability $2.4K+ profit share per entrepreneur

RESULTS – COMMERCIAL PILOT SINCE 2009

ENABLERS

eAGRO System - ICT Platform & Digitized Agri-Intelligence enabling

procurement of inputs, advisory services and market linkages

Business Model - ownership at every level Profit shared among the entrepreneur, the farmer community and eKutir

STEP 1: De-Risk the Farmer Base

Farmer discusses problems, needs,

land status, income & expenses with the

Entrepreneur

The Entrepreneurs enter static and dynamic data into the

eAgro system

Requests are routed to relevant players or

directly answered by the system

Advisory services and agri-inputs are delivered by the

entrepreneur to the Farmer, the farmer pays for

these services

eKutir BACKEND

ENTREPRENEURFARMER

eAgro SYSTEM

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Develop risk assessment & mitigation tools to help Banks and MFIs service small farming households Creation of a BUNDLED SOLUTION blending Step 1 and Step 2

+ Monitoring Services

Risk Analytics & Monitoring Engine

Step 2 – Enabling Access to Affordable Capital + Bundled Solution

BUSINESS MODEL: Bundled Solution (Step 1&2)

Customer – Companies servicing farmers Contract farming agents (e.g: Global Agri Systems) NGO’s (e.g: Nageshwar Charitable Trust)

Value Proposition Reduction of operational costs & traceability of produce Value Added Services (VAS) enabled for end customers (farmers) – agri advisory services, access to credit

Revenue Model License fee for the use of the ICT tools Usage fee on VAS

Customer – Financial Institutions Banks (e.g: ICICI) MFIs (e.g: BASIX)

Value Proposition Access to new customer base Reduction in acquisition and servicing cost Regulatory compliance

Revenue Model Fees to access customer data & on monitoring services Commission on credits disbursed

STEP 2: Enable Access to Capital

Commodity Prices

Weather Risk Management

Crop Insurance

“Portfolio of credit worthy customers accessible at

lower acquisition & servicing costs”

Data Capture

STREAM 1 – ICT Tools Licensing (from step 1)

STREAM 2 – Financial Services (from step 2)

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Value Creation

For FARMERS (end customer) For FINANCIAL INSTITUTIONS

• Demonstrated improvement in yield (~20%)• Demonstrated improvement in income (40-400%)• Access to affordable capital

• Access to new customer base• Reduction in acquisition and servicing costs (2 to 5%)• Regulatory compliance

Access to Farmer’s Customer Base

Inte

rest

Rate

s

+

+-

-

MFI’s

Banks

Money Lenders

Regulatory

Profitability

Volume

Shrinking footprint

Farmer protection

STEP 2: Enable Access to Capital

Access to Capital = Multiplier Effect on Agricultural Productivity

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Implementation Plan

~$1.3 MM funding needed to get to commercial readiness in 18 months

• MIT Team: 10+ years experienced professionals in Financial Services & ICT

• eKutir: 20+ years experienced professionals in Agricultural LendingProject Team

• National Bank of Agriculture and Rural Development (NABARD) in India

• World Bank Agricultural Risk Management Team

• MIT Poverty Action Lab

Strategic Partner Outreach

• Global Agri Systems: leading contract farming player in India

• Nageshwar Charitable Trust: leading NGO in credit linkages for women self -help groups in rural India

Pipeline of Customers

• Prototype Development ~$ 430 K

• Commercial Pilot ~$800 KFunding Needs

Gap Assessment Commercial Pilot

12 months6 months

Solution Delivery

Size & expected impact 2,000 farmers, 2 locations $400,000 in farmer lending Farmer income expected to increase ~2X

Product DesignProduct Development

Risk Assessment Prototype