Blended Finance Bulletin

1. The blended finance ecosystem in India has witnessed sustained though gradual growth, and is now at a tipping point, poised for accelerated adoption. As the pandemic created pressure on overall developmental resources, what are your views on the relevance and scale of blended finance transactions in India?

According to Samunnati, blended finance has played a crucial role in addressing the various challenges faced by farmers and rural communities in India and will continue to do so. Many of these challenges include lack of access to credit, inadequate infrastructure and technology, challenges related to adoption of such tech and most importantly, limited market access that puts the small holder farmers at the bottom of the pyramid. Blended finance as a tool, has become increasing important to help to bridge the gap between traditional financing sources and the high costs of modernizing the agriculture sector, such as by providing funding for new age cultivation practices and tech adoption, the development of irrigation systems, agro-processing facilities, and farm level infrastructure. Additionally, the use of blended finance will see more utility to support projects that promote sustainable agricultural practices, such as reduced food waste, conservation of natural resources and reducing greenhouse gas emissions. At Samunnati, we believe the blended finance enables us to drive innovation at grass root level, increase productivity and profitability of small holders, and promote sustainable development in the agriculture sector in India.

2. Given your wide experience in the agriculture sector, what are the emerging / priority areas (market linkage, Agri-finance, etc. ) in which you anticipate greater investor attention in the next five years?

Samunnati anticipates following areas to have higher attention from investors in the next five years:

1. Market Linkages: Investors are likely to focus on business models that help farmers access new markets, including export markets. This includes investments in agri-logistics, cold chain infrastructure, and other supply chain management solutions to improve the quality and shelf-life of agricultural products.
2. Agri-finance: With a large population of smallholder farmers in India, there is a significant opportunity to provide them with access to formal finance. Investors may focus on business models that provide farmers with access to credit, insurance, and other financial services to improve their livelihoods and increase their resilience to various risks.
3. Sustainable agriculture: Increasingly, investors are looking for opportunities to invest in sustainable agriculture, which is an important area of focus for Samunnati. Projects that promote sustainable agricultural practices, such as conservation of natural resources and reducing greenhouse gas emissions, are likely to attract greater investor attention in the next five years.
4. Traceability and Food Security for Small Nations: We are noticing a significant interest from investors for higher traceability in agri value chains. With increasing awareness among consumers about the origins of their food ingredients, traceability will be an important theme for investment in next five years. Similarly, with recent volatility in global food supply chains, world now looks at countries like India to play its part and we are noticing a major shift in focus towards India from small countries to secure their food supply chains. This will open a wider array of investment opportunities for the country in coming years.
5. Food processing: The food processing sector is also likely to attract greater investor attention from investors in next couple of years. Models that focus on value addition and preservation of agricultural products, including cold storage, warehousing and transport, food packaging and labelling, and food testing and quality control will be of great attention in the next five years.
6. Precision Agriculture: With the advent of new technologies, precision agriculture is becoming increasingly relevant in India. Investors may focus on models that use precision agriculture techniques to improve crop yields, reduce input costs and increase the efficiency of agricultural production.

3. Samunnati has participated in some unique blended finance structures, “India Covid Response Program for Agriculture Transition” being one of them. Can you tell us a bit more about this program? what are some of the key learnings? How can similar ecosystem level initiatives be replicated in the agriculture sector? 

‘India Covid Response Program for Agriculture Transition’ is a joint effort launched in Sept 2021 by The USDFC and the USAID, by jointly sponsoring a nearly INR 400 Cr credit guarantee to address the economic impact of COVID-19, by supporting loans to FPOs, ag-tech companies, and companies engaged in clean energy solutions in agri and those working to provide food loss solutions to smallholder farmers. Samunnati is one of the three financial institutions for capital deployment at last mile for this program and we undertook responsibility to deploy nearly half of the total sponsored guarantee amount. Because of Samunnati’s deep engagement with the targeted beneficiaries of this program, we have been able to utilize nearly 23% of the available guarantee in a short span of time, which is absolutely encouraging and is a great example to demonstrate the possible success of such blended finance programs to reach their intended beneficiaries. We are a believer of “You See What You Aim at”, and one of the key learnings of participation in this program is that our continuous focus has to be on directly engaging with the underserved farming community that actually puts their weight behind the agricultural growth in India. The smallholder farmers dominate the Indian agri-landscape and were hugely impacted by COVID in terms of their livelihood and income stability. Thanks to this program, Samunnati has accelerated our support towards India’s smallholder farmers adopting these new age solutions in agriculture and helping them mitigate some portion of the associated risks in the process. We believe that more of such blended finance programs intended to benefit the smallholder farmer community can go a long way to solve many challenges that India’s agri-sector faces today.

4. Commercial banks are key partners in agri-focused blended finance transactions, and there is scope for larger number of domestic financial institutions to participate in similar structures. Can you talk about some of the challenges and solutions that can enable greater participation by commercial lenders? 

Commercial banks have been playing an important role in offering farm credit as well as government led programs in our country. We do believe that all FIs, including banks will continue to play a significant role in developing agri-focused blended finance products. I think the keenness to participate and work on such programs boils down to a few key differentiators among the FIs. These are level of understanding of the target segment within agri, higher risk perception of working with smallholder farmers in India, limited track record of segment performance and limited standardization of processes. If these aspects are well understood and are being discussed among the participating FIs, we do believe that an enabling environment can be created for commercial banks to come forward and participate in such programs and right set of partners can be identified to collaborate in this space as well. We also see some green shoots in co-lending opportunities between NBFCs and the commercial banks to foster financial inclusion – that will lead to higher liquidity, credit penetration, and fulfilment of credit gap in in largely unserved and underserved segment of agri-sector. 

5. Monitoring and assessment as part of blended finance transactions can be both time and cost consuming activities for implementing organisations like yours. Can you share Samunnati’s approach to effective monitoring and impact measurement? Are there any recommendations that can help strengthen the availability and quality of data and technology in the sector?

It is correct that monitoring and assessment continue to remain a big challenge for most blended finance transactions in India. At Samunnati, we have developed an approach for effective monitoring and impact measurement that focuses on the following key elements:

1. Define clear impact goals and objectives: While working on developing the specific set of portfolio, at Samunnati, we focus on seeking clear and measurable impact goals and objectives for all blended finance transactions, which then become a backbone and a guide of the monitoring and assessment process.
2. Data collection and analysis: We do understand that at times that data isn’t available right of the bat and we work with our borrowers to understand a variety of data related to their operations, which is collected and analysed by our teams to gather information on the progress and impact of blended finance transactions. This is done by surveys, interviews, and case studies.
3. Technology and digital tools: At Samunnati, we try to make best use of available technology and digital tools to streamline and automate the data collection and analysis process, including mobile phones.
4. Collaboration and partnerships: Samunnati strives to work closely with partners and stakeholders, to understand the available data and information and to conduct joint impact assessments.
5. Continuous learning and improvement: In a complex country like India, no two geographies or value chains behave the same. So, one of the most important aspect for Samunnati is to continuously monitor and assess the progress and impact, and then to use this information to make adjustments and improvements as needed.

6. Based on your experience in blended finance to date, what gaps and opportunities do you see in the blended finance market?

We did touch upon some of the existing gaps for FIs in one of the questions above. I think the biggest gap is the lack of awareness and understanding of blended finance among many stakeholders in the agriculture sector, including farmers and other smallholder, agri-entrepreneurs and financial institutions. This makes it difficult to attract investment and support for blended finance transactions. We do see the situation changing in recent years and as more stakeholders become aware about tools like blended finance as a risk mitigant and enabler of last-mile reach, we would see a massive reform in agri-sector in coming years.

Another important trend to notice is the increasing demand for sustainable and resilient agricultural practices in India. With more and more consumers and investors becoming aware of the need for sustainable and climate resilient agriculture, there will be an increasing demand for blended finance transactions that promote these practices. And as impact investing is becoming more popular globally, we do notice a growing interest in blended finance transactions in India that have the potential to generate significant social and economic impact. From Samunnati’s perspective, another very important aspect would be to develop collaboration and partnerships among stakeholders in the agriculture sector, that can help to mobilize investment and support for blended finance transactions. We continue to focus on building new partnerships and generate more knowledge about this space for other stakeholders in India’s agri-ecosystem and are working towards making current programs of our participation a success story.