Sustainable Agro-commercial Finance Limited AgriFin Webinar Date: July 15, 2015
Indian Agriculture Scenario Population - 7% of the world ( growing at the rate of 2% per annum) Land - 2.4% (with 43.0 % under cultivation and less than 21.0% under irrigation ) Water Sources Only 4% of the world (monsoon dependent). Precipitation pattern - Uneven and Erratic. 70% of water is used in Irrigation (major water consuming sector) Thus we need technological intervention to intervene into the - water - food - energy security nexus. And Finance 2
Why Modern Irrigation Technologies? The productivity of irrigated land is low compared to its potential. The productivity per unit water is very low. Water available for irrigation is becoming scarcer. Micro Irrigation will increase the irrigation cover using the existing available water. Micro-irrigation with fertigation will enhance production per unit input in nutrient poor soils. 3
Challenge Declining water resources and acute power shortage and Competitive demand for land Solutions Precision farming with Micro Irrigation that conserves water and power Result Innovative crop cultivation packages ensuring high productivity per unit input. 4
Crops Yield (MT/Ha) Conventional Drip Payback period Incremental Qty Incremental income Approx. Cost of Drip Sugarcane 128 170 42 84,000 1,00,000 Cotton 2.6 3.7 1.1 44,000 1,00,000 Grapes 26.4 32.5 6.1 91,500 1,00,000 Potato 23.6 34.4 10.85 86,800 1,00,000 Banana 57.5 87.5 30 3,00,000 87,000 Tomato 32 48 16 48,000 1,00,000 Sweet lime 100 150 50 3,00,000 55,000 Watermelon 24 45 21 2,10,000 87,000 Incremental income is sufficient for the farmer to repay a loan for installing drip irrigation either after 1 st harvest or at most 2 harvests. 5
Jain Irrigation Systems Ltd. (JISL) has a multi product industrial profile aimed at the Farmer community spread largely in the rural and semi-urban areas in India. World number one in Drip Irrigation with Pipe Production World number one in Tissue culture Banana Plant Production Engaged extensively in Tissue Culture, Hybrid & Grafted Plants Pioneer of Micro Irrigation Systems in India Globally second and the largest irrigation Company in India. The largest manufacturer of PVC & PC sheets in India and globally among the first 5 Companies Jain Irrigation Systems Ltd 6
About SAFL SAFL is a NBFC promoted by Jain Irrigation Systems Limited (JISL). IFC, Washington is the first and anchor investor in the Company with 10% holding. Recently, Mandala Capital Ltd an agri business focused private equity fund has invested in SAFL to the extent of 20% of the total equity holding of Rs.1200 million.(us $ 20 mn) SAFL is exclusively focused on Farm & Farmer SAFL is the first private sector NBFC in India providing only agri- loans with a wide and diverse range of financing options for almost every need of agricultural activity. 7
Objectives of SAFL Farmer Empowerment Increased Agricultural Production Rural Prosperity & Inclusive Growth 8
Sustainable Agro-commercial Finance Ltd. (SAFL) has been accorded a Certificate of Registration by RBI to function as a Non Banking Finance Company (NBFC) in July 2012. SAFL currently has its Head Office in Mumbai, 4 Zonal Offices, 24 Branches & 19 Satellite Offices in Maharashtra state. In addition, SAFL is operating at 6 locations in Karnataka state and 1 location in Telangana state. The distribution network thus comprises 54 offices excluding HO. SAFL is currently offering 10 main products to the agriculture community SAFL s website is www.safl.in An Overview 9
INDIA 10
Location of Branches in Maharashtra State Satellite Offices -19 Branch /Zonal Offices - 28 Total Offices (Excluding HO) - 47 New Locations other than Maharashtra - 7 11
New Locations in Karnataka & Telangana State New locations other than Maharashtra = 6 Zonal office in Karnataka = 1 12
An Overview SAFL has started business operations effectively in April 2013 and has begun its financing activity in the state of Maharashtra, to begin with as Phase I. Phase II will expand operations of SAFL in the states of Karnataka, Andhra Pradesh and Madhya Pradesh. It has started business operations in the state of Karnataka, Andhra Pradesh & Telangana in current FY 2014-15 Phase III will further expand business operations in the states of Gujarat, Tamilnadu, Rajasthan and Haryana. This will occur in FY 2016-17 SAFL will have around 250 offices in India in 5 years time. 13
Raising of funds During FY 2014-15, SAFL has successfully raised funds of Rs 1120 million (approx. US $ 18.50 mn) by way of equity at premium and debt from an overseas PE Investor by the name of Mandala Capital Ltd.(Mandala). Mandala has invested Rs 240 million (US $ 4 mn) in SAFL s capital with a share premium of Rs 180 million (US $ 3 mn) In addition to the equity subscription mentioned above, Mandala has extended an additional Rs 700 million (US $ 11.50 mn) to SAFL by way of Non- Convertible Debentures (NCD) without any security. These NCDs are for a period of 75 months to be repaid as a bullet payment after 75 months with half yearly interest payment at rate of 10% p.a. Paid up, Issued and Subscribed Capital: Rs. 1200 million (US $ 20 mn) 14
Staff Strength Jalgaon Zone(25) Zonal Manager -1 BDMs 19 Credit 2 Legal 2 Recovery - 1 Mumbai HO (29) MD & CEO -1 Accounts- 4 Admin- 4 Credit- 5 HR-3 IT-1 Legal- 1 Operations-9 Treasury-1 Pune Zone (36) Zonal Manager- 1 BDMs- 30 Credit - 2 Legal 1 Recovery - 2 Aurangabad Zone (32) ZM - 1 BDMs- 22 Credit - 4 Legal 3 Recovery-2 Amravati Zone (20) Zonal Manager - 1 BDMs - 16 Credit - 1 Legal - 2 Total Business Development Managers (BDM) in Maharashtra = 87 + 4 ZMs Total (BDM) other than Maharashtra = 5 Total SAFL s staff as on 31 st March 2015:- 147 15
1. Micro Irrigation System Financing 2. Farm equipment financing 3. Contract Farming Finance 4. Agri Projects Financing 5. Agri-business Financing 6. Financing Pipes & or motors / pumps for lift irrigation 7. Dairy Loan Cattle, Equipments & Sheds 8. Solar Module Financing 9. Financing Agro based Industry viz; Ginning mills, Jaggery Unit, food processing unit like fruit juice, Tomato Sauce etc. 10. Short Term Crop Loan Financing offered by SAFL 16
Financing offered by SAFL Micro Irrigation System Financing This product is offered to farmers who are in need of financing for purchase / installation of MIS in their farms. The tenor applicable is usually 3 years but can go upto 5 years depending upon crop harvesting period (e.g. pomegranate, mango plantations). Farm Equipment financing This product is offered to farmers who are desirous of buying farm equipment and require financing for the same. These would include tillers, pneumatic ploughs, deweeders, rotavators, harrows, threshers, harvesters etc. The tenure and other product features will vary on the basis of crop; however maximum tenor for this product will be 60 months. 17
Financing offered by SAFL Contract Farming Finance This product is offered to farmers who have tie-ups with third party to sell their produce and they are in need of Credit for installation of MIS. The third party will ordinarily guarantee repayment of loan out of agriculture produce supplied by the farmer to the third party. Acceptance of third party s financial credentials will be in conformity with SAFL's pre-determined criteria. Agri Projects Financing Agriculture Project Loans are offered to farmers having strong credit record for a maximum period of 5 years to finance expenses related to farm infra development. Activities that are covered under Agri Project development include land development, farm ponds, Poly Houses / Green Houses, Nursery, Fruit Orchards and such others. 18
Financing offered by SAFL Agri-business Financing This product is offered to existing client / farmers / dealers to meet working capital requirements arising out of small and allied businesses. Generally, such type of loan is provided for a maximum period of 3 years and renewed annually on the basis of satisfactory conduct. Financing Pipes & or motors / pumps for lift irrigation This product is offered to farmers who have minimum of 5 acres of land holding and are desirous of installing pipeline for lifting water for their farms and require financing for the same. Components include motors, pumps, pipeline, excavation and installation costs. The tenure is generally 5 years. 19
Financing offered by SAFL Dairy Loan Cattle, Equipments & Sheds A medium to long term loan facility to finance expenses related to setting up of dairy project which would include purchase of buffalos / cows / chap cutter / milking machine / shed etc. Solar Module Financing This product is offered to clients for purchase of solar equipment. The objective of this product is to encourage farmers / individuals to invest and utilize renewable sources of energy by providing credit facility in a hassle free manner and at reasonable terms. The usual tenor is 24 to 60 months depending upon the equipment that is financed. Products include solar pumps, solar water heaters, solar lighting appliances. 20
Financing offered by SAFL Financing Agro based Industry This product is offered to businesses which require Medium term loan for capital investment or for Short term working capital purpose. Tenure will range between 1 years to 3 years. Businesses include cotton ginning mills, Jaggery units, fruit processing and such others. Short Term Crop Loan is offered as package bundled with other products such as MIS / Lift Irrigation / Agri Project Finance for existing borrowers for meeting immediate needs for working capital of new crops. 21
Customer Profile High End Farmers Medium End Farmers Small Farmers Marginal Farmers SAFL Leasehold Land Tillers 22
Customer Profile Social Status / Characteristics Leasehold Land Tillers Marginal Farmer Small Farmer Medium End Farmers Higher End Farmers Average Land Holding Annual Family Income 1 acre to 5 acres 1 Acres to 2.5 Acres 2.5 Acres to 5 Acres 5 Acres to 10 Acres > 10 Acres < 1,00,000 < 1,50,000 < 3,00,000 < 6,00,000 > 6,00,000 Repayment Tenure Linked to harvesting cycle Linked to Harvesting Cycle Linked to Harvesting Cycle Linked to Harvesting Cycle Linked to Harvesting Cycle SAFL s customer segment are all individual farmers who are capital starved and need financial assistance for capital investment in their agriculture holding 23
Sourcing of business Jain Irrigation has more than 1500 Dealers across Maharashtra state and over 5000 dealers pan India. SAFL also uses the same Dealer network to source clients for its loan products. Thus, most loan proposals originate from Jain Irrigation dealers end. This piggy backing on Jain Irrigation s dealer network facilitates deep penetration minus the distribution cost to SAFL Apart from the above, SAFL s business development officers differentiate potential villages on the basis of various parameters such as crops grown, track record of farmers, availability of irrigation facility, land holding of the farmers and accordingly have been organizing farmer meetings and informing them about various products offered by SAFL. SAFL also organizes camps during a local festival in the villages to impart information and knowledge about the products offered by SAFL. 24
Typical Process Flow For Financing Drip Irrigation 1. Jain irrigation s dealer finalises choice of drip irrigation system with farmer including design and components with farmer. He enquires if the farmer needs financing for the same. Most small and marginal farmers need financial assistance. 2. Competitors are banks, co-operative societies & money lenders. The dealer points to SAFL as a good, quick turnaround, hassle free and competitive pricing agency. The dealer offers all assistance to farmer to complete requirements of SAFL. 3. The farmer submits the application form along with land holding documents and KYC documents. The application form provides for information about personal details, land details, family particulars, borrowings, assets, etc. 4. These are handed over by dealer to Business Development Manager (BDM) of SAFL - i.e. the Relationship Manager. 25
Typical Process Flow For Financing Drip Irrigation 5. The BDM will carry out a field visit and validate KYC details. He will also verify irrigation source, crop details, standard of living, repayment track record etc. 6. If the loan proposal meets with pre-determined eligibility criteria, only then will the BDM submit above mentioned information and Field Inspection Report (FIR) along with documents to Credit Dept. at Zonal office along with his recommendations. 7. Credit verifies the information contained in the FIR and accompanying documents. Credit also verifies CIBIL (credit information bureau) records to find out loan repayment record. Credit carries out detailed appraisal as per scoring model including rating of the customer, find income levels (pre loan and post loan) to find out capacity towards repayment etc. 26
Typical Process Flow For Financing Drip Irrigation 8. Credit either sanctions / rejects the proposal. If sanctioned, Credit issues a sanction letter. The sanction letter is mailed to the BDM who hands it over to the farmer. A copy of the sanction letter also goes to Legal Dept. in zonal office. 9. Legal Dept. prepares the legal documents by filling in all particulars and mails them to BDM to take a print out and execute the same. 10. After execution of legal documents, documents are sent to Legal Dept. for vetting. 11. After vetting legal documents by Legal Dept., and if all documents are in order, Operation department will disburse the loan. 12. In addition to the BDMs, collections and recoveries are carried out by a dedicated Debt Collection team at select locations. 27
Process Flow A Summary Dealers provides application forms and information of SAFL s product to the customers Receipt of complete Application form and other documents by dealers / SAFL s Branch staff Verify whether it satisfy minimum criteria Verification by Branch staff with the due diligence / Personal discussion / FIR Execution of Legal documents in line with the sanctions Issuance of Legal documents on the basis of sanctioned terms Appraisal / Sanction by Zonal Credit / appropriate sanctioning authority. Process for disbursement and verification of Legal documents as stipulated in sanction Upon confirmation from Legal, Operations disburses the loan amount and intimate the customer Compliance of Post disbursal documents 28
Approach to Credit Decision Borrower Characteristics Crop Characteristics Transactional & Financial Characteristics Credit Score Factor 29
Credit Rating Credit rating model is designed on the basis of quantitative as well as qualitative parameters. Some of them are:- Borrower Characteristics Age of the Applicant Annual Family income Year on year growth in income Land holding Farming practice Total loan installment to total income Crop Characteristics Type of Crop with appropriate region Availability of Minimum support price Cropping pattern Potential increase in yield after using MIS Transaction and Financial Characteristics Loan to Valuation of land Tenure of loan Guarantor type CIBIL score 30
Performance Indicator Performance indicators of SAFL for the period 1 st April 2014 to 31 st March 2015 Sr. No Category No. of Farmers Amount in Rupees (millions) 1 Sanctions 7210 970 2 Disbursed 6494 952 3 Repayments - 423 4 Loan Outstanding 13450 1564 5 NPA 62 11 (0.70%) Average ticket size per loan:- Rs. 1,20,000 (US $ 2000) Total loan disbursements in last 2 years : over Rs. 2.1 bn (US $ 35 mn) Total farmers assisted in last 27 months : over 20,000 SAFL has broken even in its first full year of business operations 31
Cost SAFL operates on cost plus basis. SAFL follows hub & spoke model, where Satellite offices must break even in 1 st year after achieving business of Rs. 30 Mn and are converted into Branch office. Branch offices after achieving business of Rs. 100 Mn are converted into sub-zonal office. 32
SWOT Analysis Strengths Easy & Fast appraisal and disbursement based on pre-determined parameters and a credit scoring system. Usage of latest technologies for processing, sanctioning and disbursing loans to farmers. Strong and stable dealer network of Jain Irrigation Systems Ltd. (JISL) which has presence in remote topographies Offer end to end solution to farmers from sale of JISL s product to offering of loans under one roof. Weakness Access to operating capital. 33
Opportunity SWOT Analysis Small and marginal farmers who constitute more than 80 per cent of total farmer households in the country face exclusion from the formal financial channels. First entrant in the NBFC channel to provide gamut of agri finance. Threat Downturn in the economy due to low rain fall will have serious impact on the business of SAFL. Competition from existing Banking / Rural banking channels providing loan at lower interest rate. Increase in defaults of agriculture loans in India. 34
SAFL's first loan for MIS was sanctioned to Smt. Kamalbai Haribhau Ugale, who is a widow. She belongs to Shevgaon village in Ahmednagar district, Maharashtra state. ACTUAL PICTURES OF BUSINESS SOURCING AND CREATING AWARENESS Smt. Kamalbai Ugale has 1.11 acre land holding which makes her a marginal farmer. Smt. Kamalbai Ugale accepting the sanction letter outside her home from Business Development Manager of SAFL. 35
Farmer meetings are arranged regularly across Maharashtra to create awareness about SAFL s products and processes. Jain Irrigation s Dealers acts as First Point of Contact for SAFL s products. Farmers are made aware of pre sanction and post sanction documents that is required to be submitted as well as regarding Rate of interest offered by SAFL for different products. Farmers are also informed about the repercussion of non payment of dues. ACTUAL PICTURES OF BUSINESS SOURCING AND CREATING AWARENESS 36
Farmer meetings 37
SAFL Officers on field 38
SAFL Family 39
THE FUTURE VISION TO GROW SAFL INTO A BANK WHICH WOULD BE ONE OF ITS KIND, CATERING TO THE FULL GAMUT OF BANKING SERVICES TO FARMERS ALL OVER INDIA - IN SUM- A UNIQUE INSTITUTION FOCUSSED ON FINANCING AGRICULTURE IN INDIA 40