If you thought farm produce could not fetch loans, think again. Staragri’s warehousing facility allows rural farmers to use their harvest as collateral to avail loan finance. Amit Agarwaal, Founder and CEO tells us how this works!
Q. Tell us a little about your business.
A. We provide warehouses to farmers and agri-processors to store agricultural produce. At the time of harvest, the value of produce is low. So if a farmer wants to sell his produce three months after harvest season, he can use our facility. He can also use this produce as collateral security to get short term loans from banks.
While issuing loans, banks want to know the value of the goods that are stored. But they cannot spend time in valuation. So we at Staragri, value the goods, verify the quality and quantity and issue a receipt. This receipt entitles a farmer to get a bank-loan of upto 75 per cent of the value of his goods.
Once a loan is taken by the farmer, we can’t release his goods until, the bank informs us that the loan is repaid.
Q. How did you get this idea?
A. All of our promoters have been into agriculture for many years. We realized that banks don’t give loans to farmers due to lack of collateral assets. And farmers usually take money from intermediaries like wealthy zamindars (moneylenders) who charge very high rate interest.
We wanted to make this sector organized. So in 2005 we spoke to ICICI bank who funded our company.
Q. What’s your revenue model?
We get rent from farmer/ depositor of goods. He also pays us the insurance charges. And the insurance company gives us 5 per cent commission.
We get collateral charges from the bank when depositors take loans. When we value goods, we charge the depositor.
Q. What were the problems you faced while starting up?
A. No bank was willing to fund us as this was a high risk business. As per RBI rules, 18 per cent portfolio of any bank should be in agriculture. But ICICI banks saw this as a relatively safe product. They were not directly risking on agriculture, but still contributing to it. Once we proved ourselves, many banks came forward.
Q. How do you manage the risk involved if someone does not pay-up?
A. If the farmer does not payback the loan, we are liable to pay, as we own the stock. So we take the responsibility to liquidate the goods in the market.
Q. What about challenges along the way?
A. Once a fire occurred in the warehouse. We had insurance, but the recovery procedure took a long time – six months! Our warehouse models are lease-based models so we can’t maintain them the way we want to. Now we are trying to create our own infrastructure. Ours is a capital intensive business.
Again, agricultural sector is not glamorous. So no management graduate from a good B-school want to be here. We are now recruiting people from tier two schools and training them.
Q. How big was your team when you first began? How big is it today?
A. When we began we were four of us. Now we are 350 people with a presence in 7 states and over 70 cities. We have 600 leased-based warehouses.
Q. What support are you looking for, as an entrepreneur at the BoP?
A. We need investment and talented people in our company.
So if you are motivated to change the face of India’s agrarian sector, join hands with Amith and his team to work towards that reality. More info at www.staragri.com