Digital technology is improving day by day, and it is helping a lot of agribusinesses and farmers to achieve scale, build resilience, and develop sustainable solutions.
Digitization brings innovation into agriculture. Before the advent of digital solutions, farmers were frequently forced to take loans from money-lenders on unfavorable terms and conditions because of the geographical inaccessibility of banks in rural areas. In short, there existed this gap between farmers and financial institutions.
However, digitalization has helped break this barrier. Farmers who require money can now easily obtain the necessary funds they need by harnessing the power of digital technology. More importantly, the advent of digital technology has allowed banks to target a new farmer-centric market, which can help banks profit as well. Digital solutions have enabled a lot of advanced processes to grant crop loans to farmers. There are numerous digital methods of distributing crop loans, one of which is “Kisan Credit Cards.”
With the introduction of digital solutions in the field of crop loans and crop insurance, it has become easier for farmers to access loans. Claiming crop insurance was an equally difficult problem, which has been considerably eased. At the other end, banks and insurance companies too had no way to assess risk. But now, with the arrival of digital technology and solutions, a lot of data is made available, using which financial institutions can assess risk. A partnership with a digital technology company enables banks and insurance companies to provide loans and settle insurance claims in a far more ‘data-driven’ manner. With digital solutions and a wide variety of smart technology such as data management software analytics, it has become easier to address such challenges and resolve them.
In March 2019, the NAU Country Insurance Company (a QBE Insurance company which is known to be one of the largest federal crop insurance providers in the United States) and the Climate Corporation came together so that seamless crop insurance reporting can be enabled for the U.S farmers. Along with these programs, some different companies and organizations use digital technology to offer numerous other insurance programs to farmers all over the world. Recently, it has been announced by the Farmer’s Business Network (FBN) that it will be using FBN Insurance, LLC, to provide insurance for crops. With these agreements, it will become more comfortable for the farmers to use precision farming so that their plants can be protected through numerous climatic conditions. Also, it will be providing risk management solutions according to the requirements at different stages.
The delivery process of crop loans must be made transparent, simple, and efficient. This will allow hassle-free, timely, cost-effective delivery of credit to the farmers, and they can access it conveniently. A well-evolved methodology should be used to deliver crop loans that must comprise crop seasonality, crop-wise acreage, and district-wise scale of finance.
The banks need to change the way they look at crop loans. If this happens, then the banks leverage the multi-billion worth banking opportunity. If they take this on,disruptively and proactively, it will make the crop loaning process a competitive business.
It is a must to promote some new and digital methods so that crop insurance becomes a preferred choice of farmers. Some of the factors may be an early deposit of premium to insurance firms that were collected by the banks up to date are : payment of premium subsidy by central or the state government, constructing efficient grievance mechanisms, using digital technology to ensure that the experiments at farming level are conducted in a timely manner.
Crop loaning, crop cultivation and crop insurance becomes particularly risky when weather conditions are not favorable. There exists the possibility for information asymmetry. Factors such as the type of fertilizer the farmers use, the availability of pesticides, the pH of the soil and past records are some of the many factors that banks need to analyze. Failing to take this into account can cause distress to both banks as well as farmers. But banks do not analyze risks at the farm level in farmers’ decisions of crop loaning. Rather, measures such as updating microdata of farmers on NDPF may help enhance proper risk management systems. This can be done by generating a ‘Farmer Rating and Credit Score (FRCS)’. The risk management system in the approach of lending would help in assisting legitimate borrowing by the farmers. This way, the fear of insurance claims can be eliminated.
If mobile and digital wallets are integrated, the transparency of the transactions can be enhanced, and the farmers will be getting faster payments.
Several financial services such as crop insurance, credit, payments and collections in the agriculture value chain can be managed comprehensively.
The generation of farm business plans based on the current market prices and historical cost of cultivation can advise the farmers on the crops that must be grown in order to avoid the circumstances of claiming crop insurance.
These are some of the ways in which digital solutions can help the financial sector, thus easing farmers’ access to crop loans and crop insurance.
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