The value chain finance model developed and implemented by Samunnati is adaptable to diverse contexts, products, and environments. Samunnati is now expanding its footprint across various food and agri value chains by setting up new Points of High Impacts and new Channels of High Impacts including working through community based organisations like Farmer Producer Organisations (FPOs, Cooperatives). Samunnati believes in being friends of being.
Samunnati started its operations in Tiruvannamalai District in November, 2014. Based on initial research in the district Dairy came across as a promising value chain where Samunnati can make a difference to itself and to the dairy producer clients and later expanded its operations to Value Chain Finance in Gherkin Value Chain.
Dairy was an activity where a lot of credit was invested. However, the value chain faced the following challenges in terms of financing, as the financial institutions focussed more on short-term finance for dairy farmers and other stakeholders in the value chain based.
Samunnati has designed financial solutions for actors engaged in Dairy value chains, most of whom are small producers who rarely have the kinds of assets that can act as collateral for a financial institution. For Samunnati, personal guarantees are equally valuable as is the hard collateral. In fact, an interesting form of personal guarantee, that Samunnati works on – is from an aggregator who buys milk from small farmers. Using such approaches Samunnati designs financial solutions under dairy value chain:
Gherkin is not palatable with Indian taste but is a major dietary constituent to many European countries and the USA. Since there is a growing worldwide demand for pickled gherkins, more and more Indian food companies have started to explore opportunities for producing gherkins.
Contract farming with agronomical support from technicians has developed to be the most appropriate method of growing gherkins. The Gherkin farmers enter into a forward contract with local Aggregators for cultivation and purchase of Gherkins. These Aggregators often have to support the farmers with credit (both in-kind and cash) for inputs and other finance needs. Though the Aggregators provide this credit facility to farmers, they have to face working capital challenges for 3 – 4 months till they procure the produce from the farmer, sell it the exporters and then receive the proceeds after 15-20 days of credit period. This scenario provides a scope for a formal financial institutions’ intervention.
Samunnati’s unique Gherkin Agri Loan product targets Aggregators and farmers engaged in contractual farming of Gherkin to free up the value chain from working capital constraints, allowing aggregators to reach out to a larger number of farmers and more importantly serve and assist their existing farmers better. The Agri Gherkin loans are secured by tripartite agreements between Samunnati, Gherkin Aggregator and the Gherkin farmers, cash flow trapping and assignment of receivable of Gherkin produce.