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Updated Apr 23, 2019

Farmer in india

Financial Product for Sugarcane Farmers to Address Credit Constraints

Part of J-PAL Global

http://ifmrlead.org/testing-an-innovative-financial-product-for-sugarcane-farmers/

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Stage 2: Research & Development

Sugarcane is one of the most important cash crops in India. The sugar industry is fast growing in India with it being the 5th largest agricultural industry providing an economic value of 8.61 billion dollars. The production of sugar cane depends on a large number of small rural farmers who provide their crops to designated sugar mills. One of the main problems for farmers in sugarcane cultivation is the long crop cycle; it normally takes a year from sowing to harvest. This long crop cycle poses liquidity problems for farmers as formal bank credit is only available for cultivation purposes in the initial months. Thus, after the initial period, farmers are liquidity constrained (till they harvest the cane and supply to the mills).

Registered in India.

Focus Areas:

Agriculture

AgricultureSEE LESS

Implemented In:

India

IndiaSEE LESS

1
Country Implemented In
$101,369
Funds Raised to Date
Verified Funding
?

Innovation Description

To test a product addressing liquidity restraints and financial management problems among sugarcane farmers.
How does your innovation work?
The Small Enterprise Finance Centre at the Institute for Financial Management and Research (IFMR) will test a financial product that specifically addresses the liquidity constraints and financial management problems among small rural farmers in the sugarcane industry in Southern India. This innovative financial aims to help farmers mitigate their consumption and liquidity risk while also reducing the repayment risk and transaction costs to the lenders.

Planned Goals and Milestones

The product takes on key insights from behavioral economics and relies on a structured finance approach where farmers can borrow money through the sugar mill where they process their cane at harvest time. Using the sugar mill as the intermediary allows for cheaper and more certain payment collection. Key features of the product are: 1. Crop Predictability as Collateral; 2. Simple Payment Collection; and 3. Varying Credit Limit.
To meet consumption needs before the harvest is sold, farmers often take on loans from moneylenders at exorbitant rates. As a result, many farmers engaged in sugarcane cultivation get into a debt trap where a large fraction of their income is spent to repay the money lender.

Milestones

Date Unknown
Created
Date Unknown
New Country Implemented In
India