Blockchain & financial inclusion: Digital lending reaches the farm gate

Warehouse receipt financing was created to help farmers get working capital against their stocks lying in warehouses but it has been plagued by fake receipts, multiple collateral use and frauds such as the Rs 5,600-crore NSEL commodity exchange scam. More than 90% of warehouse receipt finance is cornered by traders and farmers are yet to be part of this in a big way.

To bring back trust and transparency in the warehouse receipt financing market and make it work for farmers, the Maharashtra government has been testing the use of blockchain technology. Maharashtra State Warehousing Corporation (MSWC) ran a blockchain pilot across 16 warehouses in five locations—Pune, Ahmednagar, Wai, Washim and Bashmathnagar—from February 21 to April 27 this year. Enabling the MSWC in this was fintech solutions startup, Whrrl.

During the pilot run, 50 transactions were carried out and loans totalling Rs 87.31 lakh were distributed. Farmers accounted for 41 of these transactions and raised loans of Rs 68.27 lakh against the warehouse receipts. Traders raised Rs 19.04 lakh in nine transactions. During this period, 535 receipts were generated for 65.77 lakh kg of goods valued at Rs 38.93 crore. Farmers accounted for 192 receipts, traders were at 178 and government entities such as NAFED generated 165 receipts.

“We are making loans available to farmers from banks at around 9% interest rate. Currently, the loan process for farmers takes 7-15 days with a lot of documentation and verifications. Whrrl allows the transfer of the loan amount to farmers in just five minutes in a secure and transparent way,” says Ashish Anand, co-founder, Whrrl.

Whrrl is the first independent blockchain platform in the country to cross the $5-million transaction mark within three months of launching its pilot with MSWC. It has now on-boarded Maharashtra State Cooperative Bank as a lender on its platform and the bank has committed Rs 2,000 crore of corpus for lending to farmers through Warehouse Receipt Finance.

Anand says Whrrl’s solution combines blockchain along with IoT and Smart Contracts to make it easier for farmers to get loans against any commodity lying in the warehouse without any guarantors. For the banks, it becomes a risk-free lending process and brings transparency into the system. “Despite lockdown restrictions during the pilot run, the number of loan transactions carried out by farmers using warehouse receipts was encouraging while traders and government entities also engaged actively on the blockchain platform,” says Anand.

The platform aims to protect farmers from financial loss due to low market prices at the time of harvest and increase their income by 30-40%. Whrrl’s blockchain network and mobile app connects banks, warehouses/ collateral managers and borrowers on one single platform. Using blockchain’s tokenisation and immutability properties, the network reduces risk of lending for banks and smart contracts help increase efficiency for other participants.

Founded by Ashish Anand, Falguni Pandit and Abhishek Bhattacharya, Whrrl has received grants from IIM-Ahmedabad, being part of its financial inclusion accelerator and another grant from ICAR-NAARM lab. It is in the process of raising Rs 15 crore in funding and has received term sheet of Rs 3 crore with a commitment of Rs 5.50 crore. Enthused by the agri reform bills and other initiatives to develop warehousing infrastructure closer to farms, Whrrl is also launching an e-trading platform. It has just received a pilot order in Telangana too.

There are 64,000 agri warehouses in the country with a capacity of 150 million metric tonnes. The warehousing receipt financing market is estimated at Rs 74,000 crore. Many of the players in the agri commodity supply chain have started adding fintech solutions to their portfolio. The much neglected sector is finally getting some well-deserved attention and hopefully farmers would benefit with the infusion of technology, finance and reforms.