Say, you’re a biscuit manufacturer. Your main ingredient, wheat, is available at its best price and quality in April, right after harvest. But you’re not a large manufacturer, and can’t afford to pay for it upfront. You need a loan.
But what if, rather than a bank, investors gave you the loan instead?
Unlike a bank loan, this would mean that investors owned the produce until you actually wanted it, and the transaction would not show up as debt on your balance sheet. You’d also have the flexibility of buying the produce from the investors at any time within the predetermined time frame. In contrast, bank loans require fixed payments at regular intervals.
This is what 10-year-old agritech startup Origo Commodities is trying to do. It’s pitching an alternative to bank loans for traders and buyers of produce to finance their purchase. This alternative, the first of its kind in India for agricultural produce, is securitisation.
In October 2020, along with its financial services partner Vivriti Capital, it securitised Rs 4.7 crore ($640,000) of maize. Origo sourced the maize in Gulab Bagh, Bihar, and raised money from investors, who paid for the product. In return, the investors were promised 12% interest per annum at the end of one year.
Right now, only agri-finance institutions have invested, says Sunoor Kaul, co-founder of Origo. However, the company’s long-term aim is to enable individual investors to park their money in farm produce for a fixed return, he adds.
Nearly half of Origo’s Rs 295 crore revenue for the year ended March 2020 came from procuring and warehousing more than 20 commodities for clients. From grains such as rice and wheat to vegetables such as lentils and soybean. The company has more than 500 warehouses across 12 states, storing produce worth $1.4 billion.
Securitisation is an additional revenue stream for the company, apart from warehousing and trade finance (giving loans to manufacturers, traders and buyers). Origo and Vivriti get between 1-1.5% of the total value of produce to be procured by the buyers as fees.
However, even though agriculture and allied sectors is a $276 billion $276 billion IBEF Agriculture in India: Information About Indian Agriculture & Its Importance Read more industry, there are limitations. If short-term agri loans are to be an attractive investment for investors, the rate of return would have to be high. But increasing the rate of return would make it less lucrative for buyers to seek investors in the first place.
Origo’s transaction also needs to achieve the highest rating awarded by credit rating agency ICRA (formerly Investment Information and Credit Rating Agency of India) in order to get better investors.