Profitable Indian agri-finance firm says its model can’t be replicated in SEA yet

For farmers across South and Southeast Asia, taking out a loan isn’t easy, and there are only a few ways to access credit. This leads them to borrow from local lenders at steep interest rates – from 2% to as much as 5% per month – against their crops or even their farmland.

To solve this problem, India-based agri-finance startup Arya.ag stores produce from farmers and provides them loans against these goods. The firm also helps them sell their yields to buyers when prices are favorable.

Arya has been in the black since 2013 after it was acquired by Prasanna Rao and Anand Chandra, both of whom previously worked in the agribanking division of India’s ICICI Bank. Prior to its acquisition, the company had a loss of about 2 million rupees (about US$24,000).

Anand Chandra (left) and Prasanna Rao of Arya.ag / Photo credit: Arya.ag

In its most recent financial year (FYE March 2023), Arya has increased its net profit by over 8x – from approximately US$186,000 a year earlier to US$1.4 million.

The reason behind its profitability? The company says it’s because of Rao and Chandra’s ability to run a successful warehousing finance business. The two started their own non-bank financial company (NBFC) called Aryadhan, which they launched to bolster Arya’s operations. The NBFC partners with several banks to lend against farm yields as securities for smaller transactions, typically less than US$2,400.

Aryadhan’s loan disbursals grew by 4x in two years to cross over 10 billion rupees (about US$120 million), and it earns a maximum interest of 17% per annum plus a 2% processing fee on the disbursement amount of each loan.

“At least someone in the supply chain has to handle warehousing, be it the farmer, aggregator, or processor. However, warehousing is often viewed as a cost rather than for preservation in India, mainly due to slim margins in the trade,” Chandra, executive director at Arya, tells Tech in Asia.

The company’s plan now is to expand to areas where banks may not currently operate. “While banks will eventually join, starting this business with lower overhead costs by operating a warehouse makes sense for now,” says Chandra.

Grains stored in an Arya.ag warehouse / Photo credit: Arya.ag

Aside from warehousing and finance, the company also introduced a platform to connect buyers and farmers. Through the service, which charges users a 0.25% fee on total transaction amounts, it ensures that the key concerns of both parties are addressed.

“Since the farm yields are under my custody, I assure the buyer of the quality. Furthermore, knowing most of the buyers, I facilitate limited finance structures to ensure immediate availability of credit to the farmer,” says Chandra.

For example, a farmer depositing produce in the firm’s warehouse might need money before the goods can be sold to the buyer. In such cases, Arya pays the farmer in advance and then collects the money from the buyer.