Non-banking finance company Sustainable Agro-commercial Finance Ltd (SAFL), which specialises in providing loans to individual farmers, will seek to convert itself into a small finance bank by 2018, according to MD & CEO Arvind Sonmale.

The Jain Irrigation Systems-promoted NBFC, which started operations in late 2012, has five lines of business — micro-irrigation system financing, small business loans, agri-project financing, solar product financing, and third party tie-ups.

Sonmale said: “We will become a small finance bank. We qualify on all the parameters (branches, business, and financial inclusion) that the Reserve Bank of India has prescribed for a small finance bank license except one — they want five years of operations.

“…So, we have to wait for two more years before we become eligible on that ground. After two years, the plan is to convert SAFL into a bank.”

SAFL’s final goal is to convert itself into an agriculture-focussed bank, which will provide end-to-end solutions for farmers, including crop loans, personal/education/housing loans, deposits, money transfers.

Small finance banks, as envisaged by the RBI, will further the cause of financial inclusion by providing savings vehicles, and supplying credit to small business units, small and marginal farmers, and other unorganised sector entities through high technology-low cost operations.

As at March-end 2015, the loans outstanding on the SAFL’s books stood at ₹156 crore, against ₹95 crore as at March-end 2014. The average loan size is about ₹1.20 lakh.

In FY15, the NBFC made a net profit of ₹2 crore (after taking into account one time exceptional expenditure for raising funds from Mandala Capital), against ₹13 lakh in the previous year. Its shareholders are: JISL (58.8 per cent stake), Mandala Capital (24 per cent), and IFC, Washington (12 per cent).

Outlining SAFL’s business model, Sonmale said: “We cater exclusively to an individual farmer (retail agriculture). For other NBFCs, this (agriculture financing) is one of the many activities that they do.

“We will finance anything that can add to the income and productive capacity of a farmer. We will not finance consumption loans because they do not add to the farmer’s prosperity. We would like farmers to move from sustenance to sustainable farming.”

Loans for installing MIS (micro irrigation systems) account for 73 per cent of the total loan outstanding. SAFL finances MIS manufactured only by JISL. In the case of other lines of business, it provides finance for farm equipment manufactured by non-JISL companies.

“So, there is synergy between us (SAFL and Jain Irrigation Systems), although we work at arm’s length. Also, drip irrigation helps the farmer to increase the yield, lower water usage for farming as well as save on fertiliser and pesticides,” explained Sonmale.

In five years, loans for JISL and non-JISL products will account for 50 per cent each of the total loan portfolio, he said, and added that by 2018, SAFL expects to grow its loan book to about ₹2,500 crore and have 175-200 branches.

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