Improving financial health of dairy farmers and micro-enterprises: Why we invested in DGV

Bhanu Kothiya is a second-generation dairy farmer in Amreli, Gujarat where she rears three cows. Recently, one of her cows succumbed to a disease and one has stopped producing sufficient milk. She needed to purchase new cows to maintain her income but did not have sufficient savings. The alternative was to take a loan, but multiple visits to bank branches in her town proved to be difficult, owing to the lack of sufficient information for the bank to reliably estimate Bhanu’s income.

This isn’t a unique challenge faced by Bhanu alone. India has ~80 million dairy farmers, vast majority of whom face similar challenges:

1) They are underserved by formal financial institutions due to low banking penetration in rural areas and lack of reliable data on farmer incomes

2) India’s bovine productivity, or the milk yield per cow, is significantly lower than global averages due to low genetic potential of common breeds as well as nutritional deficiencies.

India’s dairy industry, which holds a 24% share in global milk production and supports livelihoods for millions of rural households, needs a sustainable solution.

DGV, founded by Ragavan Venkatesan in 2019, is an agri-fintech startup focused on India’s dairy industry. Ragavan is a payments industry veteran with deep expertise in rural banking. He was one of the founding members of IDFC Bank and led the financial inclusion and government payments vertical at NPCI. He also conceptualised and implemented the Aadhaar-enabled payment system of NPCI.

DGV is building an integrated neo-banking and marketplace platform to deliver comprehensive digital financial services (savings and current accounts, payments and collections, working capital loans, cattle loans and insurance) and dairy inputs (cattle, feed, equipment, veterinary services) to dairy farmers and micro-enterprises. Through its co-branded neo-banking outlets located at milk collection points, DGV envisions a financially secure and sustainable future for India’s dairy farmers and micro-enterprises.

What are the stressors for India’s dairy farmers and micro-enterprises?

India’s dairy industry with an estimated market size of Rs. 14.8 trillion^[1] in 2022, contributes 4.5% to our country’s gross domestic product. It is a critical source of livelihood in rural India, especially for marginalised communities and women. Majorly cash-driven, the industry is aggregated by ~200,000 dairy cooperatives across India. The cooperatives procure milk from dairy farmers and supply it to ~200 dairy unions, who ‌process and distribute the products. While dairy cooperatives have built deep market linkages for India’s dairy farmers, access to convenient and affordable financial products remains an unsolved problem.

According to estimates by the Reserve Bank of India (RBI), only 41% ^[2] small and marginal farmers in India have access to bank loans. Even for those who do, the process of securing a loan takes between four to six weeks and involves four to five visits to a bank branch. For dairy farmers who typically spend considerable amounts of time on field work in agriculture and allied activities, this back-and-forth is daunting. Alternative sources of capital, including informal credit and micro-finance, are expensive and, hence, not preferred.

The challenges are not just restricted to borrowing. Due to low banking penetration in rural India, dairy farmers are largely dependent on cash to manage their day to day lives and working capital requirements. A cash-based economy with minimal digital trail of financial transactions makes it difficult for banks to underwrite credit to this customer segment. ‍

Business model and team

DGV aspires to become a one-stop shop for the financial and non-financial needs of dairy farmers and microenterprises. The agri-fintech startup has developed three distinct product lines for this customer segment:

● DGV Pay: Savings accounts for dairy farmers and current accounts for dairy cooperatives. Payments and collections are processed at micro-ATMs set up at milk collection points. DGV Pay helps digitise the cash flows of dairy farmers and offers the flexibility to withdraw cash whenever required.

● DGV Money: Customised dairy credit and insurance products for farmers and micro enterprises including digital bovine loans, working capital loans, digital bovine insurance, digital dairy loan, as well as digital Kisan Credit Card loans. Financial products are currently offered in partnership with Federal Bank and HDFC Bank and Karnataka Bank.‍

● DGV Connect: Marketplace for discovery and purchase of bovines and dairy input products (eg. feed, fodder, equipment) and services (eg. para veterinary services) along with embedded financing options, enabling lenders to verify loan end-use.

DGV works with ~930 milk societies to serve ~75,000 dairy farmers in Gujarat currently. It plans to expand to Karnataka, Andhra Pradesh, Telengana, Madhya Pradesh and Maharashtra over the next two years.

DGV’s efforts have found resonance among industry leaders, including Amul, the largest dairy cooperative in India. RS Sodhi, the president of the Indian Dairy Association and prior MD of Amul, believes payment digitisation efforts by DGV can benefit 3.6 million dairy farmers who are part of the Amul supply chain.

‍Our thesis

India’s dairy industry supports the livelihoods of millions of small and marginal farmers, enabled by India’s dairy co-operatives who have solved for market linkage even in remote rural areas. Improving access to affordable and convenient financial products is the crucial next step in advancing the financial inclusion journey of India’s dairy farmers and micro-enterprises. DGV’s integrated neo-banking and marketplace model promises to:

1) bring millions of under-banked dairy farmers into the formal banking economy by enabling seamless access to banking services embedded within milk collection points

2) enable better design, underwriting and automated collections for affordable loans to dairy farmers and micro-enterprises improving livelihood opportunities and financial well-being

3) enable better access to dairy inputs products (cattle, fodder, equipment) and services (veterinary/ advisory) to enhance productivity and sustainability for dairy farmers and micro-enterprises.

We believe this could create a virtuous cycle of increased productivity and capital availability for dairy farmers and micro-enterprises, while lowering credit and operating costs for financial institutions, enabled by data driven underwriting and enhanced risk management through end use monitoring and automated collections.

DGV thus promises to unlock a new era of sustainable growth and financial well-being for India’s dairy farmers and micro enterprises.  And that is the rationale behind our investment.