Venture Capital: A helping hand to Farming community from SFAC, Govt. of India

Venture Capital:

Venture capital is a type of funding for a new or growing business. It usually comes from venture capital firms that specialize in building high risk financial portfolios. With venture capital, the venture capital firm gives funding to the start up company in exchange for equity in the start up. Venture capital (VC) is a type of private equity, a form of financing that is provided by firms or funds to small, early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both). Venture capital firms or funds invest in these early-stage companies in exchange for equity–an ownership stake–in the companies they invest in. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries, such as information technology (IT), social media or biotechnology and Agriculture.

Obtaining venture capital is substantially different from raising debt or a loan. Lenders have a legal right to interest on a loan and repayment of the capital irrespective of the success or failure of a business. Venture capital is invested in exchange for an equity stake in the business. The return of the venture capitalist as a shareholder depends on the growth and profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholdings when the business is sold to another owner.

Venture capitalists are typically very selective in deciding what to invest in; as a result, firms are looking for the extremely rare yet sought-after qualities such as innovative technology, potential for rapid growth, a well-developed business model, and an impressive management team. Of these qualities, funds are most interested in ventures with exceptionally high growth potential, as only such opportunities are likely capable of providing financial returns and a successful exit within the required time frame (typically 3–7 years) those venture capitalists expect.

There are many Private and public financial institutions exist to provide the venture capital to the different business segments however Govt. of India through SFAC has begun to provide the VC for the small to large size agro sector projects since Indian economy is agro based.

What is SFAC?

Small Farmers Agribusiness Consortium (SFAC) is an Autonomous Society promoted by Ministry of Agriculture, Cooperation and Farmers’ Welfare, Government of India. It was registered under Societies Registration Act XXI of 1860 on 18th January, 1994 The Society is also registered as Non-Banking Financial Institution by Reserve Bank of India.

The Society is governed by Board of Management which is chaired, ex-officio, by Hon’ble Union Minister for Agriculture and Farmers Welfare as the President and the Secretary, Department of Agriculture, Cooperation and Farmers Welfare, Government of India, is the ex-officio Vice-President.

SFAC is implementing the central schemes of Government of India namely VCA, EGCGS for economic inclusion of small and marginal farmers in agribusiness activities.

Society is pioneer in organising small and marginal farmers as Farmers Interest Groups, Farmers Producers Organisation and Farmers Producers Company for endowing them with bargaining power and economies of scale. It provides a platform for increased accessibility and cheaper availability of agricultural inputs to small and marginal farmers and in establishing forward and backward linkages in supply chain management. This initiative has triggered mobilization of farmers for aggregation across the country with ultimate aim of sustainable business model and augmented incomes.

Recently the Society has been entrusted with the task of implementation of the critically important Delhi Kisan Mandi and National Agriculture Market Scheme on e-platform to progressively free agricultural trade and offer price discovery to farmers.

SFAC has been set to Promote  Agri-Business by encouraging institutional and private sector investments and linkages to ensure the empowerment of all farmers in the country and to link small farmers to technology as well as to the markets in association with private, corporate or cooperative sector and if necessary, by providing backward and forward linkages

The Schematic Pattern of Assistance from SFAC, out of GoI grants-in-aid for promotion of value addition in the hands of farmers, through setting up part-processing, semi-processing and full-processing facilities through the setting up of AgriBusiness ventures all over the country mostly in collaboration with the private sector and active cooperation of commercial banks

SFAC provides to agribusiness projects involving value addition in the hands of farmers. Most of these projects involve agri-partner and post harvest management, marketing etc.

SFAC is endowed with the task of implementation of National Agriculture Market by setting up of an appropriate common e-market platform through private partnership that would be deployable in selected regulated wholesale markets in State/wholesale markets in States/Union Territories (UT) desirous of joining the e-platform.

SFAC has been identified as central procurement agency by GoI for price stabilization of onion and pulses under Price Stabilization Fund.

Objectives

• To facilitate setting up of agribusiness ventures in close association with all Notified Financial Institutions notified by the Reserve Bank of India where the ownership of the Central/State Government is more than 50% such as Nationalized banks, SBI & its subsidiaries, IDBI, SIDBI, NABARD, NCDC, NEDFi, Exim Bank, RRBs & State Financial Corporations.

Which projects can qualify?

(i)                 Project should be in agriculture or allied sector or related to agricultural services. Poultry and dairy projects will also be covered under the Scheme.

(ii)               Project should provide assured market to farmers/producer groups.

(iii)             Project should encourage farmers to diversify into high value crops, to increase farm incomes.

(iv)             Project should be accepted by Notified Financial Institution for grant of term loan

Pattern of Assistance

The quantum of SFAC Venture Capital Assistance will depend on the project cost and will be the lowest of the following.

1.      26 % of the promoters share or 50 Lakhs (Whichever is the lowest value)

2.      40% of the promoters share or 50 Lakhs (Whichever is the lowest value) for Northern East states. 

Eligible Persons

Assistance under the Scheme will be available to Individuals; Farmers; Producer Groups; Partnership/Proprietary Firms; Self Help Groups; Companies; Agripreneurs; units in agriexport zones, and Agriculture graduates Individually or in groups for setting up agribusiness projects. For professional management and accountability the groups have to preferably form into companies or producer companies under the relevant Act.

How it works?

SFAC has empanelled many consultants across the country who can be contacted by the farmers, agro companies to seek the help for the application to SFAC for venture capital assistant. SFAC Consultants are paid for this work by SFAC itself. The list of the SFAC consultant can be found through link given at end of the article. Before making an application to SFAC the applicant must have got sanctioned the term loan from the one of the notify bank if SFAC with which The SFAC has made the MOU. (Memorandum  of Understanding) The list of such banks is also provided through link at end↓↓↓↓

Flow Chart of the procedure  

Promoter’s application to the Bank for term loan for the project

Obtain the term loan sanction letter from bank

Approach to the nearest SFAC Consultant with proposal

SFAC Consultant will communicate to SAFC to obtain the permission for assistant

SFAC gives permission to their Consultant

SFAC consultant will prepare Detailed Project report and other documentation part behalf promoters

SFAC Consultant will submit the proposal to SFAC

SFAC will Access the project based on the information furnished in the application form

SFAC if project found eligible would provide the sanction of VC to the project

SFAC will have MOU with Promoter and Bank Separately (Formats available on link below)

After the documentation part, SFAC will release the VC funds to the Bank directly from

where the term loan is availed by the promoter

The VC funds will be deposited in separate account along with loan account in the bank

The Bank will act as the trustee and will release the funds as per the requirement or as per the stage of project development

The VC funds are interest free and must be paid back to SFAC after the repayment of the term loan