Innovation

Making electronic payment to dairy farmers

The cash payment system of dairy cooperatives and companies to the lakhs of farmers poses many challenges such as big cash handling risk, misuse of cash by intermediaries, among various others. To overcome these challenges, YES Bank is providing solutions in association with Hatsun Agro Products for real-time electronic payment delivery to the dairy farmers. MOHD MUSTAQUIM reports
Making electronic payment to dairy farmers

The dairy cooperatives procure milk from the lakhs of farmers from the far-flung areas every day. It sometimes puts challenges in front of them to disburse the large payments through cash. It further has a risk of misuse of cash by the intermediaries.

Thus, to overcome these challenges, YES Bank in association with Hatsun Agro Products introduced first-of-its-kind initiative to disburse real-time payments to the farmers on electronic method. 

“The initiative – YES Kisan Dairy Plus – processes straight payments and removes the role of middlemen to reduce turnaround time and enable dairy farmers to access funds instantaneously,” says Nitin Puri, president and country head – food and agribusiness, YES Bank.  

It determines the mode by which real-time electronic payments are made to the farmers and evidence through immediate SMS alerts on their mobile phones. It also helps the bank to establish a network of micro ATMs that allows farmers to withdraw the cash. 

The Project
Located at Villupuram in Tamil Nadu, Hatsun Agro Products is one of the largest dairies in South India – procures around 2 million litres of milk daily from 4,500 milk banks (MBs), strategically located in over 8,000 villages. Every day, more than 3,00,000 farmers deposit their cattle’s milk at these MBs.

The existing process had a time lag between the delivery of milk and receipt of payments by farmers. Hatsun wanted to differentiate itself by paying farmers as soon as they deliver the milk to the collection centres. This necessitated the MB in-charge to maintain sufficient cash on the payment days of the week to pay the farmers. Further, this mode of payment resulted in many operational and security issues like risk of huge cash handling, misuse of cash at MB in-charge level and increased turnaround time of payments.

The farmers also faced various challenges such as financial inclusion issues, infrastructural issues, financial sector outreach and speed of transaction execution. They also felt a need of a transparent and quick payment mode for their produce.

And therefore, YES Bank introduced YES Kisan Dairy Plus for immediate payments to farmers at the time of milk collection, migration from cash payment to electronic modes and fair payment to milk farmers by removal of middlemen. Furthermore, the initiative focuses on financial value added services like overdrafts and insurance to farmers, increasing in low-cost deposits in the form of overnight balances in the accounts of the milk farmers.

“Majority of the farmers were based in the unbanked rural areas. Thus, to initiate the electronic mode of payment, it was necessary for farmers to have a bank account. Hence, the farmers’ ‘no frill’ accounts were opened in the YES Bank,” Puri adds.

The bank has so far opened accounts of approximately 1,200 farmers who are actively making use of this facility for getting payments. The system emerged as the ideal solution for instant settlement electronically into the farmers’ account. Thus, the bank has plans to further increase the number to 10,000 farmers soon.

Meanwhile, Business Correspondents were appointed by the bank for dispensing cash to the farmers upon their swiping of a debit card linked with the account. The bank has plans to begin Intra Bank Real Time payment mechanism through Immediate Payment Services (IMPS) for the farmers having accounts with other banks. This would allow Hatsun Agro to make their entire payments through electronic mode.

Farmer Outreach
Over a period of time, YES Bank implemented a number of initiatives and clubbed them under the ‘YES Kisan Dairy Plus’ programme. It enabled the bank to reach out to the unbanked rural communities, especially farmer households, offering them zero or low-cost financial products and services.
Through YES Kisan Dairy Plus, farmers experienced the services of a regulated financial institution. This generated curiosity to know more, leading to enhanced financial literacy. 

Modus Operandi  
Once, a farmer deposits his produce at the milk bank, milk is analysed for quality and quantity. This data along with the amount payable to the farmer is transmitted to YES Bank through a secure electronic channel.

Then, the Hatsun’s account gets debited and the farmer’s account gets credited. After this, the farmer gets a message to his registered mobile number. If the farmer wants to withdraw the cash, it is done through the bank’s micro ATMs, deployed at the collection centres.

The mistakes due to the human intervention were minimised as compared to the previous traditional model and resulted in better operational efficiency.

India, with 17 percent of the world’s production, is the largest milk producer country. It produces over 135 million tonnes of milk. According to the industry projections, the demand for milk is expected to reach 180 million tonnes by 2022. However, the sector is largely fragmented and unorganised as the share of organised sector is only 12 percent.

Hence, the growth story for electronic transactions can come from the large-scale dairy cooperatives who can adopt the similar models of YES Bank and Hatsun Agro.

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