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India’s agrifood processing MSMEs are the unsung heroes of the nation’s food value chain, transforming raw agricultural produce into market-ready goods while fueling employment and economic development. These enterprises do more than process food. They enhance nutritional value, reduce post-harvest wastage, and ensure a steady supply of essential food products to consumers. The sector has been growing at an impressive Annual Average Growth Rate (AAGR) of 7.26 per cent over the past seven years, making a significant contribution to the country’s GDP, employment, and exports. Despite their vital role in India’s food economy, agrifood processing MSMEs continue to battle deep-rooted financial constraints that stifle their growth and potential.
Financial bottlenecks constraining growth
The financial ecosystem for agrifood processing MSMEs is riddled with challenges. Access to working capital remains a persistent issue, as traditional banks often perceive these enterprises as high-risk investment avenues due to inconsistent cash flows and seasonal business cycles. The RBI, however, mandates that banks provide 7.5 per cent of their Adjusted Net Bank Credit (ANBC) to MSMEs under Priority Sector Lending (PSL). Being an unorganised industry with widespread distribution of MSMEs across the country and the lack of proper documentation, banks often encounter difficulties in achieving this target.
Apart from geographical barriers, delays in payments from larger buyers and limited credit histories further exacerbate liquidity constraints, forcing many MSMEs to rely on informal credit sources with exorbitant interest rates. Another significant hurdle is the complexity of financial management. Many agrifood processing MSMEs operate without structured accounting systems, making it difficult for them to present credible financial statements, which are often prerequisites for securing loans.
FinTech enabling agrifood MSMEs to thrive
Fintech enterprises have emerged as a transformative force for agrifood processing MSMEs, bridging financial gaps, optimising cash flows, and facilitating business expansion. Leveraging innovative financial tools, these fintech enterprises are helping agrifood processing MSMEs overcome long-standing credit and liquidity challenges, thereby unlocking their full growth potential.
Expanding credit access Through digital lending
One of the biggest hurdles for agrifood processing MSMEs is access to timely and affordable credit. Conventional banking models rely heavily on collateral, making it difficult for small enterprises to secure funding. Fintech-driven digital lending platforms are changing this landscape by offering collateral-free loans. These platforms use alternative data points, such as transaction records, cash flow history, and supply chain interactions, to assess creditworthiness. Moreover, fintech platforms act as partners to MSMEs, simplifying documentation processes and helping them navigate the complexities of securing credit. In the process, they also help banks meet their priority sector lending targets. In addition, they offer specific lending products tailored to the unique needs of agrifood processors, with faster turnaround times.
Streamlining financial operations
Embedded finance solutions are transforming financial transactions within the agrifood processing supply chain. These solutions integrate banking and payment functionalities directly into business operations, allowing for automated invoicing, seamless payment processing, and real-time cash flow management. For example, fintech-powered invoice discounting platforms enable MSMEs to liquidate unpaid invoices, converting them into immediate working capital. Similarly, supply chain financing tools are helping businesses secure funding against purchase orders, reducing their dependency on external loans.
Formalizing MSMEs through digital finance
Many agrifood processing MSMEs operate in the informal economy. Fintech solutions, in this regard, are playing a crucial role in bringing these businesses into the formal financial ecosystem. Through digital bookkeeping solutions and AI-driven financial analytics, MSMEs can maintain structured financial records, making them eligible for larger credit lines and government-backed financial support schemes.
Fintech platforms also offer financial literacy programs, empowering small entrepreneurs with the knowledge required to navigate digital finance tools effectively. This not only enhances their financial decision-making but also improves their long-term sustainability and resilience in the market.
The road ahead
While fintech has unlocked substantial opportunities, scaling these solutions is key to maximizing their impact. India’s food processing industry, valued at $336.4 billion in 2023, is projected to reach $735.5 billion by 2032, growing at a CAGR of 8.8 per cent. As the sector expands, the need for a robust financial ecosystem becomes critical. Encouraging regulatory support and incentives for fintech integration will be essential in driving this growth. Policies should promote seamless fintech adoption, enhance digital lending frameworks, and expand incentives for financial inclusion, ensuring greater accessibility and efficiency across the agrifood processing value chain.
Conclusion
The growth of agrifood processing MSMEs hinges on resolving financial constraints that have long hindered their potential. Fintech solutions, through innovative credit access, seamless transactions, and digital financial management, are paving the way for these enterprises to scale operations, improve efficiency, and contribute more effectively to the economy. As India moves towards a more digital and financially inclusive landscape, leveraging fintech for agrifood processing MSMEs is not just an option but a necessity to sustain long-term growth and success in the sector.
The author is Co founder, Agrizy
Published on April 13, 2025
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