Scaling Smallholder Lending in India: The Business Case for Data Sharing

India’s agricultural sector presents a paradox: it contributes just 16% to GDP yet employs nearly 46% the country’s workforce (Economic Survey of India, 2024-25). At the heart of this sector are smallholder farmers - 86% of whom cultivate less than two hectares of land. For businesses, especially financial institutions (FIs), this segment represents not just a social imperative but a massive untapped market. The challenge isn’t demand & supply - it is data. Smallholders have historically operated outside the formal financial system, making risk assessment difficult and costly. But over the last decade, this trend is changing fast.

From Invisibility to Investability: The Digital Shift

For decades, smallholder farmers lacked a digital footprint. Transactions were cash-based, income undocumented, and credit scores unavailable. This opacity made lending risky, deterring banks and Non-Banking Financial Companies (NBFCs) from servicing this segment or offering high-cost, collateral-heavy products.

This trend began to change after the introduction of JAM trinity in 2014. JAM stands for Jan Dhan, Aadhaar, and Mobile Jan Dhan Scheme encouraged the unbanked population to open zero-balance accounts. As of August 2025, over 500 million Jan Dhan accounts have been opened (Ministry of Finance, Government of India). The Aadhaar framework, which started as a small pilot in 2010 now provides a unique and secure digital identity to 97% of the country’s population (UIDAI). This digital identity is instrumental for eKYC. Combined with deep mobile penetration, these elements have created the infrastructure for last-mile financial access.

Building on this foundation, the rise of UPI-based platforms like PhonePe, Paytm, and Google Pay has transformed digital payments. In September 2025, India surpassed 20 billion UPI transactions monthly, generating transaction trails that act as proxies for income flows, spending behaviour, and repayment capacity. 

Adding further depth is the AgriStack initiative launched by Government of India in 2021 adds another layer by providing digital IDs to farmers. launched by the Government of India in 2021. This initiative provides farmers with digital IDs and links them to a comprehensive data ecosystem: land records, geo-referenced maps, cropping patterns, irrigation status, soil health, weather conditions, and satellite imagery. 

Together, these initiatives are turning smallholder farmers from invisible participants into investable profiles laying the groundwork for data-driven lending models that are more inclusive, scalable, and aligned with agricultural realities.

Rethinking Risk: Alternate Data as a Business Enabler

Traditional underwriting models—centered on collateral, income documentation, and banking history—are misaligned with the realities of smallholder farming. Seasonal cash flows, informal markets, and limited financial records exclude millions from formal credit.

Forward-looking businesses are now leveraging alternate data to bridge this gap. Alternate data refers to a diverse set of non-traditional indicators that offer deeper, more contextual insights into borrower behavior and risk. Although there is no universal definition of alternate date, it can be classified under the below categories.  

• Identity: Aadhaar and AgriStack IDs provide authenticated, verifiable digital identities. 
• Income proxy: UPI transaction footprints serve as digital trails of cash flow, offering lenders a proxy for income and repayment capacity.
• Spending patterns: Purchase behavior from travel, e-commerce, and input platforms can signal financial activity and consumption trends.
• Geography and agronomic risk: Satellite imagery and IoT devices deliver real-time insights into crop health, acreage, irrigation status, and yield forecasts—critical for assessing production risk.
• Customer behaviour: Repayment histories from Self Help Groups (SHGs), cooperatives, and microfinance institutions offer behavioral indicators of creditworthiness. Engagement with advisory apps and mobile recharge patterns can also reflect financial discipline and digital literacy.

When aggregated and analyzed using AI/ML models, these datasets transform an opaque sector into one with measurable, bankable risk profiles and design products tailored to agricultural cash cycles. 

However, the promise of alternate data comes with caveats. Concerns persist around data quality, interoperability, and the predictive reliability of these signals across diverse geographies and crop types. Much of this data remains fragmented across platforms, limiting its utility unless shared and standardized.

Lowering Costs, Unlocking Scale

Smallholder lending is typically costly. Historically, Fis have relied on in-person verification, field visits, and paper-based documentation. Further, they had to undertake extensive due diligence to mitigate default risk and ember anti money laundering and risk management protocols, which require trained personnel and robust systems.

However, digitalisation is flipping this equation:

• eKYC: Aadhaar-enabled eKYC has reduced customer onboarding costs from approximately ₹1,000 to less than ₹6 per customer
• UPI: These transaction trails allow lenders to assess creditworthiness remotely, eliminating the need for manual cash-flow verification and reducing turnaround time.
• Alternate data reduces the need for physical site visits. 84% of lenders in India are already combining alternate data with traditional data for underwriting. 
• Partnerships with FPOs allow aggregation of farmers which lowers the per-customer acquisition costs.

By shifting from high-touch, branch-led models to tech-enabled, data-driven ecosystems, FIs can now serve smallholder farmers profitably and at scale. The result is a win–win: farmers gain timely, affordable access to credit, and businesses unlock a resilient, high-potential market with sustainable unit economics.

The Road Ahead: How data sharing can scale Business Opportunity

India’s agricultural credit supply has grown impressively—from ₹13.3 lakh crore in FY 2021 to ₹20.7 lakh crore in FY 2024 (Economic Survey 2023–24). Yet, despite these gains, millions of smallholder farmers still face persistent challenges: delayed access to inputs, limited working capital, and continued reliance on informal lenders. The limitations are no longer just about access—they’re about precision, timing, and relevance.

While digital footprints have proliferated, their full potential remains locked in silos. Rich transaction-level insights held by agri-fintechs, input suppliers, FPOs, and logistics platforms are often proprietary, limiting their utility for lenders and service providers. The next leap in smallholder lending will come not from generating more data, but from better data sharing. 

Private-to-private data exchanges—under secure, consent-driven protocols—can dramatically improve credit scoring, product design, and delivery efficiency. Shared datasets can enable embedded finance models, trigger real-time disbursements, and support dynamic repayment structures aligned with crop cycles. Federated data networks and standardized APIs can unlock interoperability across platforms, while farmer-centric consent architectures ensure trust and transparency.

Data sharing isn’t just a technical fix—it’s a strategic lever. It reduces risk, lowers costs, and unlocks new business models that are scalable, inclusive, and profitable. The future of smallholder finance lies not just in digitisation, but in connection—between institutions, platforms, and the farmers they serve.