Understanding the Credit Needs of India’s Dairy Sector
India is home to the largest dairy sector in the world, producing over 22% of global milk supply. The sector supports more than 80 million farming households, making dairy one of the most critical sources of rural livelihood and income. Yet, a majority of these farmers remain outside the purview of formal finance.
According to recent estimates, 70% of rural households do not have access to institutional credit, and over 90% of women farmers are excluded from financial services. The mismatch between dairy’s economic significance and the availability of customized credit solutions continues to limit productivity and financial resilience in the sector.
This blog explores how tailored financial products, especially cattle loans, farm improvement loans, and milk-linked working capital can bridge this credit gap and support the evolution of rural financial ecosystems.
Why Traditional Lending Models Fall Short
The challenge with offering credit to dairy farmers lies in the limitations of conventional credit scoring methods. Most smallholder farmers lack formal income documentation, business registration, or credit history requirements that traditional underwriting relies upon.
However, dairy farming has certain consistent and verifiable patterns, such as:
- Daily milk pouring activity
- Stable income from milk sales
- Seasonal but relatively predictable variations
- Asset-backed operations (cattle)
These indicators can serve as effective proxies for income stability and repayment capacity when captured and analyzed correctly.
Types of Financial Products That Work for Dairy Farmers
Dairy farming, being both labour and capital intensive, demands various types of financial support throughout the year. Some of the most effective credit offerings tailored to this segment include:
1. Cattle Purchase Loans
These loans are designed to help farmers acquire milch cattle, which immediately contribute to household income.
- Loan size: ₹50,000 – ₹2,00,000
- Tenure: 12, 18 and 24 months
- Repayment model: Typically linked to milk payments or collected digitally
- Features: On-ground verification, bundled cattle insurance, EMI alignment with milk payout cycles
Cattle loans promote income generation and repayment discipline, as farmers typically prioritize the well-being and productivity of their livestock.
2. Farm Improvement Loans
These higher-ticket loans enable expansion and infrastructure enhancement such as building sheds, purchasing equipment, or adding additional cattle.
- Loan size: ₹2,00,000 – ₹5,00,000
- Tenure: 12, 18 and 24 months
- Target group: Commercial dairy farmers or those looking to scale
- Use cases: Dairy infrastructure, productivity tools, herd expansion
These loans cater to long-term planning and capital investment within rural farms.
3. Milk Receivable Financing (MRF)
Short-tenure working capital loans that address liquidity constraints between milk supply and payment realization.
- Loan size: Based on historical milk supply volumes
- Tenure: 5 to 30 days
- Repayment: Auto-deducted from future milk payouts
- Benefits: Immediate liquidity, zero-default models, embedded in dairy transaction cycles
Such products are especially useful in improving cash flow without over-leveraging the farmer.
Structuring Repayment to Match Rural Realities
For financial products to succeed in rural areas, repayment models must align with farmers’ income cycles. Two widely used approaches are:
A. Deduction at Source (DAS)
This model integrates loan repayment directly with milk payouts. For farmers supplying milk to formal dairies, the EMI is deducted from their payment and transferred to the lender.
- Reduces friction and default
- Enables real-time visibility of dues and deductions
- Best suited for dairy-networked borrowers
B. e-NACH Based Repayment
For farmers outside organized dairy networks, e-NACH mandates linked to their bank accounts enable auto-debit of EMIs.
- Helps scale credit offerings to non-networked areas
- Ensures repayment even for farmers not connected to milk aggregation systems
- One-time digital setup
These models help lenders improve repayment efficiency while reducing operational overhead and manual collections.
Assessing Creditworthiness Without Traditional Scores
To responsibly offer loans to farmers without formal credit history, some fintech platforms have developed alternative credit scoring systems. These models rely on:
- Historical milk pouring behaviour
- Consistency and volume of supply
- FAT and SNF content of milk
- Dairy tenure and engagement
- Regional demographic data
- Existing credit bureau information (if any)
For example, scoring models like mooScore™ generate a score between 300 and 900 by analyzing milk pouring trends, income consistency, and repayment history where available. This allows lenders to:
- Extend loans to new-to-credit (NTC) farmers
- Minimize defaults through accurate segmentation
- Automate approvals for low-risk borrowers
Such innovations are helping expand access to finance while maintaining portfolio quality.
Documented Impact and Outcomes
Where deployed effectively, tailored financial products for dairy farmers have shown:
- High portfolio quality: With collection efficiencies over 95–98%
- Increased financial inclusion: Especially among women and NTC farmers
- Repeat borrowing trends: Indicating trust and repayment behaviour
- Asset protection: Through bundled insurance on cattle
These outcomes underline the potential of well-designed financial products to transform rural livelihoods while supporting sustainable lending growth.
Conclusion: Aligning Credit with Dairy Livelihoods
Dairy farmers in India operate within a stable yet underserved ecosystem. By designing financial products that mirror their income patterns, validate their informal cash flows, and use embedded repayment infrastructure, lenders can build inclusive and resilient rural portfolios.
From cattle loans to short-term working capital and farm development credit, dairy-aligned financial services offer a viable path toward rural prosperity—and a more connected, formal financial system.
Recent posts
