Better practices in agricultural lending

The objective of this study is to identify unique features of the agricultural sector and the rural economy that present challenges for expanding the frontier of formal finance, how these affect the provision of sustainable financial services and the key elements of a strategy for successful agricultural lending. Although no simple blueprint exists for successful rural financial institutions serving agriculture, some recent interesting experiences derived from case studies and the new microfinance developments suggest “better practices” that are presented as part of the strategy.

Key elements of the strategy concern cost reduction and risk management. Suggestions include:

  • using a decentralised operational structure and mobile branches or officers;
  • recruiting staff with a solid background in agriculture and the rural economy and providing adequate training and incentives;
  • simplify lending procedures and appraise loans by collaborating with local organisations and networks;
  • reduce agricultural credit risks by adequate asset and loan portfolio diversification;
  • individualise agricultural loan products and loan repayment modalities in accordance with the loan repayment capacity and borrowing performance of clients;
  • install an effective management information system.

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