Learning Resource

Module 3 – Tailoring a Financial Risk Management Strategy for the Agricultural Portfolio

Overview:

Having explored agricultural markets and client characteristics relevant to initial product design, this module focuses on the role of risk management in effective product design and delivery, with particular emphasis on the unique risks in agriculture that must be identified and addressed.  Concrete examples of risk management by financial institutions active in providing agricultural finance help anchor an understanding of the role of risk management, and set the stage for participants to begin exploring issues related to cost-effective product delivery (which is the focus of Module 4).
Total time required for standard delivery of the module: 2 hours 15 minutes

Objectives (OBJ)

1.       Identify risks that are unique to agricultural finance

2.       Build a process for embedding risk management into product design

3.       Analyze strategies and tools being used by financial institutions to manage risk in agricultural finance products

4.       Compare strategies for covering the cost of risk management

Key Takeaways (KT)

1.       For an agricultural finance product to be sustainable, risk management must be embedded in its design.

2.       Leveraging existing capacities and tools helps minimize the cost of embedded risk management.

3.       Even when risks are properly assessed, mitigation measures may lie outside a financial institution’s capacity.

4.       Financial market assessment should identify the most relevant risks as well as potential partners with informational and risk management advantages.

5.       Risk management in product design is an iterative process that continues even after the product is launched.