Agricultural Credit Analysis and Risk Management

Course Overview

Agriculture is a risky economic activity by nature. The output production and prices are subject to a wide range of unpredictable factors, which can have a highly varied impact on farm households' economic returns. Additionally, farmers in underdeveloped nations do not have access to both ex post emergency government help and contemporary risk management tools like agriculture insurance, futures contracts, or guarantee funds.

These farmers rely on a variety of "conventional" risk-reduction tactics, yet the majority of them are ineffective. Recent decades have seen the emergence of formal and semi-formal agreements, such as contract farming, joint-liability financing, and value-chain integration, but they are also constrained and can be highly context-sensitive. Agriculture credit is significant, and policymakers are aware of how it contributes to gross value addition. This is the rationale behind the regulator's encouragement of and requirement that all commercial banks offer agricultural financing.

Over the past years, agricultural credit has grown in a respectable amount, and credit allocation to the industry is getting better every year. Every year, the goal is surpassed. Understanding credit risk is crucial for expanding funds and investigating business potential in agriculture loans. Currently, the majority of banks lack specialized Agricredit risk management policies or standards to control risk in their agriculture portfolios. Agriculture credit risk is handled similarly to other sector risks, but time has led to the development of specialized credit management strategies for the industry.

Why Agricredit Risk Management is Relevant: Increased agricultural output will contribute to the nation's sustained food security, a decrease in rural poverty, increased employment opportunities, etc. Improved risk management methods and a decrease in non-performing loans in the agriculture sector will benefit banking institutions and increase their profitability. Improving on the management of credit risk in the agriculture would improve incomes and profitability, expand financial inclusion, increase credit access, and create a strong linkage between the agricultural and financial services resulting in robust growth in the Agro-economy.