Nurturing Success: The Importance of Agriculture

Graduates in Agricultural Lending for Banks

The financial aspect is one of the most crucial parts of agricultural lending.
The vast majority of human endeavours are biological in origin, including
farming, animal husbandry, fisheries, poultry raising, etc. The bulk of
production is easily spoiled. As such, it faces unique difficulties and is
subject to the influence of numerous external factors. Regardless of how
well things go, a farmer's management choices will have an effect on the
crop's yield and the farm's bottom line. Among these factors, lending for
crop production accounts for the lion's share of agriculture's total finance.
Most lenders place a premium on this because of the low barrier to entry
it provides farmers and appraisers alike. Borrowers and lenders alike
prioritise and prefer financing for crop cultivation despite the existence of
a need for financing in other agriculture and allied sectors. All this made
the Kisan Credit Card (KCC) nearly synonymous with agriculture lending
in the country. However, there are many sub-segments within the
agriculture sector that need equal attention by way of employing experts
for lending and leveraging sectoral growth.

With the latest developments in the agriculture sector and the focus of
policymakers, it is becoming more relevant to deploy experts to tackle the
technical, economic, social, and high-touch aspects associated with agri-
lending. The push for FPO, SHG, JLG, Microfinance, Kisan drones, Farm
mechanisation, Apiculture, Sericulture, Agri-infra, Food processing, Solar
farming, Protected-cultivation, Organic farming, High-value aquaculture,
agri-ecommerce, Secondary agriculture etc. demands experts with

1. Does Agri lending need knowledge of the sector ? Rajesh Kharche

sectoral knowledge blended with finance and rural management to be part
of the new sectoral revolution.

Unlike previous domains officials from rural and agriculture education, the
majority of lender’s profile of concern underwriter associated with Agri
lending has changed significantly. Lenders are meeting their annual Agri
lending goals, and the total amount they lend continues to rise every year.
The provision of larger loans above and beyond the normal scale of
financing has contributed significantly to the increase in the volume of
lending. Over the past decade, the scientific side of farming has taken a
back seat. This shift in lending strategy by unaffiliated officials has
bolstered the notion that expertise in agriculture is not strictly necessary
to lend to the sector. The recent trend of applying the principles of non
Agri lending to agricultural lending is one of its consequences.

Fast delivery was necessary because of the business pressure of

balancing the balance sheet with increasing advances in non-agriculture
lending. This corporate approach also brought many non-farmers but
Agri-land owners within the reach of agriculture credit. Fast follow-up on
the sourcing and collection front gradually filtered down from the liaison-
based business approach. This change shifted the focus of agriculture
loans towards funding agricultural production rather than allied or
secondary agriculture sub segments of agriculture sector.

Let's delve into the question of whether the need for knowledge is a myth
or a reality for the overall quality and growth of a Agri lending portfolio. Or
is the secondary agriculture sector's need for funding being overlooked
due to a lack of domain expertise in finance? If this question can be
answered and the results implemented by stakeholders, the industry as a
whole stand to benefit from exponential growth of these subsectors of

2. Does Agri lending need knowledge of the sector ? Rajesh Kharche

Agri-economy. This article is an attempt to look into the need for Agri
finance expert capacity building for the benefit of lenders and the sector
as a whole for exploring untapped potential.

Introduction:

The agricultural sector plays a crucial role in sustaining the economy and
ensuring food security. It is responsible for producing the food we eat and
providing raw materials for various industries. In addition, agriculture
provides employment opportunities for crores of people in country. The
sector's contribution to the economy cannot be overstated, as it generates
income for farmers, processors, distributors, and retailers. Furthermore,
agriculture is essential for the development of rural areas, as it provides a
source of livelihood for people living in these regions. Agricultural
businesses rely heavily on financial support from banks, making it
imperative for these institutions to possess specialised knowledge in
agriculture lending. This expertise is essential for banks to accurately
assess the risks associated with lending to agricultural businesses, as well
as to design loan products that meet the unique needs of this sector and
its sub segments. Without this knowledge, banks may struggle to
effectively support agricultural businesses, potentially leading to negative
impacts on both the banks and the agricultural sector as a whole. By
understanding the intricacies of this field, banks can make more informed
lending decisions and borrowers can receive the support they need to
succeed in their agricultural endeavours.

Need for sector and subsector knowledge:

Agriculture lending is a complex process that requires banks to have a

deep understanding of various agricultural practices. Agriculture lending
will always remain a part of priority for policy makers. Credit deployment

3. Does Agri lending need knowledge of the sector ? Rajesh Kharche

will become challenging considering proportionate requirement (18% of
total lending) to lend and keep pace with other advances/lending of the
banks. Hence, relying majorly on crop loan/production credit will not
suffice purpose of mandated Agri-lending. This will further necessitate
diversification of lending towards sub segments of agriculture sectors.
This will require expert to understand intricacies of secondary/allied
agriculture activities for further scale up of Agri-lending portfolio.

Without this expertise, it can be challenging for banks to assess the risks
associated with lending to farmers and other agricultural businesses.
Therefore, banks must invest in developing their knowledge of agricultural
practices to make informed lending decisions. By doing so, banks can not
only mitigate risks but also support the growth and sustainability of the
agricultural sector. Agricultural projects are a crucial part of our economy
and require careful evaluation to determine their viability and potential
risks. Bankers play a significant role in this process, and knowing various
aspects of agriculture such as crop cultivation, livestock management,
irrigation methods, and post-harvest processes is essential. Having a
clear understanding of these practices is crucial for making informed
decisions when it comes to approving loans. By being knowledgeable
about these practices, lenders can assess the risks involved in lending
money and determine whether a borrower is likely to repay the loan on
time. Additionally, this helps to minimise the chances of default and
ensures that the lender's investment is protected.

The Value of Expertise for Banks in Agriculture Lending

Agriculture graduates play a crucial role in the agriculture finance sector

of commercial banks. Their expertise in the field of agriculture provides
them with a unique perspective on the financial needs of farmers and
agribusinesses. As the agricultural sector continues to evolve and face
4. Does Agri lending need knowledge of the sector ? Rajesh Kharche
new challenges, the knowledge and skills of these graduates become
increasingly valuable. With their understanding of the complexities of the
agriculture, they are well-equipped to assess its impacts by emphasising
their significance. Some of the key aspects can be as below.

Domain Knowledge:

Agriculture graduates are equipped with a wealth of specialised

knowledge in diverse areas of agriculture and its subsectors. Their
expertise spans crop production, livestock management, agribusiness,
fisheries, poultry, food processing, hi-tech agriculture, agro and rural
industry and overall rural development. This knowledge is essential for
addressing the complex challenges facing the agriculture sector today,
such as food security, sustainability, and climate change. With their in-
depth understanding of the intricacies of agriculture, these graduates are
well-positioned to make significant contributions to the lending and help
shape its future. This knowledge equips them with the necessary tools to
navigate the complex landscape of agriculture, including factors such as
climate change, market fluctuations, and technological advancements. By
staying informed and up-to-date on the latest trends and developments in
agriculture, professionals can make informed decisions that help farmer.
The ability to analyse and assess agricultural projects and loans is crucial
for making informed decisions in the agricultural sector. By utilising
effective tools and techniques, stakeholders can gain valuable insights
into the potential risks and benefits of various projects and loans. This can
help them to identify opportunities for growth and profitability while
minimising potential losses. Many agriculture activities are technical in
nature there is need to understand them from end to end point of view to
ensure its economic feasibility on lending terms. Ultimately, the ability to

5. Does Agri lending need knowledge of the sector ? Rajesh Kharche

analyse and assess agricultural projects and loans is essential for
ensuring the long-term sustainability.

Understanding Agricultural Risks:

Agricultural risks are a crucial aspect of farming that agriculture graduates

are well-versed in. These risks include weather fluctuations, market
volatility, pests, diseases, general farm management and technical
practices, and policy changes. Understanding these risks is essential for
farmers to make informed decisions and mitigate potential losses. For
instance, unpredictable weather patterns can lead to crop failures, while
market volatility can affect the profitability of farming operations. Similarly,
pests and diseases can cause significant damage to crops, leading to
reduced yields and financial losses. Moreover, policy changes can impact
the sector affecting farmers' ability to access resources and markets.
Therefore, agriculture graduates' knowledge of agricultural risks is critical
in ensuring the sustainability and profitability of farming operations.
Having expertise in assessing and managing risks is crucial when it
comes to agriculture finance and mitigate potential losses. By utilising
their knowledge and experience, they can identify potential risks and
develop strategies to minimise them. This not only benefits the financial
institution but also the farmers and agricultural businesses who rely on
these financial services. Overall, having a strong understanding of risk
management in agriculture finance is essential for success in subsectors
within agriculture sectors. One of the key roles of risk management in
banking is to identify potential risk factors that could negatively impact
both borrowers and banks. By analysing these risks, banks can develop
effective risk mitigation strategies that can help minimise their impact. This
is crucial for ensuring the stability and sustainability of the banking
industry, as well as protecting the interests of both lenders and borrowers.

6. Does Agri lending need knowledge of the sector ? Rajesh Kharche

Many agricultural activities have local practices and these varies from
location to location, profitability of successful lending is largely depending
upon understanding these practices and involving them in underwriting
credit facility. Effective risk management can also help banks stay
competitive by enabling them to offer more attractive loan products and
services to their customers.

Communication with Farmers:

Agriculture graduates possess a unique advantage when it comes to

communicating with farmers. Their education and training often provide
them with a deep understanding of rural communities and farming
practises. This first-hand experience enables them to connect with
farmers on a personal level and gain valuable insights into their needs and
challenges. As a result, agriculture graduates are well-equipped to
develop effective communication strategies that can help bridge the gap
between farmers and lender. By leveraging their knowledge and
expertise, they can play a vital role in promoting sustainable farming
practises and improving their overall health and well-being. Having the
ability to communicate and empathise with farmers and agricultural
entrepreneurs is a crucial skill for anyone working in the agricultural and
allied sector. Effective communication is essential for building strong
relationships with clients and understanding their needs and concerns.
Empathy is also important as it allows individuals to put themselves in the
shoes of their clients and understand their challenges and struggles. By
possessing these qualities, individuals can better serve their borrowers.
One of the key skills for a successful lender is the ability to connect with
borrowers on a practical level. This skill is essential for building trust, and
providing appropriate financial solutions. By establishing a strong rapport

7. Does Agri lending need knowledge of the sector ? Rajesh Kharche

with borrowers, lenders can gain valuable insights into their financial
situation and tailor their services accordingly.

Most farmer prefer to speak in vernacular language and their discussion

dominates agriculture activities during interaction with lender. This is well
understood by agriculture graduates, which ultimately is useful for
business development for lender.

Most land records are maintained in regional languages with typical

wording and practices of land mortgage and charge creation. This
requires specialised understanding of reading these land record carefully
and hence expert in the field is helpful for lender to employ such person.

Sector Insights:

Staying up-to-date with the latest developments, innovations, and trends

in the agricultural sector is crucial for graduates pursuing a career in
agriculture. With the industry constantly evolving, it's essential to stay
informed and knowledgeable to remain competitive and successful. By
staying updated, graduates can gain insights into emerging technologies,
new farming practises, and market trends that can help them make
informed decisions and stay ahead of the curve. Having this knowledge is
crucial for recognising new opportunities, comprehending the intricacies
of the market, and providing borrowers with strategic advice. It enables
individuals and organisations to stay ahead of the curve and make
informed decisions that can lead to success. By staying up-to-date on
market trends and analysing data, one can identify potential risks and
opportunities, and develop effective strategies to navigate them.
Ultimately, having a deep understanding of market dynamics can be a key
factor in achieving long-term success. The valuable industry insights
provided by these individuals play a crucial role in enhancing decision-

8. Does Agri lending need knowledge of the sector ? Rajesh Kharche

making processes in the field of agriculture finance. By leveraging their
expertise and knowledge, stakeholders in this industry can make informed
decisions that are more likely to yield positive outcomes. This highlights
the importance of having knowledgeable professionals who can provide
valuable insights and guidance to those involved in agriculture finance.
Sectoral understanding will be better if one has domain knowledge and
hence its financial implication can be used for developing overall lending
strategy.

Policy and Regulatory Compliance:

The agricultural sector operates under a complex web of policies,

regulations, and subsidies that impact its operations and profitability.
Compliance with these rules is essential for farmers to avoid farm income
losses and maintain their eligibility for government support programmes.
These policies and regulations cover a wide range of issues, including
environmental protection, food safety, subsidies, infrastructure support
etc. Understanding and navigating this regulatory landscape is crucial for
farmers to succeed in today's agricultural. Agriculture graduates possess
a strong understanding of the regulations governing sector, which
empowers them to effectively navigate compliance requirements while
also devising strategic loan structures. This unique skill set is particularly
valuable in the agricultural sector, where regulatory compliance is critical
to success. By leveraging their expertise, agriculture graduates can help
ensure that loans are structured in a way that maximises profitability while
minimising risk. Overall, their knowledge of industry regulations is a key
asset that enables them to make informed decisions and drive positive
outcomes in the agricultural finance space. By leveraging their expertise,
they help borrowers ensure that their loans are in line with applicable

9. Does Agri lending need knowledge of the sector ? Rajesh Kharche

regulations. This helps borrowers avoid losses and take advantage of
various financial incentives and benefits that they may be eligible for.

Monitoring of agriculture portfolio:

Timely repayment is crucial for profitable agriculture lending. Activity wise

monitoring of agriculture advances need special stage follow-up
depending upon location and nature of activity. For example, hi- tech
agriculture, horticulture, go down, cold storage, protected cultivation,
irrigation unit, tissue culture laboratory, hi-tech nursery, commodity
finance, layer unit, broiler unit, farm mechanisation, seed production
finance, large and small dairy unit, export quality crop cultivation or export
quality ancillary activity, sericulture, fisheries, shrimp cultivation, etc. All
this require knowledge of the sub segment so that post sanction
monitoring can be done at specific stage to avoid probable default. Expert
person can understand it and thus ensures timely required follow-up in
terms of recovery or need for restructuring the loan in the event of activity
failure Furthermore, this results in diversification of agriculture lending and
hence avoid risk of funding only for crop cultivation.

Sustainable Agriculture Practices:

As the world becomes increasingly aware of the impact of human activities

on the environment, the importance of sustainable agriculture practises
cannot be overstated. Graduates with a deep understanding of
sustainable agriculture practises are well-positioned to make a positive
impact on the planet. By adopting sustainable practises, farmers can
reduce their environmental footprint, conserve natural resources, and
ensure the long-term viability of their farm operations. One of the key roles
of lenders in the agricultural sector is to evaluate the environmental
sustainability of Agri loans. By doing so, they can identify potential risks

10. Does Agri lending need knowledge of the sector ? Rajesh Kharche
and opportunities for improvement. Moreover, lenders can play a crucial
role in promoting environmentally friendly practises among borrowers.
This can include providing financial incentives for sustainable farming
practises, as well as offering technical assistance and training to help
farmers adopt more sustainable approaches. Ultimately, by encouraging
sustainable farming practises, lenders can help to protect the
environment, while also promoting long-term profitability and resilience in
the agricultural sector.

Understanding market practices:

Agriculture lending is a critical aspect of banking, and understanding the
market dynamics is essential for banks to make informed decisions. The
agricultural market is influenced by various factors such as local and
global market conditions, supply and demand dynamics, price
fluctuations, and local trade policies. These factors can significantly
impact the profitability of agricultural businesses and, in turn, the
repayment capacity of the borrowers. Therefore, banks must stay up-to-
date with the latest market trends and analyse the data to make informed
lending decisions. By doing so, they can mitigate the risks associated with
agriculture lending and ensure the long-term sustainability of their
agricultural loan portfolio. Bankers with a deep understanding of market
dynamics are well-equipped to assess the profitability of agricultural
ventures and the borrower's capacity to compete in the market. This
expertise allows them to analyse various factors that impact the success
of agricultural businesses, such as supply and demand, pricing trends,
and market competition. By evaluating these factors, bankers can make
informed decisions about lending to agricultural ventures and help ensure
the long-term success of these businesses. Ultimately, this expertise is
critical for bankers to effectively support the growth and sustainability of

11. Does Agri lending need knowledge of the sector ? Rajesh Kharche
the agricultural industry. Understanding the financial behaviour of
borrowers is crucial for banks to design loan structures that meet their
specific needs. By analysing borrowers' undocumented/surrogate
financial data, banks can provide tailored financial advice that can help
them succeed in the market. This knowledge is essential for banks to
make informed decisions and ensure the financial well-being of their
clients. Ultimately, it is a win-win situation for both the bank and the
borrower, as it leads to a mutually beneficial relationship.

Building Trust and Relationships:

Agriculture graduates possess a unique set of skills and knowledge that

make them well-suited for finance roles within the agriculture subsectors.
Specifically, their education and experience in agriculture provide them
with a level of credibility and authenticity that is highly valued in this field.
By leveraging their understanding of the industry, these graduates are
able to build trust and establish strong relationships with various clients
and stakeholders. Having a background in agriculture can be a valuable
asset for lenders as it creates a shared understanding and builds trust
with borrowers. This is because lenders with agricultural experience are
more likely to understand the unique challenges and risks associated with
farming and can offer more tailored solutions to meet the needs of
farmers. Lenders can also better assess the creditworthiness of borrowers
and make more informed lending decisions. Ultimately, having a common
ground with borrowers establishing strong relationships with borrowers is
crucial for financial institutions. Improved communication can help to build
trust and foster a more collaborative approach to financial management.
By gaining a deeper understanding of borrowers' financial needs, lenders
can offer more personalised and effective financial products and services.

12. Does Agri lending need knowledge of the sector ? Rajesh Kharche
Ultimately, this can lead to greater customer satisfaction and loyalty, as
well as improved financial outcomes for both borrowers and lenders.

Summary:

Agriculture graduates are well-equipped with specialised knowledge,

industry insights, and a deep understanding of the risks associated with
agriculture and its subsectors. This makes them highly relevant for
agriculture finance roles in commercial banks. Their ability to connect with
farmers and understand their unique financial needs is a valuable asset
in the finance sector. With their expertise, they can help banks make
informed decisions when it comes to financing agricultural projects and
provide valuable insights into the industry's trends and challenges.
Overall, agriculture graduates are a valuable addition to any commercial
bank looking to expand their agriculture finance offerings. The specialised
knowledge and skills of these experts play a crucial role in improving the
efficiency and success of lending to agriculture and its sub segments.
This, in turn, helps to promote sustainable growth and development within
the sector. Ultimately, the contributions of these experts are essential for
ensuring the long-term viability and prosperity of agriculture as a whole.

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Disclaimer:
The opinions expressed provided in this article are those of the author’s own and do not reflect
those of any organization. Author is working with one of the leading private sector bank and
can be reached at rhkharche@gmail.com, and 9960980800, @ Rajesh Kharche

13. Does Agri lending need knowledge of the sector ? Rajesh Kharche