Agricultural credit is usually provided by banks for the complete value chain of activities such as production/crop loans i.e. inputs (seed, fertilizer, and pesticides, etc.), development loans (tractors and tube wells, agricultural machinery/equipment/implements, etc.), corporate farming, marketing, cold storage (godowns) on a farm and off-farm, silos, processing of crops (other than major crops), fruits and vegetables, grading, polishing, packing, transportation and exports of agricultural goods, etc. Agricultural credit is also available for the non-farm sector such as poultry, livestock, dairy farming, forestry and fisheries, apiculture, sericulture, floriculture, horticulture, etc.

Agricultural finance is a sectorial concept that comprises financial services for agricultural production, processing, and marketing. It includes short, medium, and long-term loans, leasing, savings, payment services, and crop and livestock insurance.

The relative size of the agriculture industry in the developing world, combined with projected growth estimates, makes this market an attractive opportunity for FIs looking to finance growth-oriented agricultural enterprises.

The risks are not just concentrated at the producer level of the value chain as one might expect but are prevalent at all levels.

Working in rural areas is never an easy proposition. Vast geographic areas and low population densities, often scattered across hard-to-reach locations, result in higher operational costs for financial institutions. Organizations need to develop and implement a comprehensive and integrated strategy to offer sustainable financial services in rural areas. This strategy should include the design of effective risk assessment methodologies, the development of strategic collaboration with the technology company, and the creation of a cost-effective lending model.

• Low-risk farmers: Those with good crop diversification, multiple harvests per year, and access to irrigation, which enables them to generate regular monthly cash flows. They are usually commercially oriented with sizable production volumes that generate strong revenues and high repayment capacity. They possess good technical skill levels and have multiple buyers.
• Medium-risk farmers: Those with some crop diversification, multiple harvests per year, and can pay at least the monthly interest on loans and the principal in lump sums two or three times a year. They tend to be commercially oriented with adequate crop production volume, which generates midsize revenues. They possess average to good technical skill levels.
• High-risk farmers: Those who have low crop diversification, generate only seasonal income, and cannot pay interest or principal on a monthly basis, but can only pay lump sums at the end of the crop cycle. They generate small production volumes mostly directed to household consumption and small portions directed to the markets. They possess low to medium technical skill levels.