Transformation of agriculture risk management: The new horizon of regulatory compliance in farm credits

Abstract

Purpose

The purpose of this paper is to investigate the balanced role of internal and external compliance in risk evaluation process of specialized agriculture financing. The authors examine the adaptive behavior of risk managers to determine the role of proposed transformation for risk monitoring (RM) and control process in risk mitigation and avoidance of agriculture credit failure.

Design/methodology/approach

A self-administered survey was conducted to collect data from 353 risk-related officers and managers in Zarai Taraqiati Bank Limited (ZTBL) Pakistan. The authors used a previously tested scale for the main constructs. The descriptive analyses were used to gauge the model capacity for determining the strength of proposed risk patterns in agriculture risk management.

Findings

The results reveal that risk evaluation process in ZTBL is reasonably efficient in mitigating risks. Given the sensitive nature of farm credit, there is a need of fundamental reforms in risk policy manuals in line with central bank’s agriculture prudential regulations and Basel-III standards. The results fully support H1 and H2, while H3 is partially validated. The result patterns indicate serious issues in risk evaluation process in agriculture finance that is causing higher delinquency in farm credit.

Research limitations/implications

Based on highlighted issues, the authors recommend valuable guidelines in the RM review system for agriculture financing products at ZTBL.

Practical implications

The authors propose remodeling of agriculture risk management and offer valuable insights to the agriculture financial regulators and government in taking policy initiatives in the pre-and-post agriculture risk evaluation process. The proposed model enables RM process to improve farm credit delinquency, particularly in ZTBL and other agriculture banking networks in commercial banks.

Originality/value

This is the first study to empirically investigate RM evaluation process in agriculture risk management of ZTBL in Pakistan, thus, offers new horizon of farm credit regulatory compliance in agricultural sector of Pakistan.

Citation

Bilal, A.R. and Baig, M.M.A. (2019), "Transformation of agriculture risk management: The new horizon of regulatory compliance in farm credits", Agricultural Finance Review, Vol. 79 No. 1, pp. 136-155. https://doi.org/10.1108/AFR-05-2018-0038