How Fintech Can Strengthen A Borrower-Lender Relationship in Agriculture
Fintech is a catalyst of financial success for the lender, the borrower, and the building and strengthening of relationships. It gives speed, accuracy, and agility. It helps get capital to where it needs to go, faster.
Methods of decision-making have traditionally focused on the financial risk of the borrowers, but as more modern avenues make their way into agriculture, they reveal what steps agricultural banks and Farm Credits can take to further strengthen the borrower-lender relationship that exists within the sector.
In the age of digitization, agriculture must follow suit. Fintech is a natural step to be embraced by agriculture. Ag finance institutions embracing fintech will be equipped to emerge atop the trend of digitization. Transitioning to the digital age through fintech gives agricultural finance many benefits including the bolstering of risk management practices, the streamlining of data management, and a way to better connect with their borrowers.
As new entrepreneurs turn to agriculture, they bring with them an innate drive for digitization, making fintech the way of the future. Financial institutions that work to embrace new technology will benefit from streamlining the process of data management while also reinforcing the way they connect with their borrowers.
What is FinTech?
The term “fintech” is derived from two words, finance, and technology. Forbes cites its meaning as, “any technology that’s used to augment, streamline, digitize or disrupt traditional financial services.”
At its most basic level fintech is a way by which financial practices have the capability of becoming quicker, easier, more secure, and more practical in 21st century standards. Whether it’s data management or deriving insights, fintech is a game-changer when it comes to agricultural banks that want to get back to developing and nurturing partnerships within the industry they serve.
Statista reports the total global value of investments in fintech to be around $33.9 billion, with a core feature of helping banking professionals “embrace agility and faster innovation.” Similarly, Yahoo! Finance shared that the worldwide fintech market had a value of $7301.78 billion in 2020.
What does fintech do for the borrower-lender relationship in agriculture?
For a borrower-lender relationship, the knowledge base can be tricky to navigate. When it comes to the myriad of data that is included in loan due diligence and decisioning, a communication disconnect can quickly form.
Antiquated practices are time-consuming and can involve several tactical hurdles. Whether it’s data collection, surveying land, keeping the data up-to-date, or simply analyzing borrower information; all of these obstacles contribute to long wait times and stall progress along the loaning process.
Creating a smoother and efficient approach frees up ag lenders to close more loans, better communicate, and more easily collaborate with their borrowers.
Fintech arrives into the arena as a natural progression within the age of digitization that can be the bridge that connects these two parties. Financial institutions who are looking to maintain a competitive advantage and fortify their borrower-lender relationships should add fintech solutions into their repertoire thus achieving a higher form of operating and a more appealing business proposition to potential borrowers.
While more and more business entrepreneurs pivot their way into agriculture, with them appears a change in prospects and values expected from potential lenders.
Dr. Kohl includes blue-collar individuals and ag entrepreneurs as two new entrants who will utilize their diverse skills and backgrounds resulting in a, “stretch [in] the boundaries of institutions serving agriculture to include urban and vertical farming activities.”
Fintech can help lenders close more loans and maintain more borrowers through gained efficiencies. It is a tool for lenders to leverage.
In embracing more advanced technologies professionals attain a key advantage in attracting partners and staying competitive. Many fintechs are tools that can be used by a financial organization to stay on top of an ever-digitizing world.
Implementing advanced risk analytics powered by both data acclimation and visualization contributes directly to growing intrinsic resilience for both farmers and lenders.
Fintech expedites the process of communication, due diligence, data management, and collaboration by reducing the data collection and organization time that could amount to months if done manually. When information can be quickly interpreted in a way that is easily digestible for all who engage with it throughout the borrower-lender relationship, the procedures that must be taken to ensure risk management become clearer and makes both parties more nimble.
Mitigating risk in agriculture is geospatial
To do this in the space of agriculture, the solution should have the lean on certain capabilities, e.g, GIS, data acclimation, and data visualization.
Soil quality, water levels, extreme weather conditions, and other metrics are all elements that can vary on a parcel by parcel basis.
For a better understanding of how financial institutions can fortify their existing borrower-lender relationship, they need to have the capability to stay closely in tune with the ag land that they lend to and be able to monitor portfolios both granularly and holistically.
Robust systems that keep these three things at the core of their products have the ability to integrate complex data from varied parties, provide meaningful context, maintain accurate statistics, and so much more— all while presenting the information in an easy-to-understand visualization. When done correctly, fintech’s automation capacities can transform murky waters into free-flowing bodies of valuable information that make the loaning process more efficient.
A strong borrower-lender relationship, guided by fintech can foster a sustainable future
The relationship between lenders and borrowers is key in creating a resilient and sustainable future for agriculture. Sustainable practices such as regenerative agriculture are becoming more popular among both farmers and consumers. Capital must be provided in order for these transitions to happen. Sustainable agriculture operations are more resilient to climate change and related disasters, produce higher yields in the long term.
Ag finance institutions who lend to sustainable operations – and have the fintech tools to prove that they do and the lowered risk because of it – will tend to be more equipped for ESG reporting and other kinds of regulations.
The Bottom Line
Fintech is a solution that benefits the financial borrower-lender relationship. It is a game-changer that provides speed, accuracy, and agility—helping capital where it needs to go, faster. Much like in the aforementioned definition, the goal of these solutions is to create value through convenience by simplifying complex processes.
With a powerful resource at a financial institution’s dispense assessing risk, remaining informed, building resilience, and nurturing borrower-lender relationships
Contact the team to learn more about what AQUAOSO’s fintech solutions can do for your institution, or schedule a free demo to see GIS Connect in action.
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