Area of research

Agricultural lending is identified as critical part of business for several financial institutions especially in rural sectors. The primary agricultural activity in Sri Lanka is identified as production of rice and more than 1.8 million families are engaged in cultivation of paddy. The finance provided by the bank is essential for the families in developing new agricultural techniques and technologies. However, as per supervisory perspective the banks involved in financing the crops and livestock’s have assumed that the risk related to market and commodity involves environmental factors such as adverse weather conditions and other natural perils. The net effect of such adversaries is associated to changes in crop yields and livestock production. These risks are not under borrower’s control and therefore the banks need to introduce several reforms such as diversification strategies, collaborating with institutions, regulatory interventions, developing more innovative products, knowledge management and community of practice (Carter, Cheng and Sarris 2016).

The research will identify the tools available to the banks for predicting specific risks which may have an impact on the agricultural produce due to natural causes and not farmers fault. The study will identify Agricultural Loan Loss Experience in Large Banks in Sri Lanka and such incidents will be exemplified with the use of historical agriculture loan losses in the last ten years. It will further consider the scope of agricultural insurance companies in helping mitigating the losses due to such incidents among various type of agricultural SMEs with the help of commercialization and improved technologies.

The study will be accompanied with both primary and secondary level research and the information used to interpret the topic will be analyzed with descriptive and inferential statistics. The secondary sources will comprise of the reports published by the large banks on agricultural loan loss experience in Sri Lanka. The primary research will identify the knowledge of respondents for the various reasons of accepting the relationship between agricultural productivity and environmental hazards. It will then relate to the prediction of environmental hazards based on policy interventions, insurance product development, strengthening the relationship between relevant institutions and incorporating global engagements.

The research questions for the study are listed as follows:

1. What is the effectiveness of regulatory interventions in agricultural finance for predicting the impact of agricultural loan loss due to environmental hazards?
2. What is the effectiveness of Predicting the usefulness of agricultural insurance in identifying the impact of environmental hazards on agricultural loan loss experience?
3. Can developing of innovative product identify the environmental hazard responsible to nonperformance of agricultural loans?
4. How well can knowledge management and community of practice contribute in prediction of Environmental Hazards on Agricultural Loan Loss Experience in Large Banks in Sri Lanka?

As published by the Fitch ratings it is seen that there is a high-risk appetite and pressure on financial profile particularly associated to SME and agricultural segment of Sri Lanka. It is not only seen to diversify from the corporate sector but also about 42% of the gross loan is likely to shrink in the medium term. The report published by Sri Lanka-based “Cargills Bank Ltd’s (CBL)” have also stated that small and developing domestic franchises have captured high risk appetite and pressure on the financial profile particularly with loans getting affected due to environmental hazards (Tilt and Gerkey 2016). The particular study will focus on using Agricultural Loan Loss Experience in Large Banks in Sri Lanka in the last 10 years.

Type of research

The research objectives are listed as follows:

• To know about the role of regulatory interventions in agricultural finance for predicting the impact of agricultural loan loss due to environmental hazards
• To predict the impact of environment and hazards on agricultural loan loss experience using global engagements
• To know the usefulness of agricultural insurance in identifying the impact of environmental hazards on agricultural loan loss experience
• To understand the contribution of Knowledge Management and Community of Practice in knowing about the impact of environmental hazards on agricultural loans
• To know about the impact of global engagements on agricultural finance
• To understand how developing of innovative product can help predict the environmental hazard responsible to nonperformance of agricultural loan

Policy and Regulatory Interventions

This procedure of prediction of the impact for hazards on agricultural loan loss is associated to conducting diagnostic studies on the state of agricultural finance with the clients of a particular country. This technique is associated in producing a concrete action plan to bring about the reforms in the public regulations and policies create a suitable environment for mobilization of the agricultural credit. The examples of this policy include lending quotas, expansion of bank branches, placing interest-rate caps, bringing about potential regulations having an impact on agricultural lending, incorporating warehouse receipt financing frameworks and bringing about alternative dispute mechanism for contract farming (Dankevych, Dankevych and Chaikin 2016).

Policy and Insurance Product Development Advisory – Agriculture Insurance

The insurance policy mitigation technique is identified as that procedure which advises the government on policies for AG insurance and development of other insurance products. This technique is also related to collaborating with “Global Index Insurance Facility (GIIF)” and “Disaster Risk Finance and Insurance Program (DRFIP)” related to specific activities and projects (Karlan et al. 2014).

Strengthening of Relevant Institutions

There is significant literature which shows how technical assistance is used for increasing the capacity of banks in rural areas to establish commodity exchanges to mitigate environmental hazards of lending. Many banks have put a special focus on financial cooperatives and recognize the importance of such bodies for rural MSMEs and households. This program is also adopted by many nations for strengthening and improving the performance in terms of regulations and oversight that arrangements financial systems. The risk design and implementation program is beneficial in identifying the important risk factors associated to natural perils affecting the bank’s asset (Chenu 2015).

Developing Innovative Products

Previous studies have shown how the designing and developing a wide range of agricultural instruments can act as a savior during environmental hazards. These are viewed as banks taking technical assistance via value chain finance, inventory finance, partial credit guarantee schemes for the agricultural sector loans. In addition to this, crop insurance, price hedging instruments are critical for predetermine in the agricultural loss due to environmental perils. Banks have also incorporated mobile banking and payment platform to allow your communication for loss in produce due to environmental hazard (Martin and Clapp 2015).

Knowledge Management and Community of Practice

Several financial institutions in rural areas are seen to carry out activities on both internal level and external level to predict the impact of environmental hazard. The internal level activities involve community of practice and training programs to know about production risk, market volatility risk and other credit risks associated to natural causes. On the other hand, the external policies are often conducted by organizing global and regional dissemination events and capacity building programs for knowing about environmental risks affecting agricultural produce. The community of practice is generally focused on two main criteria, the first one being agricultural finance and the second being agricultural insurance with particular focus and financial cooperatives (De Janvry 2015).

Research Question

Global Engagements

Since 2011, many financial organizations have started the technical advisory program by partnering with “G20 Global Partnership for Financial Inclusion (GPFI)”. This particular trend is popular among SME finance subgroups which are associated to the issues linked to agricultural finance and insurance. Many banks have also partnered with financial cooperatives which aim at contributing to the global knowledge on how natural disasters affect the agricultural loss. It is particularly conducive for promotion and building of concrete experiences from the past information (Morton et al. 2015).

The research will be conducted using Agricultural Loan Loss Experience in Large Banks in Sri Lanka using the historical agriculture loan losses of the last ten years. This will involve collection of data from both primary and secondary sources. The primary data will be mainly based on the predictive analysis technique to know about the effectiveness of tools such as regulatory interventions in agricultural finance, agricultural insurance in identifying the impact of environmental hazards on agricultural loan loss experience, impact of global engagements on agricultural finance etc. Collection of secondary information will involve obtaining literature in form of annual reviews, electronic libraries, textbooks, Internet and Journal (Mackey and Gass 2015).

The type of research conducted for this study will involve analyzing the observations using inferential and descriptive statistics such as mean, analysis of variance, frequency distribution, percentage and regression. In addition to this, the interview method of collecting the data involved the respondent’s opinion on knowledge for causes of hazards and control due to environmental hazards affecting agricultural productivity (Glesne 2015).

The formulation of the predictive formula will be based on regression model:

AL = F- (a x b)

AL = Annual loss on agriculture loan

F= Anova Significance F

a = Coefficients of Intercept

b = Coefficients of X Variable

Based on this predictive model the lesser will be the value of AF it will be considered that the prediction of the overall loss is reducing.

The deliverables for the research project are outlined below as follows:

Deliverables for the project
Serial No.	Deliverable Name	Description	Time
1	Research Ideation	Identifying the Impact of Environmental Hazards on Agricultural Loan Loss Experience in Large Banks in Sri Lanka using the historical agriculture loan loses of the last ten years	Week 1
2	Research Design	Identifying Area of research, Type of research, Research Question, objectives and Rationale	Week 2
3	Data Collection Process	Collecting the evidences using both primary and secondary sources	Week 2, 3 and 4
4	Analyzing and collecting of facts based on the research conducted	Analyzing the observations using inferential and descriptive statistics such as mean, analysis of variance, frequency distribution, percentage and regression.	Week 3 and 4
5	Publication process	Publishing the interpreted result	Week 5 and 6

Different types of tools to predict the impact of Environmental Hazards on Agricultural Loan Loss Experience in Large Banks in Sri Lanka using the historical agriculture loan losses for the last ten years will be done by using tools such as Regulatory Interventions, Insurance Product Development, Strengthening of Relevant Institutions, creating innovative products, community of practice and knowledge management. In addition to this the main tools used for interpreting the results will be considered with inferential and descriptive statistics such as mean, analysis of variance, frequency distribution, percentage and regression.

Rationale

Some the main form of risk includes additional damage, legal or financial liability and costs associated in conducting the research. In the course of collection of primary data there is a high chance of causing damage to the public perception of institution. In addition to this, the research may get affected due to poor quality and not finishing on time. Moreover, the legal or financial liability includes putting inappropriate claims for borrowings against the financial institutions. There is also a significant amount of cost required for conducting both primary and secondary research and in case the information is not available then it may pose a severe risk to the future research (Vaioleti 2016).

Sequential Activities/ Period	Week 1	Week 2	Week 3 &4	Week 5 & 6
Research Ideation	ü
Research Design		ü
Data Collection Process		ü	ü
Analyzing and collecting of facts based on the research conducted			ü
Publication process				ü

The ethical checklist will ensure that there are sufficient details on recruitment of participants. It will be also ensured that the collection of both primary and secondary data will be done by taking proper consent of the owner of the information. The research will also abide by the legal considerations such as Data Protection Act, Human Rights Act and Freedom of Information Act (Smith 2015).

Conclusion

At the end of the research, an individual will be able to identify the specific factors which are conducive for addressing the impact of environmental hazards on agricultural loan loss experience. The overall study will show the most suitable method for mitigating environmental hazards such as natural perils and adverse weather conditions. The ethical aspect of the research is also ensured that taking consent for conducting the overall study and also including the participants who are directly involved in granting agricultural credit in Sri Lanka.

References

Carter, M.R., Cheng, L. and Sarris, A., 2016. Where and how index insurance can boost the adoption of improved agricultural technologies. Journal of Development Economics, 118, pp.59-71.

Chenu, K., 2015. Characterizing the crop environment–nature, significance and applications. In Crop Physiology (Second Edition) (pp. 321-348).

Dankevych, Y., Dankevych, V. and Chaikin, O., 2016. Ecologically certified agricultural production management system development. Agricultural and Resource Economics International Scientific E-Journal, 2(4), pp.5-16.

De Janvry, A., 2015. Quantifying through ex post assessments the micro-level impacts of sovereign disaster risk financing and insurance programs. The World Bank.

Glesne, C., 2015. Becoming qualitative researchers: An introduction. Pearson.

Karlan, D., Osei, R., Osei-Akoto, I. and Udry, C., 2014. Agricultural decisions after relaxing credit and risk constraints. The Quarterly Journal of Economics, 129(2), pp.597-652.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.

Martin, S.J. and Clapp, J., 2015. Finance for agriculture or agriculture for finance?. Journal of Agrarian Change, 15(4), pp.549-559.

Morton, L.W., Hobbs, J., Arbuckle, J.G. and Loy, A., 2015. Upper Midwest climate variations: Farmer responses to excess water risks. Journal of environmental quality, 44(3), pp.810-822.

Smith, J.A. ed., 2015. Qualitative psychology: A practical guide to research methods. Sage.

Tilt, B. and Gerkey, D., 2016. Dams and population displacement on China’s Upper Mekong River: Implications for social capital and social–ecological resilience. Global Environmental Change, 36, pp.153-162.

Vaioleti, T.M., 2016. Talanoa research methodology: A developing position on Pacific research. Waikato Journal of Education, 12(1).