Strategic behavior of nontraditional lenders in agricultural credit markets

Purpose: This paper examines credit products, operational performance and business models employed by nontraditional lenders (NTLs) in agricultural credit markets. Design/methodology/approach: Two research methods were employed in this study: (1) an executive interview to collect primary data and (2) a case study approach to analyze the findings and develop insights. Findings: The findings indicate the presence of significant differences among lenders across and within three categories of NTLs (large volume, vendor financing and collateral-based NTLs). For example, collateral-based NTLs employ different strategies focusing on types of loans, funding sources, commodities they support and geographic coverage to further segment the market. NTLs in this study were able to capture market by successfully identifying gaps in the supply side of agricultural credit and developing products that meet the needs of that niche (e.g. heavy renters, large operations, producers seeking fixed interest rates for term loans, financially fragile producers). Most of the interviewed NTLs had credit standards comparable to those of traditional lenders and consider them both competitors and partners since many NTLs partner with traditional lenders on participation loans, loan servicing and/or sourcing funds. Originality/value: The supply side of a nontraditional lending has not been studied extensively due to the proprietary nature of data. The executive interviews conducted in this study allowed for accumulation of industry data, which is not available otherwise.