Financial institutions need to invest in technology to overcome the challenges of financing in agribusiness

Agribusiness is an activity with a high demand for capital, especially in Brazil. In most cases, the producer needs to benefit from financial resources to purchase inputs and machinery and, thus, start production of the next harvest. 

Until a few years ago, the rural credit market was largely concentrated in the hands of public institutions, but little by little this scenario has been changing. Increasingly, this activity has attracted greater engagement from private banks and other companies, due to a more accurate perception of risks in the sector, which is derived from the technological improvement of data analysis, in addition to economic policies that favored the activity as a all. 

Basically, the act of financing something depends on an available cash resource. When lending it to the interested client, it is necessary to understand the destination of the resource, that is, to manage, monitor and validate the risk of that operation. In agribusiness, this process is much more complex, because it is, in most cases, distant and correlated to imponderable variables, with little available and/or structured data. 

One of the risks involved is image or reputation. In this facet, among others, there is socio-environmental risk, which is included in the global ESG agenda (acronym in English for “Environmental, Social and Governance”). By having co-responsibility for the producer's actions, the entity that finances must be alert to acts that could harm social well-being and the environment, such as working in conditions similar to slavery and deforestation, respectively. In fact, this risk comes up against legal and infra-legal issues that need to be followed, such as the impediment to areas embargoed by Ibama (Brazilian Institute of the Environment and Natural Resources), overlap with Conservation Units, among other criteria contained in the guidelines of the manual. rural credit, the MCR, published and managed by the Central Bank. 

More recently, in September 2021, one of the most imponderable risks entered the scene through Resolution No. 140 of the Central Bank, which discriminates against social and environmental impediments and, additionally, opens the door to a new entrant, the climate impediment.

Monitoring crop performance (performance risk that impacts credit risk) is also an important mission for those who provide resources. Unexpected events can occur in the field at any time, from drought and excessive rain that can completely damage a crop, to even the appearance of a pest capable of delaying the harvest of production. These problems become even more delicate in portfolio analyses, after all, climate is a risk that can have a comprehensive impact, geographically speaking. Therefore, the spread of risks is a determining factor for agricultural financiers.

As a result of this challenging scenario, financial institutions increasingly need to resort to digital solutions, which use remote sensing, data crossing and non-obvious modeling, to solve the problem, which has a wide range of knowledge, techniques, methodologies and tools. In fact, being far from producers is, perhaps, the basic challenge to be overcome by the banks that finance them. Even relatively simple issues can become more difficult to resolve if the organizations that finance the sector do not have efficient digital platforms at their disposal, such as the evaluation or valuation of the constitution of collateral with real estate.

Today, therefore, technology is the most recommended way for banks to manage the field comprehensively, digitally and remotely, starting a cycle that is monitored before and throughout the loading of the financing contract. Through it, data can be collected by financial institutions in an automated way, ensuring that the information reaches decision-makers in the correct way.

The truth is that agribusiness still has a lot of room to grow in Brazil. By reducing risks for the financial sector (we cannot forget the insurance sector and the capital market) technology also creates opportunities for even groups, with a smaller credit portfolio, to have the chance to make resources available to the market in a safe way, which is the most recent case of the new courageous adventurers (derived from Venture) in agriculture, Fintechs. Undoubtedly, with more players financing the area, the perception that Brazil is the country of agribusiness will be further strengthened.