Innovation in Agriculture Financing Using Inter-Organizational Governance Flexibility: Case Study of an Agriculture Value Chain Financier in India

Historically, financial institutions in India have not sufficiently met the needs of small and marginal farmers due to the greater risks and higher operational costs involved in catering to their needs. To expand access to finance to these underserved but important sections of the economy, it is necessary to look beyond traditional standardized lender-borrower relationships. Financiers need to instead adopt flexibility in governance forms and forge new kinds of inter-organizational partnerships to serve these segments profitably. A good example of such a new lending model is agricultural value chain financing. Agricultural value chain financiers adopt flexibility in governance forms by having in their fold multiple group entities with more than one legal form. They also form several partnerships with flexibility in governance mechanisms and governance tools to develop customized solutions for a particular value chain. This paper uses the situation-actor-process and learning- action-performance (SAP-LAP) framework to evolve a conceptual model to illustrate this. It further describes a case study of an agricultural value chain financier in India to demonstrate the application of the model. The objective of the paper is to demonstrate how governance flexibility can help address traditional barriers in addressing the financial needs of neglected communities.