Most financial institutions provide credit and the success or failure of a financial institution will depend heavily on its ability to manage lending well. Loan procedures must set out all the steps to be followed in selecting customers, completing applications, loan appraisal and approval, setting repayment schedules, loan contracts, disbursement, monitoring, loan collection, dealing with delinquency and loan record-keeping. Procedures need to be simple enough to be easily followed while meeting all the requirements of the institution. There are different approaches and different styles of forms that can be used and this section tries to provide examples and guidelines drawn from a variety of contexts.
Agricultural lenders face special challenges that are related to the specific nature of farm production. High liquidity risks result from the seasonal nature of production and household income. Other problems arise when many or all borrowers are affected by external factors at the same time, known as covariant risk. Examples of this include the effects of drought, flood or pests. Small scale farmers are rarely able to offer adequate collateral for loans. So agricultural lenders must adopt lending practices that are preventive and avoid default rather than depend on collateral based techniques.