A model methodology for sustainable lending in the agricultural sector

Abstract

Subject. Processes of internal institutionalisation and state regulation of the sustainable lending market in the agricultural sector, as well as the ESG transformation of business processes of lenders and borrowers within the framework of the concept of sustainable development.Objectives. The formation of a conceptual framework for sustainable lending and forecasting scenarios for its development in the agricultural sector; development of a model methodology providing a structural restructuring of the industry credit mechanism in terms of incorporating sustainable development goals and ESG factors into the credit procedures of banks and the business processes of borrowers, increasing the supply of relevant credit products, and creating a system of market and government incentives.Methodology. The developed model methodology for sustainable lending is based on the concepts of sustainable development, ESG, responsible banking, and sustainable finance. In order to achieve the objectives, the author used abstraction, generalisation, formalisation, analogies, and scenario forecasting methods.Results. It was shown that the concept of sustainable development and the principles of responsible banking form the basis of sustainable financing, the direction of which is sustainable lending. A conceptual apparatus of sustainable lending has been formed, which allows classifying it as a financial instrument for achieving sustainable development goals.Conclusions. Based on scenario forecasting, an acceleration model for the formation of a sustainable lending market in the agricultural sector is substantiated. The model assumes a proactive role of the state and banks (promotion of values, incentives), consolidation of institutional changes, and infrastructure development. A model methodology for sustainable lending in the agricultural sector, including three structural components: information, product and incentive system has been developed. The information component performs the functions of goal setting, consolidation in formal norms and regulation of institutional changes, incorporation of ESG factors into standard credit scoring procedures, and development of the market for non-financial ESG products. The product component is differentiated by types of sustainable development credit products. Standardised loan products, including government support measures, are offered for verified projects. For projects financed according to bank standards, unique loan products are offered with internal financial and non-financial incentives, restrictions and ESG risk management tools integrated into their structure. The incentive system is differentiated into financial and non-financial based on the types of credit products.