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The bank should completely investigate the conditions of the place where financing is done, and then the terms and condition should be set with the borrower. They should provide the borrower quick loan, and with easy process. The process time of application should be reduced so the farmer can get loan in time.

Bank can analyze both borrower and external condition and their effect on loan. Bank should do need assessment of the borrowers demand then determine the amount and interest rate on that amount. It does not mean that farmer be exploited by bank. But bank to secure itself from default risk should correctly analyze the amount needed by the farmer.

As this “C” also include the external conditions, that is the economy, interest rate in economy, government policies and agricultural environment. Our economy is basically more based on agriculture sector and nowadays Government policies are more inclined towards agriculture. That is why Government has recently ordered the financial institutions to focus on agriculture sector.

As a result ZTBL and Punjab Provincial Cooperative Bank along with other commercial banks have increased their share to agricultural financing. This is a positive sign towards increase in agri-financing and Government is promoting subsidized rates to the banks. Other then fund based financing bank can provide them agricultural inputs on Murabaha Financing.

8.3) Operational Risk

8.3.A) Heat map

To make better controls and to avoid operational risk bank should have proper HR department. Basically the control process begins from top level to bottom and then trigger the need to develop new controls from bottom level after full assessment and open communication at all levels. It helps ultimately executives to build new controls and monitor their results as well. Black Wan events like,

Manipulation of loan loss reserves

Mortgage frauds

Securitization frauds

Central bank violation

Inside loan fraud

Theft of fund cashiers

should be accurately assessed from top level to the bottom to better perform the bank operations. And these events help to build better strategy to address Fraud Risks.

Bank should prioritize among these events important ones that can have potential impact whether in future or in current business operations. Heat Map could be used to plot them according to their significance and likelihood. The diagram is drawn in the previous chapter.

8.3.B)Key Risk Indicator Approach

Bank can use this approach to swiftly operate, and avoid any operational risk that could lead to its failure. Examples could be customer complaints, lack of technology, inappropriate Professionals, application and loan procedure etc in a bank. Management must be vigilant to carve-out the possible key indicators in their daily operations as well.

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