Borrower perceptions of additional lender services: an Oklahoma AgCredit example

Purpose - Customer retention and attraction are common concerns in the financial services industry but are acute concerns for farm credit associations, given competition from commercial banks. Not only do Farm Credit associations face restricted territories but also they have a considerably smaller borrowing population when compared to commercial banks. Oklahoma AgCredit, a Farm Credit association in east and central Oklahoma, is considering creating additional services to increase the number of business interactions they have with their member-borrowers. Their goal in adding services like crop and livestock insurance is to retain current customers and attract new borrowers. The purpose of this research is to assess current and prospective borrower responses to added services in terms of loan volume and insured crop acres and head of livestock. Survey results determine the change in expected loan volume from current customers and additional loan volume from previous and potential customers. The analysis finds that while little can be inferred regarding customer retention, additional services have a positive impact on customer attraction. Expected service utilization and coverage of common crop and livestock enterprises vary between customer subsamples, but all customer types indicated they would cover some level of livestock, forage, hay, wheat and sorghum. While a recommendation cannot be made based on this research, it does seem that expanding the services offered is a viable pursuit for an agricultural lender to improve customer attraction. Design/methodology/approach - Three groups of current and potential borrowers were surveyed to assess their current loan activity with Oklahoma AgCredit. Respondents were asked about their likely loan volume if an internal crop and livestock insurance agency was offered by Oklahoma AgCredit and their likely use of the crop and livestock insurance agency. Using survey results, the expected change in loan volume due to the proposed insurance enterprise was calculated. Findings - Results show no statistically significant difference in current borrower loan intentions. However, there were six current borrowers who also operate crop and livestock insurance agencies. These borrowers likely biased results downward. A slight increase in borrowing from potential customers was found. A high percentage of current and potential borrowers, 70–80%, were likely to use the insurance service. Originality/value - The study measures the expected impact of additional services by an agricultural lender in attracting and retaining borrowers.