Operational risk management process at a peer-to-peer lending company in the agricultural sector: Case study of Agrifin

Peer-to-peer (P2P) lending is an alternative financing solution for nonbankable agribusiness. However, the risks to which the agricultural sector is exposed may cause those P2P lending companies serving the sector to undertake a variety of risk management initiatives. This study aims to analyze the operational risk management process at AgriFin, an Indonesian P2P lending company that provides financing for the agricultural sector. By undertaking in-depth interviews with AgriFin stakeholders (management, operators, and surveyors, and the Financial Services Authority of Indonesia [OJK] as the regulator for P2P lending companies in Indonesia), this study explores a number of themes related to the stakeholders' perceptions of P2P lending operational risk, risk identification, analysis, evaluation, and mitigation. The chief finding of this study is that the types of operational risks faced by P2P lending companies engaged in the agricultural sector are influenced by both internal and external parties (such as operators [financed farmers or agricultural companies] and the local communities that surround the financed agricultural land). In addition, the study outlines the various risk identification and mitigation mechanisms employed at AgriFin. Conceptually, the central contribution of this study is to understand the operational risk management process at P2P lending companies that serve the agricultural sector, which as a topic remains scarcely discussed not only in the Western empirical setting but also particularly in the context of emerging markets. The study highlights several potential implications for P2P lending companies to improve their operational risk management practices as well as for investors to employ various indicators for use in decision-making when selecting the best P2P lending companies as avenues for their funds.