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Can flexible microfinance loans improve credit access for farmers?

Can flexible microfinance loans improve credit access for farmers? Purpose – Using a unique dataset of a commercial microfinance institution (MFI) in Madagascar, the purpose of this paper is to investigate how credit access probabilities and loan volume rationing magnitudes for farmers change if the MFI switches to offer flexible microfinance loans, which can account for agricultural production specifics. Design/methodology/approach – The authors estimate probit models for the probability of receiving a loan and Heckman models to investigate the magnitude of volume rationing for all micro loan applications and disbursements of the MFI, differentiating between farmers with standard microfinance loans and farmers with flexible microfinance loans. Findings – The results reveal that agricultural firms with flexible microfinance loans have significantly higher credit access probabilities than non‐agricultural firms and agricultural firms with standard microfinance loans. Furthermore, it was found that agricultural firms with flexible microfinance loans are stronger volume rationed than non‐agricultural firms and agricultural firms with standard microfinance loans. Research limitations/implications – Even if the authors can show that access to credit for agricultural firms in Madagascar can be enhanced by the provisioning of flexible microfinance loans, the investigated MFI only introduced flexible microfinance loans in 2011 and currently only offers them through five branch offices. Thus, the product is new to the MFI, and results might change with increasing outreach to other geographic regions in Madagascar. Furthermore, the conditions for agricultural production in Madagascar are unique, and the results might change in different country contexts. Practical implications – The paper's findings suggest that flexible microfinance loans can contribute to the financial inclusion of farmers with seasonal production types. They also suggest that standard microfinance loans seem to be adequate for farmers with less seasonal production types, e.g. animal husbandry. Originality/value – To the best of the authors' knowledge, this is the first paper to investigate the effects of flexible microfinance loan provision for credit access of small agricultural firms in developing countries in general, and in Madagascar in particular. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Can flexible microfinance loans improve credit access for farmers?

Agricultural Finance Review , Volume 73 (2): 17 – Jul 26, 2013

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
0002-1466
DOI
10.1108/AFR-09-2012-0050
Publisher site
See Article on Publisher Site

Abstract

Purpose – Using a unique dataset of a commercial microfinance institution (MFI) in Madagascar, the purpose of this paper is to investigate how credit access probabilities and loan volume rationing magnitudes for farmers change if the MFI switches to offer flexible microfinance loans, which can account for agricultural production specifics. Design/methodology/approach – The authors estimate probit models for the probability of receiving a loan and Heckman models to investigate the magnitude of volume rationing for all micro loan applications and disbursements of the MFI, differentiating between farmers with standard microfinance loans and farmers with flexible microfinance loans. Findings – The results reveal that agricultural firms with flexible microfinance loans have significantly higher credit access probabilities than non‐agricultural firms and agricultural firms with standard microfinance loans. Furthermore, it was found that agricultural firms with flexible microfinance loans are stronger volume rationed than non‐agricultural firms and agricultural firms with standard microfinance loans. Research limitations/implications – Even if the authors can show that access to credit for agricultural firms in Madagascar can be enhanced by the provisioning of flexible microfinance loans, the investigated MFI only introduced flexible microfinance loans in 2011 and currently only offers them through five branch offices. Thus, the product is new to the MFI, and results might change with increasing outreach to other geographic regions in Madagascar. Furthermore, the conditions for agricultural production in Madagascar are unique, and the results might change in different country contexts. Practical implications – The paper's findings suggest that flexible microfinance loans can contribute to the financial inclusion of farmers with seasonal production types. They also suggest that standard microfinance loans seem to be adequate for farmers with less seasonal production types, e.g. animal husbandry. Originality/value – To the best of the authors' knowledge, this is the first paper to investigate the effects of flexible microfinance loan provision for credit access of small agricultural firms in developing countries in general, and in Madagascar in particular.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: Jul 26, 2013

Keywords: Developing countries; Madagascar; Agricultural finance; Credit; Small enterprises; Access to credit; Credit rationing; Microfinance institutions

References