Dynamic Incentives in Microfinance – What about the Farmers?

Imke Hering and Oliver Musshoff

No 204673, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower’s identification with his microlender. This study focuses on relaxation in loan volume rationing in the course of the bank-borrower relationship. More particularly, we consider the differentiation in lending politics faced by farmers and non-farmers and match our findings with the repayment performances of both client groups. By means of a rich data set for the years 2007 until 2013 provided by a MFI in Azerbaijan, we demonstrate that farmers face a higher degree of loan volume rationing but outperform the non-farmers with respect to loan repayments. Moreover, our results reveal that relaxation in loan volume rationing works as a tool for risk management in MFIs. In conclusion, we deduce that MFIs have still not recognized the full business potential of their farming clients.

Keywords: Agricultural Finance; Community/Rural/Urban Development (search for similar items in EconPapers)
Pages: 38
Date: 2015-05
New Economics Papers: this item is included in nep-ban and nep-mfd
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Journal Article: Dynamic Incentives in Microfinance – What about the Farmers? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:204673

DOI: 10.22004/ag.econ.204673

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