Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider

Johannes I. F. Henning, Dominique A. Bougard, Henry Jordaan and Nicolette Matthews
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Johannes I. F. Henning: Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa
Dominique A. Bougard: Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa
Henry Jordaan: Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa
Nicolette Matthews: Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa

Agriculture, 2019, vol. 9, issue 11, 1-15

Abstract: The purpose of the paper is to determine the influence of different factors used by a formal credit institution to evaluate loan applications in the agricultural sector. The research attempts to capture the actual factors considered by credit institutions rather than the traditional factors found in literature. Loan applications from 128 farmers, predominantly commercial farmers, were obtained from a credit institution with branches situated in various provinces of South Africa. Data consisted of loan application information which is broader than the financial information normally obtained in credit research, and the final decision of the credit provider. Principal component logistic regression was used to investigate the likeliness with which loan application variables influence the outcome of the loan application. Results indicate that loan applications that are more likely to be successful are older more experienced farmers, who can provide sufficient collateral, have more years of business with the credit provider, have an acceptable credit history, request smaller loan amounts, have lower interest expense ratio, higher production cost ratios, and have diversification strategies. This paper contributes to knowledge on information used by financial credit providers (institutions) in classifying agricultural loan applications as successful as guided by actual factors used in credit decision making by the credit provider.

Keywords: agricultural finance; principal component analysis; logistic regression; repayment ability; South Africa (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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