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The more the better? How collateral levels affect credit risk in agricultural microfinance

Kirsten Müller, Oliver Musshoff and Ron Weber

No 1402, DARE Discussion Papers from Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE)

Abstract: Financial institutions still neglect to address agricultural clients. The main reasons for that are their perception that farmers bear higher risks than non-farmers and that their loan products are inadequate to accommodate the needs of agricultural entrepreneurs. As a result, many farmers still lack access to external finance. The aim of this paper is to investigate determinants of credit risk for agricultural loans disbursed by a Microfinance Institution (MFI) in Azerbaijan. In this context special attention is paid to repayment flexibility and the role of collaterals. MFIs are among the first financial institutions recently focusing on farmers with new loan products. We find that farmers are less risky than non-farmers, which is surprising because the opposite is widely believed. We furthermore find that the level of collateral has a negative influence on credit risk. Beyond that, we find that repayment flexibility increases credit risk.

Keywords: microfinance; collaterals; Tobit Model; credit risk; small-scale farmer (search for similar items in EconPapers)
JEL-codes: Q12 Q14 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr, nep-ban, nep-cwa, nep-mfd and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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