Importance of repayment capacity in the quantitative rationing of agricultural credit in Benin

Adjoua Roxène Priscille Assogba Kpossou, Adjoua Pascaline Ida Babadankpodji, Esaïe Gandonou, Augustin Aoudji, Afio Zannou and Gauthier Biaou

Agricultural Finance Review, 2025, vol. 85, issue 1, 92-112

Abstract: Purpose - This paper analyzes the effect of repayment capacity on the quantitative rationing of credit to agricultural credit applicants. Design/methodology/approach - The empirical analysis of credit supply involved 595 applicants for agricultural credit. The instrumental variable (IV) approach of probit and tobit was used to identify credit rationing factors. Findings - All things being equal, a 1% increase in repayment capacity increases the amount received by 25% for large applicants, and 47% for small applicants. Other variables related to equity, participation rate, crops produced, reputation, age, activity stability and proximity influence the credit supply. Research limitations/implications - The results of this study provide a theoretical basis for comparing small and large agricultural credit applicants, which is essential for better decision-making by financial institutions and the government. This article recommends that all applicants should have a good reputation and keep their business income and expenditure book up-to-date, that small applicants should invest in their business and improve their financial education and that large applicants should accumulate wealth and invest in perennial crops. As a limitation of this study, it would be possible to extend the data to other institutions using panel data. Originality/value - The originality of this study lies in its consideration of the endogeneity problem between repayment capacity and credit rationing and, in a comparative analysis of small and large credit applicants. The results of this analysis will be used to adjust agricultural credit granting policies.

Keywords: Agricultural credit supply; IV approach; Information asymmetry; Microfinance institutions; Credit applicants; Endogeneity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:afr-06-2024-0094

DOI: 10.1108/AFR-06-2024-0094

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