How flexible repayment schedules affect credit risk in agricultural microfinance

Ron Weber, Oliver Musshoff and Martin Petrick

No 1404, DARE Discussion Papers from Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE)

Abstract: Using a unique dataset of a commercial microfinance institution in Madagascar, this paper investigates how the provision of microfinance loans with (in)flexible repayment schedules affects loan delinquencies of agricultural borrowers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. We develop a theoretical framework and apply and estimate an econometric model for the loan repayment behavior of agricultural microborrowers with seasonal and non-seasonal production types. Our results reveal that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, we find that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category.

Keywords: Agricultural Credit; Borrowing; Financial Risk; Loan Repayment; Microfinance; Seasonality (search for similar items in EconPapers)
JEL-codes: G21 G32 Q14 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: How flexible repayment schedules affect credit risk in agricultural microfinance (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:daredp:1404

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