Abstract. This study utilizes Farm Service Agency lending data to verify if previous racial and gender bias allegations still persist in more recent lending decisions. Beyond loan approval decisions, this study focuses on trends in direct loan packaging terms for approved single proprietorship farm borrowers. Results indicate that although no significant disparities were noted in loan amounts and maturities prescribed for various racial and gender minority groups, nonwhite male and female borrowers were usually charged higher interest rates than the others. Loan pricing differentials could have been the lenders' strategy for price management of borrowers' credit risks.
Purpose -An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are more likely to lend to small informationally opaque firms. In light of banking consolidation, this market segmentation can have implications for credit availability. Federal loan guarantees, such as those provided by USDA's Farm Service Agency (FSA) may reduce the risks of lending to informationally opaque firms thereby mitigating the impacts of the bank size lending paradigm. This paper aims to discuss these issues. Design/methodology/approach -This analysis utilized a binomial logit procedure to determine if there was any empirical evidence that smaller community banks served a unique clientele of farmers when making FSA-guaranteed loans. The analysis relied on a unique data set which incorporated detailed data on farm businesses receiving FSA-guaranteed loans, loan characteristics, as well as information about the originating bank and characteristics of the local credit markets. Findings -Results were consistent with the bank size lending paradigm with smaller banks being less likely to engage in fixed-asset lending, and more likely to serve a riskier and less established clientele when making guaranteed loans. Research limitations/implications -Data limitations did not permit detailed analysis of banks larger than $250 million in total assets nor for consideration of non-bank lenders. An expansion by these lender groups into serving more informationally opaque borrowers could mitigate any adverse impacts arising from fewer small community banks. Practical implications -The results suggested that Federal guarantees do not completely eliminate the relative informational advantages of large and small size banks. And, continued bank consolidation, such that there are fewer small community banks, could result in less credit availability among smaller, less creditworthy farm businesses. Social implications -While FSA guarantees may not enhance a large banks propensity to serve informationally opaque farm borrowers, they may enhance the ability of smaller community banks to serve groups specifically targeted through FSA lending programs; the provision of credit to family farmers who, despite being creditworthy, are unable to obtain credit at reasonable rates and terms. Originality/value -The analysis examines relationship between bank size and the use of FSA guarantees using a unique data set which incorporated information on FSA-guaranteed loans, farm financial characteristics, along with characteristics of commercial banks which participated in the FSA-guarantee program.
PurposeThe purpose of this paper is to examine credit usage by beginning farmers and ranchers (BFR). BFR credit usage is stratified by location (state) and by socially disadvantaged farmer and rancher (SDFR, also known as historically underserved) status. SDFR groups are defined to include women; individuals with Hispanic, Latino or Spanish Origin; individuals who identify as American Indian or Alaskan Native, Black or African American, Asian, Native Hawaiian or other Pacific Islander. Non-SDFR is defined as individuals who identify as non-Hispanic, White men.Design/methodology/approachThe US Department of Agriculture’s Census of Agriculture, Agricultural Resource Management Survey (ARMS) is linked with Farm Service Agency (FSA) loan program administrative data to estimate shares of BFR operations using FSA credit. Census data provided information on population changes in total farms and BFR operations from 2012 to 2017 which are compared by SDFR status.FindingsResults reveal differences among BFR operations active in agricultural credit markets by SDFR status and state. BFR were more common among SDFR groups as well as in regions where farms tend to be smaller, such as the Northeast, compared to a more highly agricultural upper Midwest. Among BFR, non-SDFR are more likely to utilize credit than SDFR, however, FSA appeared to be crucial in enabling BFR and especially beginning SDFR groups to access loans.Originality/valueThe results are timely and of keen interest to researchers, industry and policymakers and are expected to assist in developing and adjusting policies to effectively promote and improve BFR success in general and for beginning SDFR groups.
Agricultural credit markets are dominated by two institutional retail lender groups, the cooperative Farm Credit System (FCS) and commercial banks. Analysis of farm loans made over the 1991S1993 and 2001S2002 periods indicates that FCS lenders were more likely to serve full‐time commercial farmers and farmers located in regions with less competitive credit markets. In contrast, commercial banks were more likely to serve small, part‐time, and hobby farmers. This segmentation of farm credit markets is consistent with federal regulations requiring the FCS to provide credit to “bona fide” farmers with a basis for credit.
PurposeThis study adds a new dimension in the study of racial and gender bias in farm lending. Most previous studies analyzed the separate effects of race and gender attributes on loan approval decisions. The analysis focuses on the stipulation of loan terms (loan amount, interest rate and maturity) among approved farm loan applications. The time period analyzed spans from 2004 until 2014 during which the government has undertaken reforms to improve delivery of loan services to its clientele of minority farmers. Thus, this study's findings could help validate the effectivity of such institutional reforms affecting Farm Service Agency (FSA) lending operations.Design/methodology/approachThis study utilizes a national direct loan origination data from the FSA of the U.S. Department of Agriculture (USDA) collected from 2004 to 2014. The analysis begins by identifying significant differences in cross-tabulations of loan terms among different racial and gender classes. Seemingly unrelated regression (SUR) regression techniques are then applied for a system of equations involving the three loan packaging components. The combined effects of the prescribed loan packaging terms are subsequently analyzed under a simulation-optimization framework.FindingsRegression results validate that indeed, relative to White American borrowers, certain minority borrowers are accommodated with lower loan amounts at higher interest rates and with shorter maturities. However, these decisions seem to be prompted by credit risk management considerations. The most compelling findings include the insignificance of all double minority labeling variables, except for the interest rate equation that even produced favorable results for Hispanic American females. Simulation-optimization results further reinforce that even when one or two unfavorable loan terms are included in the packaging, double minority borrowers end up with better profitability and liquidity positions.Practical implicationsThis study provides a different perspective in dealing with the controversial minority bias in lending by presenting evidence gathered from a government farm lending institution. The USDA-FSA has been sued in numerous occasions by minority borrowers. Since then, however, it has deliberately implemented institutional reforms to rectify previous errors. This study provides empirical evidence strengthening FSA's claim of its intention to improve its delivery of loan services, especially for its socially disadvantaged borrowers with double minority classification.Originality/valueThis study pioneers the analysis of the double minority labeling effect on farm lending decisions. Its contributions to literature are further enhanced by its goal to validate the effectiveness of FSA institutional reforms undertaken since the early 2000s in order to improve credit access of and delivery of credit services to minority farm borrowers, especially those that belong to more than one minority classification.
Purpose The purpose of this paper is to examine changes in the structures of US farms and lenders and identify prospective implications for federal credit. Design/methodology/approach Data from US farm operations for 1996-2014 were adjusted to 2014 values using commodity price indices. Farm size groups were constructed by value of farm production to analyze changes in farm numbers, production, assets, debt, leverage, liquidity, profitability, land tenure, commodity type, contract production, organization type, and use of Farm Service Agency (FSA) direct and guaranteed loans by farm size. Bank, Farm Credit System (FCS), and FSA data from 1996 to 2015 were adjusted to 2014 values. Lender size groups were constructed to analyze changes in bank and association numbers, farm loans, and use of FSA guaranteed loans by lender size. Findings The greatest consolidation has been by farms with over $2 million in production. More farm debt is held by large, complex organizations, frequently with multiple operators, more variable income, and greater reliance on production contracts and operating and nonreal estate credit. Large farms have greater leverage, are more profitable, and have a larger share of household income from the farm. Banks and FCS institutions are fewer and larger, yet smaller institutions use FSA guarantees to a greater extent. Larger farms tend to be more reliant on both direct and guaranteed FSA loans and are likely to become more dependent on FSA credit. Originality/value Changing farm and lender structure together with softening farm income may require FSA farm loan program changes to meet any increase in loan demand. Policy alternatives are provided to meet changing demand for farm credit.
Purpose The purpose of this paper is to analyze the repayment records of Farm Service Agency (FSA) borrowers in two distinct US farming regions that have been experienced serious drought conditions even as the US economy was going through a recession. The analysis will identify factors that significantly influence both the probability of FSA borrowers’ survival (capability to remain in good credit standing) and temporal endurance (or length of period of good standing with creditor). Design/methodology/approach This analysis utilizes a data set of farm borrowers of the Farm Service Agency that regular farm lenders have classified as “marginal” relative to other borrowers. The research goal is addressed by confining this study’s regional focus to the Southeast and Midwest that have both dealt with financial stress arising from abnormal natural and economic conditions prevailing during the same time period. A split population duration model is employed to separately identify determinants of the probability and duration of survival (condition of good credit standing). Findings This study’s results indicate that larger loan balances, declining commodity prices, and the severity of drought conditions have adversely affected both the borrowing farms’ probability of survival and temporal endurance in terms of maintaining non-delinquent borrower standing. Notably, Midwestern farms have been relatively less affected by drought conditions compared to Southeastern farms. This study’s results validate the contention that the farms’ capability to survive and the duration of their survival can be attributed to differences in regional resource endowments, farming activities, and business structures. Originality/value This study’s analytical framework departs from the basic duration model approach by considering temporal endurance, in addition to survival probability analysis. This study’s original contributions are enhanced by its specific focus on the contrasting farm business structures and operating environments in the Midwest and Southeast regions.
Federal farm credit programs currently administered by the USDA were initiated in the early 1900s to help the farm sector cope with natural disasters, and these programs have continued to evolve. There has been a rich history of research analyzing USDA farm credit programs and the effects they have had on farmers, ranchers, and credit markets. This paper highlights past research and offers a view of the future direction of research on federal farm credit programs.
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