Can agricultural credit scoring for microfinance institutions be implemented and improved by weather data?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In recent years, the application of credit scoring in urban microfinance institutions became popular, while rural microfinance institutions, which mainly lend to agricultural clients, are hesitating to adopt credit scoring. The present study aims to explore whether microfinance credit scoring models are suitable for agricultural clients, and if such models can be improved for agricultural clients by accounting for precipitation. Terms of use: Documents inDesign/Methodology/Approach: This study merges two data sets: (i) 24,219 loan and client observations provided by the AccèsBanque Madagascar and (ii) daily precipitation data made available by CelsiusPro. An in-and out-of-sample splitting separates model building from model testing. Logistic regression is employed for the scoring models. Findings:The credit scoring models perform equally well for agricultural and non-agricultural clients. Hence, credit scoring can be applied to the agricultural sector in microfinance. However, the prediction accuracy does not increase with the inclusion of precipitation in the agricultural model. Therefore, simple correlation analysis between weather events and loan repayment is insufficient for forecasting future repayment behavior.Research Limitation/Implication: The results should be verified in different countries and climate contexts to enhance the robustness.Social Implication: By applying scoring models to agricultural clients as well, all clients can benefit from an improved risk assessment (e.g. faster decision-making).Originality/Value: To the best of our knowledge, this is the first study investigating the potential of microfinance credit scoring for agricultural clients in general and for Madagascar in particular. Furthermore, this is the first study that incorporates a weather variable into a scoring model.

Determinants of smallholder farmers’ access to microfinance credits

“…In earlier studies, Fernando (2007) andDe Nicola (2015) stated that the fear of MFIs about the agricultural sector is due to the risks (price fluctuation, seasonality and external production risks) that this sector presents. Römer and Musshoff (2018) argue that seasonality affects the agricultural sector, especially for plant growers, therefore agricultural loans substantially differ from non-agricultural loans in their repayment capacity. Hence, in comparison to borrowers of non-agricultural sector, farmers face stiffer challenge to access to microfinance credits (Weber and Musshoff, 2012).…”

International Scientific Conference “New Challenges in Economic and Business Development – 2022: Responsible Growth” : Proceedings

“…However, experts and researchers should use several methods to evaluate credit scoring in a company or a specific region or country, as the results depend highly on the data set. It is recommended to use at least five methods that have received the highest scores in this evaluationlogistic regression, decision trees, artificial neural network, support vector machine and linear discriminant analysis, and comparing their classification accuracy using different performance evaluation criteria, for example, area under the curve (Römer & Musshoff, 2017). The use of additional performance evaluation indicators for quality assessment would provide a more complete picture of the models and suitability of methods.…”

Faktor-Faktor Yang Mempengaruhi Petani Dalam Memilih Platform Crowdfunding (Studi Kasus Pada Petani Hortikultura Di Desa Sumberejo, Magelang)

“…Bank Dunia menyebutkan bahwa akses kepada pendanaan bagi petani adalah kunci untuk pertumbuhan dan transformasi industri pertanian di negara berkembang (World Bank Group, 2018). Hal ini disebabkan karena terdapat perbedaan waktu (time gap) antara kebutuhan dana (untuk pembelian bibit, pupuk, dan sarana prasarana lainnya) sampai dengan waktu panen (Römer and Mußhoff, 2018), sehingga pendanaan sangat diperlukan untuk membantu proses produksi dalam sektor pertanian. Selain itu, pendanaan juga digunakan petani untuk melakukan ekspansi lahan dan investasi dalam penggunaan teknologi (Van der Meulen and Van Asseldonk, 2017).…”