Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider

Abstract

The purpose of the paper is to determine the influence of different factors used by a formal credit institution to evaluate loan applications in the agricultural sector. The research attempts to capture the actual factors considered by credit institutions rather than the traditional factors found in literature. Loan applications from 128 farmers, predominantly commercial farmers, were obtained from a credit institution with branches situated in various provinces of South Africa. Data consisted of loan application information which is broader than the financial information normally obtained in credit research, and the final decision of the credit provider. Principal component logistic regression was used to investigate the likeliness with which loan application variables influence the outcome of the loan application. Results indicate that loan applications that are more likely to be successful are older more experienced farmers, who can provide sufficient collateral, have more years of business with the credit provider, have an acceptable credit history, request smaller loan amounts, have lower interest expense ratio, higher production cost ratios, and have diversification strategies. This paper contributes to knowledge on information used by financial credit providers (institutions) in classifying agricultural loan applications as successful as guided by actual factors used in credit decision making by the credit provider.

The nexus between agricultural production and agricultural loans for banking sector groups in Turkey

“…Higher risks and uncertainties for agricultural sector compared to other sectors in the economy also increase the need for finance. The causes for high risks include factors such as the seasonal nature of agriculture, climate change, modern technology, excessive division of agricultural lands, perishable nature of agricultural products, demand fluctuation and product prices (Henning et al , 2019). These features of the agricultural sector lead to financial needs and credit risks for the producers.…”

Evaluation of the Appropriateness of the Current Sugarcane Out-grower Support Programs towards Improving Yields in the Lowveld of Zimbabwe

“…Most claimed that the loans provided enabled them to pay wages between periods of no revenue collection which is most likely before harvest. The credit facilities also allowed for new developments, bridging finance, during the life of any loan which is critical and reduces farmer redundancy which seen when farmers work mainly to pay off the loans remaining [49,50].…”

Identifying Credit Accessibility Mechanisms for Conservation Agriculture Farmers in Cambodia

“…Information from FIs significantly impacts the ability of farmers to access credit. Data from Henning et al [117] included information about credit applications, which is more extensive than financial data typically gathered in credit research and the credit provider's final decision. It must be considered that information obtained from FIs is guided, and included the following information: credit's purpose, size, repayment length, years as a client, account status, credit history, collateral, financial data, and the number of firms on farm and industry risk associations [118].…”

“…It must be considered that information obtained from FIs is guided, and included the following information: credit's purpose, size, repayment length, years as a client, account status, credit history, collateral, financial data, and the number of firms on farm and industry risk associations [118]. An agriculture applicant's information includes business ownership, age, years of farming experience, and education [117,119]. Agricultural credit information impacted credit accessibility, as farmers need information to make decisions regarding credit access with low interest rates.…”