Farmers' preferences and willingness to pay for microcredit in Benin: results from in-the-field choice experiments in Benin

Abstract

PurposeThis document analyses farmers' preferences and willingness to pay (CAP) for microcredit, in order to facilitate their access in rural areas.Design/methodology/approachData are based on a discrete choice experiment with 400 randomly selected farmers from 20 villages of the 7 Benin agricultural development hubs (ADHs). The preference choice modelling was performed using mixed logit (MXL) and latent class logit (LCL) models. Farmers' willingness to pay for each preferred attribute was estimated. The endogenous attribute attendance (EAA) model was also used to capture attribute non-attendance (ANA) phenomenon.FindingsThe results indicate that, on average, farmers prefer individual loans, low interest rates, in kind + cash loans, cash loans, disbursement before planting and loans with at least 10-month duration. These preferences vary according to farmers' classes. Farmers are willing to pay higher or lower interest rates depending on attribute importance. The estimate of the EAA model indicates that, when taking the ANA phenomenon into consideration, people will show stronger attitudes regarding WTP for important factors.Research limitations/implicationsBased on these results from Benin, microfinance institutions (MFIs) in developing countries can, based on the interest rates currently charged, attract more farmers as customers, reviewing the combination of the levels of the attributes associated with the nature of the loan, the type of loan (individual or collective), the disbursement period of funds, the waiting period of the loan and the loan duration. However, the study only considered production credit, ignoring equipment or investment credit.Practical implicationsThe document provides information on the key factors that can facilitate producers' access to MFI products and services.Social implicationsFacilitating small farmers' access to financial service will contribute to poverty reduction.Originality/valueThis research contributes to the knowledge of the attributes and attribute levels favoured by farmers when choosing financial products and the amounts they agree to pay for these attributes. The implementation of the results would facilitate small producers' access to financial services; thus contributing to poverty reduction.

Identifying farmers' preferences for types of credit and its market structure in rural Benin using the conjoint analysis approach

“…(2021) also used mixed logit and conditional logit to analyze farmers' demand and willingness to pay for crop insurance. Ogouvide et al . (2020) applied the mixed logit and latent class model to study the demand for agricultural credit by farmers.…”

“…For example, credit size and transaction costs were considered by Ding and Abdulai (2018) in designing the profile of agricultural credit demand. Unlike the study of Ding and Abdulai (2018), the method used by Ogouvide et al . (2020) to categorize the characteristic of credit duration in Benin is different from the standard norms as defined by financial institutions.…”

“…It assumes that farmers' preferences for credit are functions of their characteristics. These characteristics may include, among others, interest rate, repayment schedule, loan size and collateral method (Kong et al ., 2015; Ding and Abdulai, 2018; Ogouvide et al ., 2020), repayment type, loan duration, loan type, institution type and mobile banking technology (Kong et al ., 2020).…”

Financial inclusion and post-harvest losses in West African economic and Monetary Union

“…In developing countries, particularly households in rural communities, agricultural activities represent the main source of income. Thus, economic theory has shown that access to finance reduces the financial constraints of producers and facilitates their access to productive technological inputs (Diagne, 1999a, b; Levine et al ., 2000; Ogouvide et al ., 2020).…”

Does experience with agricultural loans improve farmers' well-being? Evidence from Benin

“…Several studies have also addressed microcredit and its impact on the country. For instance, when analyzing farmers' demand for credit, Ogouvide et al (2020) found that farmers tend to prefer low-interest individual loans, in cash or a bundle of in cash and in-kind, disbursed before planting and with a duration of at least ten months. Flifli et al (2019) examined an innovative rice value chain financing system (VCFS) in Benin to identify the determinants of farmers' and processors' access to formal credit.…”