Is agricultural microcredit really more risky? Evidence from Tanzania

Weber, Ron; Mußhoff, Oliver

doi:10.1108/00021461211277268

Cited by 58 publications

(79 citation statements)

References 36 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Consistent with the logit model, coefficients on land holding and crop revenues are negative and significant. We do not find a gender effect, a result consistent with results from the multinomial logit and binary logit models, as well as findings by Weber and Musshoff (2012) on access to credit in Tanzania.…”

Section: Estimation Issues and Regression Resultssupporting

confidence: 90%

“…Stiglitz and Weiss (1981) define credit rationing as a situation in which either some loan applicants who are indistinguishable from others are denied loans even if they are willing to pay a higher interest rate, or some distinct groups of individuals are unable to acquire credit at any interest rate, but could do so at a higher level of credit supply. Credit rationing has been observed in Tanzania (Bigsten and Danielson 2001;Weber and Musshoff 2012) and certainly credit application is not costless for remote rural households. The methodological implication of omitting from the analysis households that did not seek for credit is that it could lead to biased results.…”

Section: Empirical Approachmentioning

confidence: 99%

See 1 more Smart Citation

Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania

Twine¹,

Rao

Baltenweck

et al. 2018

Eur J Dev Res

View full text Add to dashboard Cite

One of the targets of Sustainable Development Goal 2 is to double agricultural productivity and incomes of small-scale food producers through, among other things, improving access to financial services including credit. However, designing appropriate mechanisms for increasing access to credit by poor households remains a challenge, especially in Sub-Saharan Africa. This paper argues that technology adoption and collective action could provide pathways to enhancing access to credit. Evidence from milk-producing households in Tanzania suggests that group membership increases the probability of borrowing and the amount of funds borrowed by households, while adoption of artificial insemination increases the amount of funds borrowed. Two major conclusions are that public policy for increasing rural households' access to credit should promote collective action, and that the likely increase in amount of funds demanded by households due to technology adoption and collective action will require policy to address issues pertaining to credit rationing of rural households. Résumé L'un des Objectifs du Développement Durable, l'objectif 2, est de doubler la productivité agricole ainsi que les revenus des petits producteurs de denrées alimentaires, notamment en améliorant l'accès aux services financiers, y compris les crédits. Toutefois, la conception de mécanismes appropriés pour accroître l'accès au crédit par les ménages pauvres demeure un défi, en particulier en Afrique subsaharienne. Cet article fait valoir que l'adoption de technologies et l'action collective pourraient fournir des pistes pour améliorer l'accès au crédit. Les données issues des ménages producteurs de lait en Tanzanie suggèrent que l'adhésion au groupe augmente la probabilité d'emprunt ainsi que le montant des fonds empruntés par les ménages, tandis que l'adoption de l'insémination artificielle augmente le montant des fonds empruntés. Deux grandes conclusions sont que la politique publique visant à accroître l'accès des ménages ruraux aux crédits devrait favoriser l'action collective, et l'augmentation probable des fonds réclamés par les ménages en raison de l'adoption de technologies et de l'action collective exigera des politiques pour résoudre les problèmes liés au rationnement du crédit des ménages ruraux.

show abstract

Section: Estimation Issues and Regression Resultssupporting

confidence: 90%

Section: Empirical Approachmentioning

confidence: 99%

Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania

Twine¹,

Rao

Baltenweck

et al. 2018

Eur J Dev Res

View full text Add to dashboard Cite

show abstract

“…The research was based on the example of a Tanzanian MFI. Weber and Musshoff (2012) showed that agricultural clients do face obstacles in accessing loans, which confirms the initial perception that these clients are riskier. However, Weber and Musshoff (2012) found agricultural loans actually show a better repayment performance than non-agricultural loans.…”

Section: Literature Review and Hypothesessupporting

confidence: 60%

“…In this context, Weber and Musshoff (2012) investigated whether agricultural lending is indeed more risky than non-agricultural lending. The research was based on the example of a Tanzanian MFI.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

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

Römer

Mußhoff

2017

AFR

Self Cite

View full text Add to dashboard Cite

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.

show abstract

“…In consequence, profitable projects cannot be realized at all or only with higher repayment risks when cash flow and repayment obligations do not match (Field et al, 2011). Hence, product standardization might reduce default risks for clients with continuous cash flows but limits the focus of MFIs to projects fulfilling the product requirements (Weber and Musshoff, 2012). Unsurprisingly, most MFI clients are traders with fast turnovers, using their loans to finance mainly working capital.…”

Section: Lending Principles In Microfinancementioning

confidence: 99%

Microfinance Beyond the Standard? Evaluating Adequacy and Performance of Agricultural Microcredit

Weber¹

2013

Microfinance 3.0

Self Cite

View full text Add to dashboard Cite

Microfinance was successful in increasing access to credit for micro, small and medium enterprises in developing countries, particularly in urban areas. The offer of installment loans as the standard credit product for new and very small customers has been indentified as one of the keys that enabled microfinance institutions to reach out to formerly unbanked entrepreneurs. However, these standard loans always were considered as inadequate for agricultural entrepreneurs with seasonal production cycles. For this reason, this paper investigates the effects of providing flexible agricultural microfinance loans (flex loans) to farmers as an alternative to standard installment loans. The study was carried out in cooperation with two banks of the AccessHolding Microfinance AG in Tanzania and Madagascar. A mixed-methods approach was applied relying on observations during field visits and in-depth portfolio analyses.Our results reveal that the combination of standard and flex loans enables the investigated microfinance institution to address a wide range of agricultural producers. Based on our results it seems very unlikely that seasonal agricultural producers would have had credit access without flex loans. Standard loans are only adequate to address non-seasonal agricultural producers. We also find that nonseasonal agricultural producers repay their loans with delinquency rates similar or even better than those of non-farmers. For seasonal agricultural producers a redis-* The views expressed in this paper are entirely those of the author and do not necessarily represent those of KfW. The authors are grateful to Access Microfinance Holding AG and LFS Financial Systems GmbH in Berlin, Germany, for the provision of data, in particular Stephan Hödtke and his colleagues from the LFS IT department. Furthermore, we would like to thank all colleagues from AccèsBanque Madagascar for their great support during the field visits in Madagascar and for contributing their expertise; Claudia Schmerler is also acknowledged for her helpful comments.

show abstract

Is agricultural microcredit really more risky? Evidence from Tanzania

Cited by 58 publications

References 36 publications

Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania

Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania

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

Microfinance Beyond the Standard? Evaluating Adequacy and Performance of Agricultural Microcredit

Contact Info

Product

Resources

About