Rural Financial Market Performance: Implications of Low Delinquency Rates

Abstract

In contrast to most developing countries, nonrepayment of agricultural loans has not been a problem for the Costa Rican banking system. Delinquency rates have in fact been lower for agricultural than nonagricultural loans and lowest on loans to small farmers. This good performance is due largely to efficient techniques developed for gathering information about potential borrowers and incentives for borrowers to repay promptly to maintain access to bank loans which carry interest rates substantially below equilibrium. The pattern oflow delinquency rates reflects the structure of low interest rates which causes farmers, especially small farmers, to be rationed most severely.

A Comparative Analysis of the Performance of Selected Rural Banks in Enchancing Agricultural Development in Benue State, Nigeria: 2010-2012.

“…The criteria are favoured based on the argument that low delinquency rate implies that lenders are careful in selecting borrowers and in recovering loans. Vogel (1981), [11] opined that, low rate of loan delinquency suggests that loans are allocated to productive activities. Financial ratios are another tools used in the assessment of financial institutions.…”

“…Experience has shown that no modern developed country around the world achieved rapid industrialization without having previously or simultaneously attained a marked increase in agricultural production (Edordu, 1986). [4] Despite the fact that the nation is blessed with abundant human and natural resources which are favourable for agricultural development, agriculture in Nigeria is dominated by small-scale farmers who are responsible for about 90 percent of the total production (Olatunbode, 1990) [5]. These farmers are characterized by low farm incomes and low technology input.…”

“…There is an overwhelming agreement that whatever is the programme package, or technological innovation introduced to improve agriculture, its adoption and use will to a large extent be implicitly and explicitly dependent on the existence of desirable and necessary infrastructure that are essential for agricultural production and on the farmers" ability to finance such innovation (Olatunbode, 1990). [5] The farm business, like most other business ventures needs large (and sometimes lumpsum) amount of capital to start, and/or expand. Unfortunately, most farmers in Nigeria are never in the position to finance such investments out of their own personal saving.…”

Financial reform and credit extension in Lesotho

“…Loan repayment defaults could be reduced by using efficient techniques to gather information about potential borrowers, and by providing incentives to borrowers to meet their repayments promptly, in order to maintain access to bank loans that sometimes attract interest rates below market rates (Vogel, 1986). Vogel observes that low interest rates may cause farmers, and especially small-scale ones, to face severe external capital rationing.…”

Progressive Lending in Microfinance—What about the Farmers?

“…However, a number of studies reveal that it is farmers who face relatively greater initial obstacles in terms of loan access since agriculture is associated with higher risk exposition (Petrick, 2004;Weber and Musshoff, 2012;Zeller et al, 1998). Simultaneously, empirical findings indicate that farmers do not necessarily default more often (Raghunathan et al, 2011;Vogel, 1981;Weber and Musshoff, 2012); this inevitably contradicts the perception of higher risk.…”