The purpose of this paper is to study an innovative rice value chain financing system (VCFS) established in Benin, to identify the determinants of producers and processors access to formal credit, both at intensive and extensive margins. It focuses on multi-stakeholder platforms (MSP) which connect producers and processors in need of credit to potential financial lenders.
The empirical analysis uses rich cross-sectional survey data collected in Northern Benin in 2018. The sample consists of 215 rice producers and 217 rice processors randomly selected through a multi-stage sampling and interviewed with structured questionnaires. The empirical models analyze the determinants of the likelihood to receive a credit and the amount of credit received. To account for the sample selection and censored nature of the main outcome variable, the study considers a Heckman two-stage model coupled with a Tobit model for robustness checks.
The study finds that the MSP are effective in increasing access to formal credit and the amount borrowed. Producers and processors who are members of the MSP are more likely to receive credit and, conditional on being approved for credit borrower, a larger amount. Other key factors that significantly explain access to credit include the use of soft guarantee for securing a loan, the degree of participation in the platform and demographic characteristics. These findings are consistent across the Heckman and Tobit models.
The study attempts to rigorously analyze the factors explaining producers and processors access to credit using cross-sectional survey data. But it has some limitations. The main limitation is the type of data used. Ideally, one would like to run a randomized control trial (RCT) to randomly assign participation in the MSP to causally estimate its impact of access to credit. The second-best option would be to have a panel data covering the period before and after the establishment of the platform. However, in the absence of an RCT or panel data, the study resorts to cross-sectional data and empirical models that account for sample selection bias and the censored nature of the credit received.
One of the key findings of the study is that participation in the MSP (through different value chain stages associations) increases access to formal credit. This highlights an important and effective mechanism, a well-coordinated value chains that integrated lenders, that policymakers can leverage to facilitate access to credit in the agricultural sector.
Access to credit is important to boost agricultural productivity and income. Hence, the findings of the study have social implications in terms of poverty reduction in rural areas.
The study contributes to earlier theories and empirical studies on the demand for credit. It focuses on an innovative VCFS, increasingly adopted in many developing countries, adds originality and value to the understanding of mechanisms to unlock agricultural actors’ access to credit in low-income countries.
The authors acknowledge the AfricaLics community and the Swedish International Development Agency (SIDA) for providing a capacity Building platform for one of the authors as one of the 2018 AfricaLics PhD. Visiting Fellows at Aalborg University, Denmark. During this stay, this paper was written under the mentorship of the host institution’s mentors, notably Professor Jesper Lindgaard Christensen and Dr Daniel S. Hain. The authors also acknowledge the funding received from the World Bank assisted Africa Centre of Excellence in Agricultural Development and Sustainable Environment project at the Federal University of Agriculture, Abeokuta, Nigeria during the conduct of the PhD research work from which this paper is drawn. Further, the authors appreciate the valuable comments received from participants of two conferences in which this paper was presented, notably the 22nd conference of the International Consortium on Applied Bioeconomy Research (ICABR) held in Washington DC in June 2018 and the 16th Globelics International Conference in Accra (Ghana) in October 2018. Finally, authors thank anonymous reviewers for their constructive comments, and especially Dr Calum Turvey (Editor, Agricultural Finance Review) for rich and useful comments and suggestions that led to the improvement of the paper.
Flifli, V., Okuneye, P.A. and Akerele, D. (2019), "Lenders and borrowers’ collaboration-based risk mitigation credit market: Factors influencing access to formal credit in the agricultural sector in the Benin Republic", Agricultural Finance Review, Vol. 80 No. 2, pp. 173-199. https://doi.org/10.1108/AFR-01-2019-0010Download as .RIS
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