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

Abstract

Purpose

This study analyzes farmers' preferences for agricultural credit and its market structure in rural Benin using the conjoint analysis approach.

Design/methodology/approach

The data used come from primary sources collected from 228 randomly selected farmers. The conjoint analysis approach was used to produce the results. The bias associated with the heteroscedasticity of the error terms was fixed using the weighted least squares estimation method. Agricultural credit markets were segmented using the Calinski algorithm.

Findings

The study results reveal that farmers prefer a long-term agricultural credit with a low interest rate received via mobile banking. The interaction between a type of credit with collateral and a low interest rate is positively correlated with farmers' credit demand. The authors also found that agricultural credit markets are heterogeneous because of the heterogeneity in farmers' credit demand. This result has led to three different rural credit market segments identified in the selected study's sites. The market share simulation reveals a significant market share for the type of credit preferred by farmers in two segments.

Research limitations/implications

The proven evidence from this study can guide the development of appropriate agricultural financial products that promote financial inclusion among farmers in rural Benin. More specifically, agricultural financial policies that promote digital long-term credit with low interest rate and appropriate guarantee mechanisms can promote financial inclusion among farmers and reduce the problem of asymmetric information in agricultural credit market. The study also calls for the promotion of differentiated policies across the three identified segments in order to positively impact the welfare of all farmers.

Practical implications

The use of agricultural financial products that include digital long-term credit with low interest rate and appropriate guarantee mechanisms promote financial inclusion and reduce asymmetric information problems in agricultural credit markets in rural Benin.

Social implications

The promotion of long-term digital and cheap credit improves farmers household's wellbeing in rural Benin.

Originality/value

This study contributes to a better understanding of the structure of rural credit markets. It also reveals the most preferred characteristics of rural credit profiles by farmers. Besides, it validates the importance of the use of guarantee as an appropriate mechanism which minimizes the problem of asymmetric information between financial agents and farmers.

Citation

Sonehekpon, E.S. and Fiamohe, R. (2023), "Identifying farmers' preferences for types of credit and its market structure in rural Benin using the conjoint analysis approach", Agricultural Finance Review, Vol. 83 No. 2, pp. 299-319. https://doi.org/10.1108/AFR-07-2022-0081