To read the full version of this content please select one of the options below:

Can flexible microfinance loans improve credit access for farmers?

Ron Weber (Department for Agricultural Economics and Rural Development, Georg‐August‐Universität Göttingen, Göttingen, Germany and Independent Evaluation Department, KfW Bankengruppe, Frankfurt, Germany)
Oliver Musshoff (Department for Agricultural Economics and Rural Development, Georg‐August‐Universität Göttingen, Göttingen, Germany)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 26 July 2013

Abstract

Purpose

Using a unique dataset of a commercial microfinance institution (MFI) in Madagascar, the purpose of this paper is to investigate how credit access probabilities and loan volume rationing magnitudes for farmers change if the MFI switches to offer flexible microfinance loans, which can account for agricultural production specifics.

Design/methodology/approach

The authors estimate probit models for the probability of receiving a loan and Heckman models to investigate the magnitude of volume rationing for all micro loan applications and disbursements of the MFI, differentiating between farmers with standard microfinance loans and farmers with flexible microfinance loans.

Findings

The results reveal that agricultural firms with flexible microfinance loans have significantly higher credit access probabilities than non‐agricultural firms and agricultural firms with standard microfinance loans. Furthermore, it was found that agricultural firms with flexible microfinance loans are stronger volume rationed than non‐agricultural firms and agricultural firms with standard microfinance loans.

Research limitations/implications

Even if the authors can show that access to credit for agricultural firms in Madagascar can be enhanced by the provisioning of flexible microfinance loans, the investigated MFI only introduced flexible microfinance loans in 2011 and currently only offers them through five branch offices. Thus, the product is new to the MFI, and results might change with increasing outreach to other geographic regions in Madagascar. Furthermore, the conditions for agricultural production in Madagascar are unique, and the results might change in different country contexts.

Practical implications

The paper's findings suggest that flexible microfinance loans can contribute to the financial inclusion of farmers with seasonal production types. They also suggest that standard microfinance loans seem to be adequate for farmers with less seasonal production types, e.g. animal husbandry.

Originality/value

To the best of the authors' knowledge, this is the first paper to investigate the effects of flexible microfinance loan provision for credit access of small agricultural firms in developing countries in general, and in Madagascar in particular.

Keywords

Citation

Weber, R. and Musshoff, O. (2013), "Can flexible microfinance loans improve credit access for farmers?", Agricultural Finance Review, Vol. 73 No. 2, pp. 255-271. https://doi.org/10.1108/AFR-09-2012-0050

Publisher

:

Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited