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Article
Publication date: 8 May 2009

Brian Briggeman and Quatie Jorgensen

Many associations in the Farm Credit System, which are financial cooperatives, pay their member‐borrowers a cash patronage payment based on the amount of loan volume with…

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337

Abstract

Purpose

Many associations in the Farm Credit System, which are financial cooperatives, pay their member‐borrowers a cash patronage payment based on the amount of loan volume with the association. In today's competitive lending environment, some Farm Credit associations have offered lower interest rates on new loans but these new member‐borrowers have to forgo their cash patronage payment to receive this new, lower‐interest rate loan. The purpose of this paper is to identify Farm Credit member‐borrowers' preferences for patronage refunds received as a cash payment versus lower fixed real estate interest rates.

Design/methodology/approach

Preferences for patronage refunds or lower fixed interest rates are elicited from Farm Credit Services of East Central Oklahoma member‐borrowers via conjoint analysis.

Findings

Results show that member‐borrowers strongly prefer patronage refunds compared to lower fixed interest rates.

Originality/value

This paper fulfills a need to better understand patronage refund programs within the Farm Credit System.

Details

Agricultural Finance Review, vol. 69 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 13 February 2009

Ana Lozano‐Vivas

The paper attempts to analyze vertical product differentiation as a strategy pursued by European banks seeking greater market power and higher reputation for quality, and…

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1884

Abstract

Purpose

The paper attempts to analyze vertical product differentiation as a strategy pursued by European banks seeking greater market power and higher reputation for quality, and to examine whether this entails losses in banking efficiency.

Design/methodology/approach

First, the empirical analysis seeks to demonstrate whether borrowers at banks in Europe are willing to pay a premium to operate with banks that attempt to increase their reputation for quality in the market, i.e. whether banks use quality to vertically differentiate and so soften competition. To test such hypothesis requires us to define an empirical model with variables that describe certain characteristics of banking quality as explanatory variables of the loan interest to the market interest rate margin. This model is estimated by two stage least squares. Second, the paper seeks to test whether the market power derived from vertical product differentiation (quality reputation) prevents banks from operating efficiently. To test this hypothesis first we estimated cost efficiency taking into account bank risk preferences and then we define an empirical model that relates the results on efficiency with the margin of interest loan rate over the market interest rate.

Findings

The results show that less competition, deriving from a bank's ability to differentiate its services from those of its rivals through quality, is positive because it helps to provide a more stable banking system. Moreover, the banking market power generated by investing in quality does not prevent banks from operating efficiently from a production point of view.

Research limitations/implications

The findings are consistent with the view that European banks soften competition by being more stable, and this does not prevent cost efficiency. So it seems that the regulatory authorities should improve their solvency measures since borrowerspreferences are to maintain relationships with non‐fragile banks, and on the other hand banks’ risk preferences seem to be to look for sound borrowers.

Practical implications

Frontier cost efficiency scores that account for bank's risk preference are able to be related with customer preferences based on the model of the industrial organization (10) based on vertical product differentiation in banking.

Originality/value

This is the first paper that relates vertical product differentiation with the results obtained from the literature on x‐efficiency. It is also the first paper that studies the impact of banking market power jointly with cost efficiency in social efficiency when market power comes as result of investing in reputation for banking quality.

Details

Managerial Finance, vol. 35 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 May 2017

Evgeniy M. Ozhegov

This paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.

Abstract

Purpose

This paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.

Design/methodology/approach

Analysis takes into account the underwriting process and the choice of contract terms of all loans originated from 2008 to 2012. The data set contains demographic and financial characteristics for all applications, loan terms and the performance information for all issued loans by one regional bank which operates government mortgage programs. The paper uses a multistep semiparametric approach to estimate the determinants of bank and borrower choice controlling for possible heterogeneity of preferences, sample selection and endogeneity of contract terms.

Findings

The study found that the demand of low-income households who are unable to afford to improve the housing conditions by other instruments than government mortgage is less elastic according to the change both in interest rate and maturity compared with higher-income households.

Social implications

Given lower elasticities of the demand, the low-income group of borrowers has higher potential cost of loan and is usually rejected by commercial banks. The presence of the Agency of Housing Mortgage Lending special programs with subsidized interest rate for special constrained categories (young families, teachers, researchers etc.) widens the access for housing conditions’ improvements as a part of housing affordability government program.

Originality/value

The main contribution to the literature is modeling choice of contract terms as interdependent by the structural system of simultaneous equations with heterogeneous marginal effects.

Details

Journal of European Real Estate Research, vol. 10 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 3 May 2013

Tianwei Zhang, Mindy Mallory and Peter Barry

The authors aim to investigate what influences a Farm Credit System association to make a patronage refund payment. In particular, they seek to investigate what causes the…

Abstract

Purpose

The authors aim to investigate what influences a Farm Credit System association to make a patronage refund payment. In particular, they seek to investigate what causes the regional heterogeneity in the patronage refund payment decision. It is unclear whether patronage refunds have been used more as a capital management tool or as a member recruitment and retention tool. This study aims to bring some clarity to this issue.

Design/methodology/approach

The authors use an empirical logistic model to estimate the probability of a positive patronage refund payment by a Farm Credit System association, controlling for variables related to the associations' balance sheet as reported in the associations' quarterly call reports.

Findings

The authors find there is evidence that Farm Credit Service associations use patronage refunds as a capital management tool, at least in part. However, they also find that there are still significant regional differences in the patronage refund payment decision even after controlling for variables affecting the associations' balance sheet. The authors conclude that this likely represents member heterogeneity in preferences for patronage refunds versus a discounted interest rate.

Originality/value

The present study is one of the few empirical papers to examine a broad panel of financial cooperatives. Because of this, the authors' paper provides valuable insight into the aggregate behavior of Farm Credit Service associations, particularly into whether they use patronage refunds as a capital management tool, or as a marketing and retention tool.

Details

Agricultural Finance Review, vol. 73 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 11 March 2014

Irene Comeig, Esther B. Del Brio and Matilde O. Fernandez-Blanco

The current credit rationing strongly influences the viability of SMEs innovation projects. In this context, the practice of screening borrowers by project success…

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2479

Abstract

Purpose

The current credit rationing strongly influences the viability of SMEs innovation projects. In this context, the practice of screening borrowers by project success probability has become a paramount consideration for both lenders and firms. The aim of this paper is to test the screening role of loan contracts that consider collateral-interest margins simultaneously.

Design/methodology/approach

This paper presents an empirical analysis that uses a unique data set composed of 323 bank loans granted by 28 banks to SMEs backed by a Spanish Mutual Guarantee Institution.

Findings

The results show that appropriate combinations of collateral and interest rates can distinguish between borrowers with different project success probability: low success probability borrowers finance its projects without collateral and with high interest rates, whereas high success probability borrowers accept loans with real estate collateral and low interest rates.

Practical implications

This screening mechanism reduces credit rationing, thus increasing good projects' access to credit.

Originality/value

This study provides the first empirical evidence on the effectiveness of collateral-interest pairs as a self-selection mechanism.

Details

Management Decision, vol. 52 no. 2
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 5 June 2019

Monica Rosavina, Raden Aswin Rahadi, Mandra Lazuardi Kitri, Shimaditya Nuraeni and Lidia Mayangsari

This study aims to examine the adoption of peer-to-peer (P2P) lending platforms to determine the factors that encourage SMEs to use P2P lending platforms in obtaining loans.

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1073

Abstract

Purpose

This study aims to examine the adoption of peer-to-peer (P2P) lending platforms to determine the factors that encourage SMEs to use P2P lending platforms in obtaining loans.

Design/methodology/approach

A sample of ten SMEs from a variety of backgrounds was taken in Bandung, Indonesia. Bandung has been awarded the title of “creative city” by UNESCO, as the city allows for the development of the creative economy. This research used a semi-structured interview. Coding method was then used for content analysis to establish which factors emerging from the interview were leading respondents to obtain a loan through the P2P lending platform.

Findings

The findings imply that loan processes, interest rates, loan costs, loan amounts and loan flexibility affect SMEs in obtaining a loan through P2P lending. Moreover, alternative payment schemes in the form of Sharia-based lending and profit-sharing schemes were found. These findings constituted the original findings of this study.

Research limitations/implications

The study offers findings on factors affecting SMEs in using the P2P lending platform as a form of alternative financing. Moreover, the theoretical framework provided can be used as literature in future research. As this study was conducted in Bandung, Indonesia, the findings may not be generalisable to other regions.

Originality/value

This study is one of the few studies that discusses P2P lending in Indonesia as the concept has been in practice only since 2015.

Details

Qualitative Research in Financial Markets, vol. 11 no. 2
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 29 October 2020

Rong Kong, Yanling Peng, Nan Meng, Hong Fu, Li Zhou, Yuehua Zhang and Calum Greig Turvey

In this study, the authors examined demand-side credit in rural China with the aims of understanding attribute preferences and the willingness of farmers to pay for credit.

Abstract

Purpose

In this study, the authors examined demand-side credit in rural China with the aims of understanding attribute preferences and the willingness of farmers to pay for credit.

Design/methodology/approach

The authors implemented an in-the-field discrete choice experiment (DCE) using a D-optimal block (6 × 9 × 3) design applied to 420 farm households across five Chinese provinces (Shandong, Sichuan, Shaanxi, Jiangsu and Henan) in the summer and fall of 2018. The DCE included six attributes including the interest rate, term of loan, type of loan, type of repayment, type of institution and mobile banking services.

Findings

Conditional and mixed logit results indicated a downward sloping credit demand curve with variable elasticity across regions. Provincial willingness-to-pay (WTP) indicators suggested that farmers were willing to pay a premium for long-term ( 0.03–0.687%) and low collateral credit loans ( 0.79–2.93%). Also, four of five provinces indicated a preference for loan amortization rather than lump-sum payment. Interestingly, in comparison to the Agricultural Bank of China (ABC), only farmers in Shandong, Sichuan and Shaanxi indicated a preference for rural credit cooperatives (RCCs)/banks and the Postal Savings Bank of China (PSBC). Another quite surprising result was bank services, in our case, access to mobile banking did not appear to induce WTP for agricultural credit. While conditional and mixed logit regression coefficients were similar (and therefore robust), the authors found that there was substantial heterogeneity across attribute preferences on term of loan, type of loan and amortization. Preferences for type of lender and mobile banking were generally homogenous. This result alone suggested that lenders should consider offering a suite of credit products with different attributes in order to maximize the potential pool of borrowers. While there were some differences across provinces, farmers appeared to be indifferent to lenders, and it did not appear that offering banking services such as mobile banking had any bearing on credit decisions.

Research limitations/implications

This paper presents a first step in using in-the-field choice experiments to better understand rural finance in China. Although the sample size satisfies conventional levels of significance and rank conditions, the authors caution against attributing results to China as a whole. Different provinces have different institutional structures and agricultural growing conditions and economies and these effects may differentially affect WTP for credit. Although by all indications farmers were aware of credit, not all farmers, in fact a minority, actually borrowed from a financial institution. This is not unusual in China, but for these farmers, the DCE was posed as hypothetical. Likewise, the study’s design was based on a generic credit product typical of rural China, and the authors caution against making inferences about other products with different attributes and risk structures.

Social implications

This study is motivated by the rapidly changing dynamic in China's agricultural economy. With specific reference to new laws and regulations about the transfer of land use rights (LURs), China's agricultural economy is undergoing significant and rapid change which will require better understanding by policy makers, lenders and practitioners of the changing credit needs of farmers, including the new and emerging class of commercial farmers.

Originality/value

To the best of the authors’ knowledge, the authors believe that the result provided in this paper present the first use of in-the-field DCE and are the first to be reported in either the English or Chinese literature on rural credit product design.

Details

China Agricultural Economic Review, vol. 13 no. 2
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 1 November 2007

Travis A. Farley and Paul N. Ellinger

Data from a survey of Midwest producers are used to examine the credit source decisions of farm borrowers. The lender attributes preferred by producers are identified in…

Abstract

Data from a survey of Midwest producers are used to examine the credit source decisions of farm borrowers. The lender attributes preferred by producers are identified in terms of their importance in selecting credit providers. The influence of farm business information on farmers= interest rate sensitivity and loyalty is investigated. Regression results indicate that patrons of the Farm Credit System are more likely to be highly price sensitive. Furthermore, the likelihood for strong borrower loyalty is found to be higher for smaller, less leveraged, and more tenured farms and by those who source financing from bank institutions.

Details

Agricultural Finance Review, vol. 67 no. 2
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 1 December 1997

M. Kabir Hassan and Luis Renteria‐Guerrero

Examines critically the Grameen Bank (GB) experience in Bangladesh in order to understand the essential elements of its operations. Reports that this unique financial…

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3660

Abstract

Examines critically the Grameen Bank (GB) experience in Bangladesh in order to understand the essential elements of its operations. Reports that this unique financial institution developed the important factors needed to help the poor and that GB has replaced physical collateral requirements with group responsibility. States that by organizing poor people into groups, it has created the social and financial conditions enabling them to receive loans; it has demonstrated that the poor are bankable, capable of making good business decisions in utilizing their loans and repaying them on time. Explains that GB showed the possibility to develop a viable and self‐reliant credit programme for the poor. Concludes that the GB approach also proves that financial intermediation is a viable device to fight poverty, and an excellent vehicle for community development.

Details

International Journal of Social Economics, vol. 24 no. 12
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 1 September 1997

Mark Bezant

This paper summarizes a study, undertaken by Arthur Andersen’s Intellectual Property Group in London, to consider the economic and financial issues, principally as they…

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2266

Abstract

This paper summarizes a study, undertaken by Arthur Andersen’s Intellectual Property Group in London, to consider the economic and financial issues, principally as they affect the valuation of intellectual property and its suitability as security. The study encompasses a review of available literature, interviews and discussions, and an analysis of the results of a questionnaire which was distributed to owners and managers of intellectual property. Views were canvassed across industries, of both borrowers and lenders, and also of lawyers and other advisers experienced in the transactions involving intellectual property.

Details

Journal of Knowledge Management, vol. 1 no. 3
Type: Research Article
ISSN: 1367-3270

Keywords

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