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Article
Publication date: 29 November 2018

Tiken Das

The purpose of this paper is to evaluate the rural credit demand by providing a theoretical and econometric framework which controls the problem of selection bias.

Abstract

Purpose

The purpose of this paper is to evaluate the rural credit demand by providing a theoretical and econometric framework which controls the problem of selection bias.

Design/methodology/approach

The study is conducted in Assam, India, and uses a quasi-experiment design to gather primary data. Heckman two-stage procedure and type 3 Tobit model are used to evaluate the rural credit demand.

Findings

It is observed that, in general, rural households’ credit demand is influenced by the ability and capacity to work, the value of physical assets of the borrowers as well as some other lenders’ and borrowers’ specific factors. But, the direction of causality of the factors influencing borrowers’ credit demand is remarkably different across credit sources.

Research limitations/implications

The study recommends that it is possible to provide an efficient credit demand estimate through a correct theoretical and econometric framework. The possible limitation of the study can be due to the exclusion of the role of “traditional community based organizations” in rural Assam while evaluating the credit demand, and therefore, this limitation is left to future research.

Originality/value

The study contributes to the literature by assessing the probable differences among formal, semiformal and informal credit sources with respect to rural credit demand.

Details

International Journal of Emerging Markets, vol. 13 no. 6
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 27 September 2011

Bibhas Saha and Tridib Sharma

The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the…

Abstract

Purpose

The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the prevalence of sharecropping has remained an important issue. While most contributions have focussed only on output sharing, very few have studied the issue of cost sharing. Besides, the existing models have considered interactions only between a landowner and a tenant. The purpose of this paper is to extend this setup to a third player – creditor.

Design/methodology/approach

The authors adopt a static contract approach with full information and no uncertainty and model possible credit‐cum‐tenancy arrangements among a money‐lender, a landowner and a tenant under the restrictions that the money‐lender cannot charge a lump‐sum fee and the input choices are left with the tenant.

Findings

It is shown that all Pareto optimal arrangements between a creditor, a landowner and a tenant must involve interest rate discrimination between the tenant and the landowner and a share tenancy with cost sharing, or a fixed rent tenancy with cost sharing, or a mixture of the two. None of the polar contracts – wage or rent – is possible. Lending schemes that feature credit rationing or credit delegation can implement some Pareto efficient outcomes.

Originality/value

The model developed in the paper presents a framework for studying various tripartite arrangements observed in rural economies of developing countries. Also, it provides a benchmark for studying contracts under asymmetric information and uncertainty.

Details

Indian Growth and Development Review, vol. 4 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 7 September 2018

Tiken Das

The purpose of this paper is to evaluate the impact of credit access on income and multidimensional poverty by providing an econometric framework.

Abstract

Purpose

The purpose of this paper is to evaluate the impact of credit access on income and multidimensional poverty by providing an econometric framework.

Design/methodology/approach

The study is conducted in Assam, India and uses a quasi-experiment design to gather primary data. Econometric tools like Heckit procedure, Tobit selection equation and probit model are used for empirical purpose.

Findings

The paper finds that the level of individual welfare is influenced by equivalent factors. In addition, the study observes a larger incidence of poverty among treatment households of semiformal and informal borrowers. The study argues that formal sources are more effective in reducing the number of poor households by lifting those who are closest to the poverty line.

Research limitations/implications

The study indicates a vicious circle of income and multidimensional poverty among semiformal and informal borrowers. By tradition, as rural Assam gets a dominant role of traditional community-based financial institutions, we should develop the banking structure by involving these institutions. The study excludes other probable explanatory variables while evaluating the impact of credit access on income and multidimensional poverty, and this limitation is left to future research.

Originality/value

This is probably the first empirical paper in Assam showing the impact of credit access on multidimensional poverty by adjusting for endogeneity and selection bias.

Details

International Journal of Social Economics, vol. 46 no. 2
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 4 May 2012

Pavel Ciaian, Jan Fałkowski and d'Artis Kancs

The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central…

1015

Abstract

Purpose

The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and Eastern Europe (CEE) transition countries.

Design/methodology/approach

Drawing on a unique farm level panel data set with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. The large size of the FADN data set has an additional advantage. It allows the authors to employ a semi‐parametric estimator based on the propensity score matching. Using more than 37,409 observations assures that the loss in efficiency of semi‐parametric estimates, as compared to parametric ones, is not a problem. This is important for at least two reasons. First, applying a semi‐parametric propensity score matching (PSM) estimator allows to control for any heterogeneity in the relationship between farm performance and their observable characteristics (in particular access to credit). Second, matching estimators are robust in situations where farms having access to credit systematically differ from those that do not.

Findings

It is found that farms are asymmetrically credit constrained between inputs. The use of variable inputs and capital investment increases up to 2.3 percent and 29 percent, respectively, per 1,000 EUR of additional credit. The authors' estimates suggest also that farm access to credit increases the total factor productivity up to 1.9 percent per 1,000 EUR of additional credit, indicating that an improved access to credit results in adjusting the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.

Originality/value

To the best of the authors' knowledge, the present paper is the first to investigate the importance of access to credit for farm performance in the CEE region as a whole.

Details

Agricultural Finance Review, vol. 72 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 13 July 2021

Victor Owusu, Awudu Abdulai and Williams Ali

This article analyzes farmers' preferences for different nonindexed crop insurance alternatives, using discrete choice experiment data on cocoa farmers from southern…

Abstract

Purpose

This article analyzes farmers' preferences for different nonindexed crop insurance alternatives, using discrete choice experiment data on cocoa farmers from southern Ghana. We examine farmers' attendance to attributes by comparing self-reported attribute nonattendance (ANA) to the behavior inferred from the choices.

Design/methodology/approach

We utilize the latent class endogenous attribute attendance (EAA) model to address potential endogeneity by jointly modelling farmers' attribute processing strategies with their choice of attributes of the insurance products.

Findings

The results show that premium levels, mode and length of indemnity payouts tend to influence farmers' preferences for crop insurance products. The findings also reveal that credit-constrained farmers attend more to premium and payment mode attributes of the crop insurance products and that credit-constrained farmers tend to exhibit lower willingness-to-pay estimates for the crop insurance attributes.

Research limitations/implications

The findings from the study suggest that credit constraints do not only limit input use, but also tend to have statistically significant impact on farmers' cocoa insurance participation decisions.

Originality/value

The study examines the impact of credit constraints on farmers' crop insurance preferences while accounting for ANA.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 12 no. 5
Type: Research Article
ISSN: 2044-0839

Keywords

Article
Publication date: 9 May 2016

Silvio Tarca and Marek Rutkowski

This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the…

Abstract

Purpose

This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency.

Design/methodology/approach

Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector.

Findings

Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector.

Research limitations/implications

Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment.

Originality/value

Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.

Expert briefing
Publication date: 12 July 2021

Priorities include digitalisation, a greener society, regional vitality and increased child support. Perhaps the most strategically important element, however, is the aim…

Details

DOI: 10.1108/OXAN-DB262732

ISSN: 2633-304X

Keywords

Geographic
Topical

Abstract

Details

Knowledge Economies and Knowledge Work
Type: Book
ISBN: 978-1-78973-778-3

Book part
Publication date: 7 October 2011

Roberto Violi

With the help of financial engineering – and equipped with the modern technique of risk management – securitisation was supposed to identify and evaluate risks and parcel…

Abstract

With the help of financial engineering – and equipped with the modern technique of risk management – securitisation was supposed to identify and evaluate risks and parcel them out to informed parties who could bear them. In hindsight, we can see that this somewhat simplistic thesis – espoused by market participants as well as the academic promoters of modern techniques of risk management – seemed to promise a great deal more than it could ultimately deliver. At this juncture, however, the danger of regulatory over-reaction – which might be throwing the baby (financial innovation) out with the bath-water (overlooking/under-pricing of risk) – is very real and (in my view) calls for policy measures of this sort should be resisted firmly not only by market participants but also by regulators. This is not to say that regulation should be seen as immune from responsibility in the unfolding of the current credit crisis (quite the opposite would more likely be closer to the truth). As we shall see below (Section “Financial Crisis and Credit Ratings Debacle in SF”), the best risk-management practices – and related tools available before the crisis – provided enough ammunition to caution against the uncertainty surrounding risk assessment for some categories of SF products. However, the increasing complexity embedded in an increasing number of deals did provide genuine new challenges even to best risk-management practices.

Details

Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda
Type: Book
ISBN: 978-1-78052-092-6

Article
Publication date: 7 September 2018

Abdul-Hanan Abdallah, Micheal Ayamga and Joseph A. Awuni

The purpose of this paper is twofold: to determine the factors contributing to farm income in the Transitional and Savanna zones of Ghana and to ascertain variations…

Abstract

Purpose

The purpose of this paper is twofold: to determine the factors contributing to farm income in the Transitional and Savanna zones of Ghana and to ascertain variations between in the same and across the two locations; and to determine the impact of credit on farm income in each of the two zones and to ascertain the variation in impact of credit across the two locations.

Design/methodology/approach

In order to address endogeneity and sample selection bias, the authors draw from the theory of impact evaluation in nonrandom experiment, employing the endogenous switching regression (ESR) while using the propensity score matching (PSM) to check for robustness of the results.

Findings

The results show significant mean differences between some characteristics of households that have access to credit and those that did not have access. Further, the results revealed farm size, labor; gender, age, literacy, wealth and group membership as the significant determinants of both credit access and income in the two zones. With the ESR, credit access increases households farm income by GH¢206.56/ha and GH¢39.74/ha in the Transitional and Savanna zones, respectively, but with the PSM, credit increases farm income by GH¢201.50 and GH¢45.69 and in the Transitional and Savanna, respectively.

Research limitations/implications

The mean differences in characteristics of the households revealed the presence of selection bias in the distribution of household’s covariates in the two zones. The results further indicate the importance of productive resources, information and household characteristics in improved access to credit and farm income. Also, the results from both methods indicate that credit access leads to significant gains in farm income for households in both zones. However, differences exist in the results of PSM and that of the ESR results.

Practical implications

The presence of selection bias in the samples suggests that the use of ESR and PSM techniques is appropriate. Further, the results suggesting that enhanced credit access and farm income could be attained through improved access to household resources and information. The results also suggest the need for establishing and expanding credit programs to cover more households in both zones. The differential impact of credit between the two methods employed in each zone revealed the weakness of each model. The low values from PSM could indicate the presence of selection bias resulting from unobservable factors whiles the high values from the ESR could stem from the restrictive assumption of the model. This reinforces the importance of combining mixed methods to check robustness of results and to explore the weakness of each method employed.

Originality/value

The novelty of this study lies in the use of a very extensive and unique data set to decompose the determinants of credit access and farm income and as well as the impacts of credit into zones.

Details

Agricultural Finance Review, vol. 79 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

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