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1 – 10 of over 2000
Article
Publication date: 1 July 2014

Leslie J. Verteramo Chiu, Sivalai V. Khantachavana and Calum G. Turvey

– The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China.

Abstract

Purpose

The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China.

Design/methodology/approach

Using primary survey data from 730 farm households in the Shaanxi province of China and from 372 farmers in northeastern Mexico, the authors investigate factors associated with risk rationed, price rationed and quantity rationed farmers. The survey was instrumented to self-identify borrower typologies. In addition the authors created within the survey a discrete-choice credit demand build to determine borrower credit demand elasticities. The analysis applies a linear probability which the authors found to be consistent with multinomial and binary logit models.

Findings

The authors find in China the incidence of risk rationing in farmers to be 6.5, 14 percent for quantity rationed and 80 percent for price rationed. In Mexico, 35 percent of the sample is risk rationed, 10 percent quantity rationed and 55 percent price rationed. The results from China support the hypothesis that the financially poor are more likely to be quantity rationed; in Mexico, however, the level of education is found to be important in determining quantity rationed. In both countries, asset wealthy farmers are less likely to be risk rationed; however, income does not appear to have an impact. The paper provides evidence that the elasticity of demand for credit is different among the three credit rationed groups: risk rationed, price rationed and quantity rationed. Risk aversion and prudence are significantly correlated with risk rationing in China, while only risk aversion is significant in Mexico. The results suggest that efforts to enhance credit access must also deal with risk and risk perceptions.

Practical implications

Risk rationing is an important concept in the understanding of rural credit markets. The findings that only 6.5 and 35 percent of Chinese and Mexican farmers are in stark contrast to each other. For agricultural economies such as Mexico with a significant number of farmers being risk rationing, more effort should be put into financial education and financial practices, including perhaps the use of risk-contingent credit to remove collateral risk. As property rights in China evolve, and new laws are promulgated to permit borrowing against land use rights, the collateralization issue will become much more important in rural credit markets.

Originality/value

This paper is the first to investigate risk rationing in China and Mexico and one of the few research studies empirically investigating risk rationing. A comparative analysis of Mexico and China is enlightening because of the structural differences in the respective agricultural economies. The use of a credit demand build and the enumeration of individual credit demand elasticities is an original contribution to this literature.

Details

Agricultural Finance Review, vol. 74 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 12 February 2018

Norifumi Yukutake and Yoko Moriizumi

Japan has been suffering from a decline in the rate of young adults homeownership for a long time. The reduction of the homeownership rate for young adults suggests a…

Abstract

Purpose

Japan has been suffering from a decline in the rate of young adults homeownership for a long time. The reduction of the homeownership rate for young adults suggests a delay of tenure transition from renting to owning a home. Such delays further imply that there is insufficient wealth accumulation and a low level of welfare. This paper examines these influences of the credit rationing and the credit rationing impact on the reduction in the young adults’ homeownership rate.

Design/methodology/approach

Credit rationing impacts the timing of house purchases and the value of the houses at the same time. This paper estimates these impacts jointly using a simultaneous equation system (minimum distance estimation) and the micro data on Japan.

Findings

This paper divides the effect of credit rationing on the timing into direct and indirect effects. The former is the rationing effect on timing, keeping the other variables constant, while the latter is the effect via changes in house values. This paper finds that the indirect effect reduces the rationing effect on the timing by decreasing house values. Furthermore, the results show that credit rationing delays home acquisition by prospective young owners (direct effect) and necessarily lowers the quality of houses they purchase.

Originality/value

In the previous papers, the endogeneity among the variables related to the housing purchase was not addressed. To separate the endogeneity of the timing from the house value, this paper applies the simultaneous equation model. Furthermore, this paper exhibits that there are direct and indirect effects of credit rationing on the timing of housing purchase made by young households. None of the previous papers recognize these two effects.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 23 June 2020

Michael K. Ndegwa, Apurba Shee, Calum G. Turvey and Liangzhi You

Drought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit

Abstract

Purpose

Drought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit-constrained due to either involuntary quantity rationing or voluntary risk rationing. By exploiting randomized distribution of weather risk-contingent credit (RCC) and traditional credit, the authors estimate the causal effect of bundling weather index insurance to credit on uptake of agricultural credits among rural smallholders in Eastern Kenya. Further, the authors assess farmers' credit rationing, its determinants and effects on credit uptake.

Design/methodology/approach

The study design was a randomized controlled trial (RCT) conducted in Machakos County, Kenya. 1,170 sample households were randomly assigned to one of three research groups, namely control, RCC and traditional credit. This paper is based on baseline household survey data and the first phase of loan implementation data.

Findings

The authors find that 48% of the households were price-rationed, 41% were risk-rationed and 11% were quantity-rationed. The average credit uptake rate was 33% with the uptake of bundled credit being significantly higher than that of traditional credit. Risk rationing seems to influence the credit uptake negatively, whereas premium subsidies do not have any significant association with credit uptake. Among the socio-economic variables, training attendance, crop production being the main household head occupation, expenditure on food, maize labour requirement, hired labour, livestock revenue and access to credit are found to influence the credit uptake positively, whereas the expenditure on non-food items is negatively related with credit uptake.

Research limitations/implications

The study findings provide important insights on the factors of credit demand. Empirical results suggest that risk rationing is pervasive and discourages farmers to take up credit. The study results also imply that credit demand is inelastic although relatively small sample size for RCC premium subsidy groups may be a limiting factor to the authors’ estimation.

Originality/value

By implementing a multi-arm RCT, the authors estimate the factors affecting the uptake of insurance bundled agricultural credits along with eliciting credit rationing among rural smallholders in Eastern Kenya. This paper provides key empirical findings on the uptake of RCC and the effect of credit rationing on uptake of agricultural credits, a field which has been majorly theoretical.

Details

Agricultural Finance Review, vol. 80 no. 5
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 26 August 2014

Dadson Awunyo-Vitor, Ramatu Mahama Al-Hassan, Daniel Bruce Sarpong and Irene Egyir

– The purpose of this paper is to investigate the determinants of agricultural credit rationing by formal lenders in Ghana.

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Abstract

Purpose

The purpose of this paper is to investigate the determinants of agricultural credit rationing by formal lenders in Ghana.

Design/methodology/approach

This study employed descriptive statistics, analysis of variance (ANOVA) and Heckman's two-stage regression model to identify types of rationing faced by farmers and investigate factors that influence agricultural credit rationing by formal financial institutions. Data used in this study are gathered through a survey of 595 farmers in seven districts within Brong Ahafo Region of Ghana.

Findings

The result reveals that farmers face three types of rationing. Evidence from the Heckman two-stage models shows that engagement in off farm income generating activities, increase in farm size, positive balances on accounts and commercial orientation of the farmers has the potential to reduce rationing of credit applicants by formal lenders.

Practical implications

The results provide information on the factors that need to be considered as important in an attempt to reduce agricultural credit rationing by formal lenders.

Originality/value

The value of this study is that farmers would use the results of this study to improve access to required amount of agricultural credit from formal financial institutions. The information would also benefit stakeholders in the agricultural sector, particularly youth in agriculture program organized by Ministry of Food and Agriculture in Ghana as how to improve access to credit and reduce rationing of program participants by formal financial institutions.

Details

Agricultural Finance Review, vol. 74 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Open Access
Article
Publication date: 23 March 2020

Cao Van Hon and Le Khuong Ninh

The purpose of this paper is to estimate the impact of credit rationing on the amount of capital allocated to inputs used by rice farmers in the Mekong River Delta (MRD).

Abstract

Purpose

The purpose of this paper is to estimate the impact of credit rationing on the amount of capital allocated to inputs used by rice farmers in the Mekong River Delta (MRD).

Design/methodology/approach

Based on the literature review, the authors propose nine hypotheses on the determinants of access of rice farmers to credit and four hypotheses on the impact of credit rationing on the amount of capital allocated to inputs used by rice farmers in the MRD. Data were collected from 1,168 farmer households randomly selected out of 10 provinces (city) in the MRD.

Findings

Step 1 of propensity score matching (PSM) with probit regression shows that land value, income, education, gender of household head and geographical distance to the nearest credit institution affect the degree of credit rationing facing rice farmers. Step 2 of PSM estimator identifies that the amount of capital allocated to inputs such as fertilizer and hired labour increases when credit rationing decreases while that allocated to seed and pesticide is not influenced by credit rationing because rice farmers use these inputs adamantly regardless of effectiveness.

Originality/value

This paper sheds light on the impact of credit rationing on the amount of capital allocated to inputs used by rice farmers, which is largely different from the main focus of the extant literature just on the determinants of credit rationing facing farmers in general and rice farmers in particular.

Details

Journal of Economics and Development, vol. 22 no. 1
Type: Research Article
ISSN: 1859-0020

Keywords

Article
Publication date: 9 October 2017

Michael Demoussis, Konstantinos Drakos and Nicholas Giannakopoulos

The purpose of this paper is to investigate credit rationing across firms in euro zone countries, as it relates to its own sovereign credit ratings.

Abstract

Purpose

The purpose of this paper is to investigate credit rationing across firms in euro zone countries, as it relates to its own sovereign credit ratings.

Design/methodology/approach

The authors utilize firm-level data from the Survey on Access to Finance of Enterprises for the period 2009-2013 conducted by the European Central Bank.

Findings

A negative association between the rating of sovereign creditworthiness and credit rationing is identified, while credit rationing varies substantially even among countries with the highest quality of sovereign bonds. Credit rationing is lower in sovereigns with high-quality ratings and higher in sovereigns near default. These results remain intact when fundamental firm characteristics (e.g. firm’s age and size, sector of economic activity, financial situation, etc.) are taken into consideration. This indicates that the interconnection of sovereign debt risk with domestic credit market outcomes is robust.

Originality/value

The present study contributes to the relevant literature by performing a detailed analysis of credit rationing for euro zone SMEs and by exploring the link between sovereign credit rating and credit rationing during the sovereign debt crisis period.

Details

Journal of Economic Studies, vol. 44 no. 5
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 8 February 2011

Ana Kundid and Roberto Ercegovac

The purpose of this paper is threefold. The paper aims to explore and present empirical evidence of microeconomical perspective of credit rationing phenomenon with special…

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Abstract

Purpose

The purpose of this paper is threefold. The paper aims to explore and present empirical evidence of microeconomical perspective of credit rationing phenomenon with special emphasis on the small and medium‐sized enterprise (SME) sector in the Republic of Croatia. In addition, the intention of this paper is to discuss SMEs' (ir)relevance in economic recovery and growth. Thus, macroeconomical implications of credit rationing problem are indirectly underlined.

Design/methodology/approach

Empirical analysis of credit rationing in the corporate bank loan market was carried out on a sample from the Croatian financial market which included data on approximately 4,300 small, medium‐sized and large companies in the period from the end of 2008 to the first quarter of 2010. Multiple linear regression model was developed in order to examine enterprise's size and borrowing costs nexus as well as borrowing costs' determinants. Descriptive statistics provided certain evidence on magnitude of credit rationing and pointed out different levels of interest rates after which credit rationing and credit discouraging appears for various sizes of enterprises.

Findings

In comparison to the large enterprises, SMEs continuously encounter higher borrowing costs, upon which this discrepancy enlarges in the aftermath and presence of financial crisis. Credit spread which is used as a proxy of borrowing costs is statistically significantly determined with enterprise's size, collateral and internal credit rating of a borrower, whereas enterprise's size evidenced the highest explanatory power. Descriptive statistics showed that market cleaning of the SMEs credit applications evolves on the level of higher interest rates.

Practical implications

The paper recommends thorough reexamination of economic importance of SMEs in Croatia and calls upon more efficient support strategy and fund allocation. Precisely, government actions should stimulate more inclusive bank finance of creditworthy SMEs.

Social implications

This paper should induce and actualize better understanding of pitfalls, blunders and potentials of SMEs in fostering economic growth. More specifically, conclusions should be helpful to policy makers, national prudential authorities and students of economics.

Originality/value

Inclusion of borrowing costs in the analysis that presents a cut‐off point of demand and supply driven credit rationing could be a useful method for future empirical research on credit rationing.

Details

International Journal of Law and Management, vol. 53 no. 1
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 8 March 2018

Frank Gyimah Sackey

The purpose of this paper is to examine if credit rationing persists even in the era of financial liberalization, the extent to which individual, firm and loan…

Abstract

Purpose

The purpose of this paper is to examine if credit rationing persists even in the era of financial liberalization, the extent to which individual, firm and loan characteristics influence the rationing behavior of commercial banks and whether the agricultural sector is discriminated against in the commercial bank credit market.

Design/methodology/approach

The study employed a probit model with marginal effects and a generalized Blinder-Oaxaca decomposition estimation on a randomly selected data of 1,239 entrepreneurs from eight commercial banks’ credit records about their individual, firm and loan characteristics.

Findings

The study revealed that credit rationing persists and that applying for a relatively longer payment period, providing collateral and guarantor, being illiterate, being relatively older and being in the agricultural sector increases the likelihood of being credit rationed, while having some relationship with the bank, having non-mandatory savings and applying from a bank with relatively high interest rates reduce the likelihood of being credit rationed. The study also revealed a credit gap of 17.77 percent and a positive discrimination against borrowers in the agricultural sector as the gap was largely being influenced by unexplained factors.

Research limitations/implications

The research was intended to cover a large number of commercial banks in Ghana. However, most of the banks were unwilling to provide such information about their borrowers; hence, the research was limited to only eight commercial banks who provided the author with the information needed for the study.

Practical implications

The study concludes that policies that enhance human capital, women, and older access to credit and agricultural-oriented financial services and others, will go a long way to reduce rationing and increase access to credit, especially to the agricultural sector.

Social implications

The research proposes the use of group lending as a form of collateral and monitoring to ease risks and default, and hence supports sustainable funding to increase access and outreach.

Originality/value

The paper looks at the comprehensive way about the various factors determining credit rationing in that it considers not only the individual, economic/firm and loan characteristics but also the extent to which discrimination toward the agricultural sector exists in the commercial banks credit market.

Details

Agricultural Finance Review, vol. 78 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 4 December 2017

Daniel Domeher, Godwin Musah and Kwasi Poku

The purpose of this paper is to investigate the micro determinants of the extent of credit rationing experienced by small and medium-sized enterprises (SMEs) in Ghana.

Abstract

Purpose

The purpose of this paper is to investigate the micro determinants of the extent of credit rationing experienced by small and medium-sized enterprises (SMEs) in Ghana.

Design/methodology/approach

The study adopted the direct approach to investigating the presence of credit rationing. This involves the use of surveys permitting loan applicants to report on their credit market experiences. The multinomial logistic regression model was then applied to the survey data to arrive at the findings reported.

Findings

The study amongst other things confirms the existence of credit rationing in the SME sector. It also revealed that the extent to which SMEs are rationed varies and these variations are determined by the characteristic of the SME owner and the characteristics of the business.

Research limitations/implications

The use of the survey method in investigating credit rationing could introduce some biases in the responses obtained. However, the lack of publicly available data did not permit the use of the indirect method which is based on the testing for possible violation of the permanent income hypothesis. Despite its weakness, the survey method remains the more realistic approach to investigating credit constraints especially in the data-constrained developing countries. The design and piloting of the questionnaire as well as the use a large sample size all went a long way to reduce any possible biases in the responses.

Originality/value

Despite the fact that a number of studies exist on SME financing problem in Ghana, available studies present the problem as if it were the same for all SMEs. Even though there is evidence to suggest that SMEs may be rationed in the credit market to different extents, currently, there are no known studies that have empirically investigated the various degrees of rationing and factors that determine the extent to which SMEs may be credit rationed. This paper thus attempts to contribute to the literature by unearthing these factors.

Details

International Journal of Social Economics, vol. 44 no. 12
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 13 February 2019

Yusuf Ibrahim Kofarmata and Abubakar Hamid Danlami

The purpose of this paper is to model credit rationing among farmers in rural developing areas, based on micro level data of Kano State, Nigeria.

Abstract

Purpose

The purpose of this paper is to model credit rationing among farmers in rural developing areas, based on micro level data of Kano State, Nigeria.

Design/methodology/approach

A total of 835 households and 45 microfinance banks were utilized as the samples of the study which were selected using multi-stage stratified sampling technique. Multinomial logit model was used to estimate the factors that determine credit rationing among the rural farmers in Nigeria.

Findings

The result of the discrete choice model shows that farmers who are either being engaged in subsistence farming or trading have a significant effect on credit rationing with the greatest impacts found on the farm profit and farmers’ location.

Research limitations/implications

This study failed to carry out a dynamic analysis regarding agricultural credit rationing. Also, it is well known that formal credit interacts with informal credit sector; nevertheless, this interaction was unaccounted for in this study. Therefore, future studies can expand the scope of this research to account for this interaction. In fact, investigating heterogeneity among credit providers will be an important topic in the future.

Practical implications

Clear and sound policies are required for the establishment of new agencies and financial institutions devoted to agricultural sector. Similarly, an integrated system of forward-looking policies based on tax and subsidy-regimes to augment desired incentives for private financial sector and NGOs to lend money to the farmers are needed.

Originality/value

Consistent with risk-balancing theory, the good story for farmers is that profit making farmers are less likely to be among the constrained borrowers. It turned out from the credit rationing model that urban farmers had a greater chance of being successful applicants in the Nigerian agricultural credit market. In comparison to farmers at periphery, urban residents are less likely to be associated with being constrained borrowers.

Details

Agricultural Finance Review, vol. 79 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

1 – 10 of over 2000