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Article
Publication date: 4 March 2021

Nguyen Tuan Anh, Christopher Gan and Dao Le Trang Anh

This study simultaneously explores the nexus among formal, semiformal and informal credit markets and farm households' credit demand determinants in Vietnam.

Abstract

Purpose

This study simultaneously explores the nexus among formal, semiformal and informal credit markets and farm households' credit demand determinants in Vietnam.

Design/methodology/approach

This study uses a multistage stratified random sampling process for a survey of 648 smallholder farmers in the Red River Delta (RRD), Vietnam. The trivariate probit model (TVPM) is used to address the interdependence of farm households' credit demands in different credit markets.

Findings

The results reveal complementary relationships among two pairs of credit markets (formal versus informal and semiformal versus informal). There are dissimilarities among the determinants (household characteristics, household head's characteristics, credit history and geographic factors) of farm households' credit demands in different markets, reflecting segmentation of Vietnam credit markets.

Practical implications

The study's empirical findings are important for policymakers and credit providers to enhance farm households' access to credit for agriculture and to improve the operations of the three credit markets.

Originality/value

This is the first empirical study in Vietnam and one of few in other developing countries simultaneously exploring the determinants of credit demand in and interrelationships among all three credit markets to provide more comprehensive and accurate results.

Details

International Journal of Social Economics, vol. 48 no. 5
Type: Research Article
ISSN: 0306-8293

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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

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Article
Publication date: 4 September 2020

Shruti Malik, Girish Chandra Maheshwari and Archana Singh

Over the period, the role of finance has emerged significant in the socio-economic development of the women. There are two major types of finances, i.e. formal and informal

Abstract

Purpose

Over the period, the role of finance has emerged significant in the socio-economic development of the women. There are two major types of finances, i.e. formal and informal ones. Thus, the purpose of this paper is to investigate first the determinants of the demand for credit and then the demand for these credit sources by women especially in urban slums.

Design/methodology/approach

In this study, a primary survey was conducted with the help of a structured questionnaire in slums of two major urban cities in India, i.e. Delhi and Mumbai. In total, 450 individuals were interviewed in each city.

Findings

This paper presents a range of significant socio-economic factors affecting the demand for credit and source of credit by women borrower in Delhi and Mumbai. Despite, the greater emphasis by the government to increase the formal credit utilization, the informal credit is still preferred.

Practical implications

The outcomes of the study are expectedly useful to various policymakers and banks in encouraging women to opt more for the formal credit. The government can follow the research outcomes to scale up the programmes and schemes targeted for women empowerment in urban slums.

Originality/value

The study is unique of its kind in doing a comparative analysis in slums of two differently located urban cities with large slum population.

Details

Gender in Management: An International Journal , vol. 36 no. 1
Type: Research Article
ISSN: 1754-2413

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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

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Article
Publication date: 24 February 2021

Annkathrin Possner, Selina Bruns and Oliver Musshoff

The purpose of this paper is to examine the extent to which individual risk attitude determines a Cambodian smallholder's choice between a commercial informal loan and a…

Abstract

Purpose

The purpose of this paper is to examine the extent to which individual risk attitude determines a Cambodian smallholder's choice between a commercial informal loan and a credit from a licensed microfinance institution.

Design/methodology/approach

The paper analyzes a sample of smallholder farmers in the Ratanakiri province in northeastern Cambodia, a country with a long history of microfinance and a saturated microcredit market. Employing a binary and a multinomial logit model, this paper assesses the effect of individual risk attitude on the choice of a financial instrument.

Findings

The results reveal a statistically significant relationship between the choice of a credit source and an individual's risk attitude: On average (c.p.) the less risk averse the smallholder is, the more they tend to prefer an unlicensed commercial lender.

Practical implications

The findings suggest that less risk-averse individuals tend to take up riskier and generally more expensive informal loans. Measures to increase the safe access to financial services for less risk-averse borrowers as well as improvements in financial literacy should be undertaken to protect smallholders from taking risky choices.

Originality/value

Although existing studies have examined the importance of risk attitudes between credit provider and borrower, they focus mainly on the lender's perspective. This paper provides new insights on how risk attitude influences the borrower's choice in Cambodia. Thus, this study is relevant for policymakers in countries with oversaturated microcredit markets and a high prevalence of informal lenders.

Details

Agricultural Finance Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 17 April 2020

Aregawi Gebremedhin Gebremariam

It is widely believed that ICT has a significant influence on the daily life of the poor and has positive spillover effects in their livelihoods. Mobile phones are one of…

Abstract

Purpose

It is widely believed that ICT has a significant influence on the daily life of the poor and has positive spillover effects in their livelihoods. Mobile phones are one of the few ICT innovations that have found their way into the hands of the poor residing in remote and rural areas. In Ethiopia, mobile phones are recently introduced but got an acceptance from everyone including the rural poor; in five years’ time, mobile phones subscription has increased from less than 4% to more than 40%. Empirical evidence generally documents the positive role mobile phones play in facilitating the development efforts of poor households. However, using panel data from Ethiopia, the current paper explores a less investigated issue of the possible effects of mobile phone adoption on the credit uptakes of the rural poor who are mostly neglected from the formal credit markets but finance their credit demand from informal sources including relatives/friends.

Design/methodology/approach

To investigate the relationship between mobile phones and credit uptake and/or loan size, one can use different empirical strategies. For partly unleashing the endogeneity problem, an instrumental variable estimation approach is adopted in this paper. To deal with the endogeneity problem, one may consider using the linear IV approach or the control function. But the outcome variable and the endogenous variable are binary in nature, and the usual trend is to use the linear IV models or control functions, which do not consider these binary natures of the variables. To this end, a special regressors estimator is adopted, mostly used when both the dependent and the endogenous variables are binary in nature.

Findings

The econometric results suggest mobile phones are positively associated with the credit uptake of rural households, especially credit uptake from informal sources. Households with mobile phones are found to have 4%–14% higher probabilities of credit uptake and about 6%–17% in the case of credit from informal sources. Besides, households with mobile phones are found to have about ETB 65 (USD 3.42) higher loan size and about ETB 78 (USD 4.11) higher amount of loan in the case of a loan from the informal sources. Thus, policy-makers and financial providers working on providing credit in rural areas need to exploit the use of mobile phones in reaching out to the rural poor.

Originality/value

The author attests the fact that the work described has not been published previously and that it is not under consideration for publication elsewhere. Besides, it is the original work of the author.

Details

African Journal of Economic and Management Studies, vol. 11 no. 3
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 29 November 2018

Tiken Das

The purpose of this paper is to analyze the determinants of awareness and use of credit sources. The paper attempts to answer the critical question: is awareness of credit

Abstract

Purpose

The purpose of this paper is to analyze the determinants of awareness and use of credit sources. The paper attempts to answer the critical question: is awareness of credit sources prerequisite for their use?

Design/methodology/approach

This study is conducted in Assam, India, and uses a two-stage econometric model to reduce possible selection bias.

Findings

This study argues that awareness of credit sources may be a necessary but not sufficient prerequisite for use. It is found that, in general, formal, semiformal and informal sources attract different classes of the population with respect to economic and social indicators.

Research limitations/implications

The study recommends expanding the scope of semiformal and informal credit sources in rural areas of Assam only for income generating activities with proper market linkages. The possible limitation of the study can be due to exclusion of the role of traditional community-based organizations in rural Assam while analyzing the awareness and use of credit sources.

Originality/value

The study contributes to the literature by assessing the probable differences among formal, semiformal and informal credit sources with respect to their determinants of awareness and use.

Details

Indian Growth and Development Review, vol. 12 no. 1
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 9 April 2018

Shahab E. Saqib, John K.M. Kuwornu, Mokbul Morshed Ahmad and Sanaullah Panezai

The Government of Pakistan has allocated a substantial proportion of agricultural credit to subsistence farmers. The purpose of this paper is to analyze farmers’ access to…

Abstract

Purpose

The Government of Pakistan has allocated a substantial proportion of agricultural credit to subsistence farmers. The purpose of this paper is to analyze farmers’ access to credit and its adequacy in the light of current agricultural credit policy of Pakistan.

Design/methodology/approach

The study has used both secondary and primary data for analysis. Secondary data were collected from the annual reports of Pakistan Economic Survey and State Bank of Pakistan. Primary data were collected from 168 subsistence farmers through households’ survey. Farmers’ credit access and credit adequacy were measured using credit access ratio and credit adequacy ratio, respectively. The Student’s t-test and analysis of variance were used to assess the differences in credit access and adequacy among farmers’ groups (i.e. upper, medium and lower subsistence farmers). Tobit regression model was employed to determine the factors influencing credit adequacy among farmers.

Findings

The empirical results revealed that the amount of credit provided to subsistence farmers was less than stated in the national agricultural credit policy. Upper subsistence farmers had more access to credit than lower and medium subsistence farmers. Lower subsistence farmers had above average access to informal sources of credit, and had below average access to formal sources. The findings also revealed that lower subsistence and medium subsistence farmers had the highest credit inadequacy of funds for investment in agriculture. The results of the Tobit regression revealed that age, education, experience, household size, total landholding of farmer and proportion of own land influenced the agricultural credit adequacy.

Practical implications

Most of the credit was distributed among the upper subsistence farmers. Lower subsistence farmers were still largely dependent on informal credit for farm production activities. The Government of Pakistan performed poor in the implementation of agricultural credit policy, and has failed to help subsistence farmers in their access to formal credit. It is needed to revamp the agricultural credit policy and facilitate credit acquisition by subsistence farmers, particularly for tenant farmers. It is important that the Government may classify the subsistence farmers into subgroups, and reallocate the funds accordingly. This study has lessons and implications for agricultural finance initiatives in developing countries.

Originality/value

Previous studies have focused primarily on access to agricultural credit. However, this study has adopted a holistic approach by using secondary and primary data to assess the farmers’ access to credit and adequacy. In addition, limited literature is available to explore the farmers’ accessibility and adequacy of agricultural credit. Furthermore, this study has focused exclusively on the farmers who are living in the flood-prone areas of Pakistan.

Details

International Journal of Social Economics, vol. 45 no. 4
Type: Research Article
ISSN: 0306-8293

Keywords

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Article
Publication date: 18 December 2019

Samuel Sekyi, Paul Bata Domanban and George Kwame Honya

The purpose of this paper is to examine the impact of informal credit access on agricultural productivity in rural Ghana.

Abstract

Purpose

The purpose of this paper is to examine the impact of informal credit access on agricultural productivity in rural Ghana.

Design/methodology/approach

Data sets from the Ghana Feed the Future baseline survey involving a total sample of 2,437 rural farm households were used. In order to address the problem of endogeneity and sample selectivity bias, the endogenous switching regression (ESR) model was employed to examine whether rural farm households’ with access to informal credit and those without access differ in terms of their productivity levels and whether access to informal credit affects agricultural productivity.

Findings

Estimates from the ESR show that access to informal credit significantly promotes agricultural productivity. Specifically, farmers with access to informal credit were able to achieve a yield of 48.42 kg/ha more than their counterparts without informal credit access. In terms of the counterfactual, farmers without informal credit access would have increased their yield by 57.61 kg/ha if they were to have access to informal credit.

Research limitations/implications

The study was restricted to the savannah ecological zone of Ghana. This limits the extent of generalisation of results.

Originality/value

This study provides a rigorous econometric analysis of the impacts of access to informal credit on agricultural productivity in rural Ghana. The study contributes to the current debate on the link between access to informal credit and agricultural productivity and provides valuable input for policymakers.

Details

African Journal of Economic and Management Studies, vol. 11 no. 2
Type: Research Article
ISSN: 2040-0705

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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

Keywords

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