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How flexible repayment schedules affect credit risk in agricultural microfinance

Author

Listed:
  • Weber, Ron
  • Mußhoff, Oliver
  • Petrick, Martin
Abstract
Using a unique dataset of a commercial microfinance institution in Madagascar, this paper investigates how the provision of microfinance loans with (in)flexible repayment schedules affects loan delinquencies of agricultural borrowers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. We develop a theoretical framework and apply and estimate an econometric model for the loan repayment behavior of agricultural micro-borrowers with seasonal and non-seasonal production types. Our results reveal that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, we find that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category.

Suggested Citation

  • Weber, Ron & Mußhoff, Oliver & Petrick, Martin, 2014. "How flexible repayment schedules affect credit risk in agricultural microfinance," Department of Agricultural and Rural Development (DARE) Discussion Papers 187434, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    • Handle: RePEc:ags:gadadp:187434
    DOI: 10.22004/ag.econ.187434
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    Cited by:

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    2. Rozzani, Nabilah & Mohamed, Intan Salwani & Syed Yusuf, Sharifah Norzehan, 2017. "Risk management process: Profiling of islamic microfinance providers," Research in International Business and Finance, Elsevier, vol. 41(C), pages 20-27.

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    More about this item

    Keywords

    Agribusiness; Agricultural Finance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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