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Credit Risk Assessment and Racial Minority Lending at the Farm Service Agency

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  • Escalante, Cesar L.
  • Brooks, Rodney L.
  • Epperson, James E.
  • Stegelin, Forrest E.

Abstract

The nature of credit risk assessment and basis of loan approval decisions of the Farm Service Agency are analyzed in the aftermath of the black farmers' 1997 class action suit against the U.S. Department of Agriculture. This study did not uncover convincing evidence of racial discrimination against nonwhite borrowers under a binomial logistic framework based on the probability of a loan application's approval. Moreover, the collective use of more stringent and objective credit-scoring measures usually employed by commercial lenders is less evident in the Farm Service Agency's evaluation of loan applications.

Suggested Citation

  • Escalante, Cesar L. & Brooks, Rodney L. & Epperson, James E. & Stegelin, Forrest E., 2006. "Credit Risk Assessment and Racial Minority Lending at the Farm Service Agency," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 38(1), pages 61-75, April.
    • Handle: RePEc:cup:jagaec:v:38:y:2006:i:01:p:61-75_02
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    References listed on IDEAS

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    1. Roger D. Stover & R. Kenneth Teas & Roy J. Gardner, 1985. "Agricultural Lending Decision: A Multiattribute Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(3), pages 513-520.
    2. Ellinger, Paul N. & Gustafson, Cole R. & Hanson, Gregory D. & LaDue, Eddy L. & Barry, Peter J. & Splett, Nate & Hanson, Steven D., 1991. "Credit Evaluation Procedures at Agricultural Banks," 1991 Regional Committee NC-161, September 23-24, 1991, St. Louis, Missouri 130939, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    3. Gustafson, Cole R. & Beyer, Ronald J. & Saxowsky, David M., 1991. "Credit Evaluation: Investigating the Decision Process of Agricultural Loan Officers," 1991 Regional Committee NC-161, September 23-24, 1991, St. Louis, Missouri 130940, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
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    Citations

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    Cited by:

    1. Dhakal, Chandra K. & Escalante, Cesar L., 2018. "Heterogeneity of Farm Loan Packaging Term Decisions: A Finite Mixture Model Approach," 2018 Annual Meeting, August 5-7, Washington, D.C. 274118, Agricultural and Applied Economics Association.
    2. Sant'Anna, Ana Claudia, 2023. "Examining the Relationship Between Women, Minority Farmers, and Diversity in the Leadership of Farm Credit Institutions," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334564, Agricultural Economics Society - AES.
    3. Hendricks, Nathan P. & Murphy, Ashling M. & Morgan, Stephen & Padilla, Samantha & Key, Nigel, 2023. "Explaining the Source of Racial Disparities in Market Facilitation Program (MFP) Payments," 2023 Annual Meeting, July 23-25, Washington D.C. 337402, Agricultural and Applied Economics Association.
    4. Dixon, Bruce L. & Ahrendsen, Bruce L. & Nwoha, O. John & Hamm, Sandra J. & Danforth, Diana M., 2007. "FSA Direct Farm Loan Program Graduation Rates and Reasons for Exiting," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 39(3), pages 471-487, December.
    5. Ana Claudia Sant'Anna & Kevin N. Kim & Iryna Demko, 2024. "Limits to capital: Assessing the role of race on the Paycheck Protection Program for African American farmers in America," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 217-233, March.
    6. Anil K. Giri & Dipak Subedi & Kathleen Kassel, 2024. "Analysis of the payments from the coronavirus food assistance program and the market facilitation program to minority producers," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 189-201, March.
    7. Tyler, Shakara S. & Moore, Eddie A., 2013. "Plight of Black Farmers in the Context of USDA Farm Loan Programs: A Research Agenda for the Future," Professional Agricultural Workers Journal (PAWJ), Professional Agricultural Workers Conference, vol. 1(1), pages 1-12.
    8. Escalante, Cesar L. & Epperson, James E. & Raghunathan, Uthra, 2008. "Investigating Gender Bias in Farm Service Agency’s Lending Decisions," 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48144, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    9. Quaye, Frederick & Hartarska, Valentina & Nadolnyak, Denis, 2015. "Farmer Credit Delinquency in Southeastern US: Factors and Behavior Prediction," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196914, Southern Agricultural Economics Association.
    10. Escalante, Cesar L. & Epperson, James E. & Raghunathan, Uthra, 2009. "Gender Bias Claims in Farm Service Agency’s Lending Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(2), pages 1-18, August.
    11. Bruce L. Dixon & Bruce L. Ahrendsen & Brandon R. McFadden & Diana M. Danforth & Monica Foianini & Sandra J. Hamm, 2011. "Competing risks models of Farm Service Agency seven‐year direct operating loans," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(1), pages 5-24, May.
    12. Landerito, Aiko O. & Dixon, Bruce L. & Ahrendsen, Bruce L. & Hamm, Sandra J. & Danforth, Diana M., 2009. "Analyzing FSA Direct Loan Borrower Payback Histories: Predictors of Financial Improvement and Loan Servicing Actions," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49340, Agricultural and Applied Economics Association.
    13. Ashok K. Mishra & Gianna Short & Charles B. Dodson, 2024. "Racial disparities in farm loan application processing: Are Black farmers disadvantaged?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 111-136, March.
    14. Wu, Ya & Escalante, Cesar L. & Gunter, Lewell F. & Epperson, James E., 2009. "A Decomposition Approach To Analyzing Racial And Gender Biases," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49308, Agricultural and Applied Economics Association.
    15. Cesar L. Escalante & Penghui Gao & William Secor, 2024. "Loan packaging decisions for beginning African American and other socially disadvantaged farmers," American Journal of Economics and Sociology, Wiley Blackwell, vol. 83(1), pages 109-126, January.

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    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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