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Microfinance for agricultural firms - What can we learn from bank data?

  • Weber, Ron
  • Musshoff, Oliver

Using a unique dataset of a commercial microfinance institution (MFI) in Tanzania this paper investigates first whether agricultural firms have a different probability to get a loan and whether their loans are differently volume rationed than loans to non-agricultural firms. Second, we analyze whether agricultural firms repay their loans with different delinquencies than non-agricultural firms. Our results reveal that agricultural firms face higher obstacles to get credit but as soon as they have access to credit, their loans are not differently volume rationed than those of non-agricultural firms. Furthermore, agricultural firms are less often delinquent when paying back their loans than non-agricultural firms. Our findings suggest that a higher risk exposition typically attributed to agricultural production must not necessarily lead to higher credit risk. They also show that the investigated MFI overestimates the credit risk of agricultural clients and, hence, should reconsider its risk assessment practice to be able to increase lending to the agricultural sector. In addition, our results might indicate that farmers qualify less often for a loan as they do not fit into the standard microcredit product.

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Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126708.

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Date of creation: Aug 2012
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Handle: RePEc:ags:iaae12:126708
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