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The effect of agriculture on repayment efficiency: a look at MFI borrowing groups

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  • Uthra K. Raghunathan
  • Cesar L. Escalante
  • Jeffrey H. Dorfman
  • Glenn C. W. Ames
  • Jack E. Houston

Abstract

There is a widely held industry assumption from microfinance institutions that agricultural loans have poorer repayment rates, which has resulted in many loans being provided for small businesses as opposed to agricultural purposes. Using data from a sample of 100 borrowing groups from a south Indian Microfinance Institutions (MFI), this study challenges this belief by analyzing the repayment efficiency of borrowing groups and reflects on the implications for agricultural microfinance loans. The analysis is run using Bayesian stochastic frontier estimation with an exponential hierarchical prior on the efficiency term. Our results indicate that the average efficiency of the borrowing groups analyzed was approximately 75% and that having a higher percentage of agricultural loans increased borrowing group efficiency while gains in efficiency also rose as the size of the borrowing group increases.

Suggested Citation

  • Uthra K. Raghunathan & Cesar L. Escalante & Jeffrey H. Dorfman & Glenn C. W. Ames & Jack E. Houston, 2011. "The effect of agriculture on repayment efficiency: a look at MFI borrowing groups," Agricultural Economics, International Association of Agricultural Economists, vol. 42(4), pages 465-474, July.
    • Handle: RePEc:bla:agecon:v:42:y:2011:i:4:p:465-474
    DOI: 10.1111/j.1574-0862.2011.00534.x
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    Cited by:

    1. Hering, Imke & Mußhoff, Oliver, 2016. "Loan Defaults In Microfinance - Forewarned Is Forearmed," 56th Annual Conference, Bonn, Germany, September 28-30, 2016 244780, German Association of Agricultural Economists (GEWISOLA).
    2. Müller, Kirsten & Mußhoff, Oliver & Weber, Ron, 2014. "The More the Better? How Collateral Levels Affect Credit Risk in Agricultural Microfinance," Department of Agricultural and Rural Development (DARE) Discussion Papers 260815, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    3. Hering, I. & Mußhoff, O., 2016. "Dynamic Incentives in Microfinance – What about the Farmers?," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 51, March.
    4. Imke Hering & Oliver Musshoff, 2017. "Progressive Lending in Microfinance—What about the Farmers?," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 803-828, August.
    5. Weber, Ron & Mußhoff, Oliver & Petrick, Martin, 2014. "How flexible repayment schedules affect credit risk in agricultural microfinance," DARE Discussion Papers 1404, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    6. Tim Ölkers & Oliver Mußhoff, 2024. "Exploring the role of interest rates, macroeconomic environment, agricultural cycle, and gender on loan demand in the agricultural sector: Evidence from Mali," Agribusiness, John Wiley & Sons, Ltd., vol. 40(2), pages 484-512, April.
    7. Tiken Das & Pradyut Guha & Diganta Das, 2021. "Do the Heterogeneous Determinants of Repayment Affect Differently across Borrowers of Diverse Credit Sources in Rural Assam? A Double Hurdle Approach," Journal of Development Policy and Practice, , vol. 6(2), pages 188-209, July.
    8. Ölkers, Tim & Liu, Shuang & Mußhoff, Oliver, 2023. "A typology of Malian farmers and their credit repayment performance - An unsupervised machine learning approach," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334547, Agricultural Economics Society - AES.
    9. Angioloni, Simone & Kudabaev, Zarylbek & Ames, Glenn C.W. & Wetzstein, Michael E., 2013. "Microcredit impact in Kyrgyzstan: A Case Study," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143838, Southern Agricultural Economics Association.
    10. Weber, Ron & Mußhoff, Oliver & Petrick, Martin, 2014. "How flexible repayment schedules affect credit risk in agricultural microfinance," DARE Discussion Papers 1404, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    11. Weber, Ron & Musshoff, Oliver, 2012. "Microfinance for agricultural firms - What can we learn from bank data?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126708, International Association of Agricultural Economists.
    12. Angioloni, Simone & Kudabaev, Zarylbek & Ames, Glenn C.W. & Wetzstein, Michael E., 2013. "Micro-credit impact in Kyrgyzstan: A study case," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143074, Southern Agricultural Economics Association.

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