Importance of repayment capacity in the quantitative rationing of agricultural credit in Benin

Purpose - This paper analyzes the effect of repayment capacity on the quantitative rationing of credit to agricultural credit applicants. Design/methodology/approach - The empirical analysis of credit supply involved 595 applicants for agricultural credit. The instrumental variable (IV) approach of probit and tobit was used to identify credit rationing factors. Findings - All things being equal, a 1% increase in repayment capacity increases the amount received by 25% for large applicants, and 47% for small applicants. Other variables related to equity, participation rate, crops produced, reputation, age, activity stability and proximity influence the credit supply. Research limitations/implications - The results of this study provide a theoretical basis for comparing small and large agricultural credit applicants, which is essential for better decision-making by financial institutions and the government. This article recommends that all applicants should have a good reputation and keep their business income and expenditure book up-to-date, that small applicants should invest in their business and improve their financial education and that large applicants should accumulate wealth and invest in perennial crops. As a limitation of this study, it would be possible to extend the data to other institutions using panel data. Originality/value - The originality of this study lies in its consideration of the endogeneity problem between repayment capacity and credit rationing and, in a comparative analysis of small and large credit applicants. The results of this analysis will be used to adjust agricultural credit granting policies.