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Perceived Risk and Willingness to Provide Loan to Smallholder Farmers in Ghana

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  • Askar Choudhury
  • James Jones
  • Michael Opare-Addo

Abstract

In this article, we investigate whether lending institutions perceive smallholder (individual) farmers as riskier borrowers than farm cooperatives. Our research results show that individual farmers in Ghana are less likely to be successful in obtaining credit than cooperative farmers, because they are perceived to be riskier borrowers. In addition, results show that the willingness of lending institutions to provide loans is higher for those farmers who are associated with cooperative societies. This suggests that individual farmers can increase their odds of securing loans by joining a cooperative society. Empirical results also support the hypothesis that the interest rate is a significant predictor of the willingness to loan bias among lending institutions. In addition, our results indicate that higher interest rates are associated with increased loan risk. However, when interest rate is higher, longer loan maturity can dampen the effect of interest rate. In other words, an increase in loan maturity length reduces the effect of interest rate on the loan risk. These research results have important policy implications for the welfare of smallholder farmers in developing economies as lack of financing has a significant impact on smallholder farmer productivity.

Suggested Citation

  • Askar Choudhury & James Jones & Michael Opare-Addo, 2022. "Perceived Risk and Willingness to Provide Loan to Smallholder Farmers in Ghana," Journal of African Business, Taylor & Francis Journals, vol. 23(1), pages 23-40, January.
    • Handle: RePEc:taf:wjabxx:v:23:y:2022:i:1:p:23-40
    DOI: 10.1080/15228916.2020.1773732
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    References listed on IDEAS

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