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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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    1. Askar Choudhury & James Jones & Adolph Okine & Raquiba (Lena) Choudhury, 2016. "Drought†Triggered Index Insurance Using Cluster Analysis of Rainfall Affected by Climate Change," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 39(2), pages 169-186.
    2. Stephen R. Boucher & Michael R. Carter & Catherine Guirkinger, 2008. "Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agricultural Development," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 409-423.
    3. Luis Diaz-Serrano & Frank G. Sackey, 2018. "Microfinance and credit rationing: does the microfinance type matter?," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(2), pages 114-131, April.
    4. Manojit Bhattacharjee & Meenakshi Rajeev, 2013. "Modeling Loan Repayment Behavior in Developing Countries," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 35(2), pages 270-295.
    5. Luc Benda & Ferry Koster & Romke van der Veen, 2018. "Contextualising institutional complementarity. How long‐term unemployment depends on employment protection legislation, active labour market policies and the economic climate," International Journal of Social Welfare, John Wiley & Sons, vol. 27(3), pages 258-269, July.
    6. Boucher, Stephen R. & Carter, Michael R. & Guirkinger, Catherine, 2008. "AJAE Appendix: Risk Rationing and Wealth Effects in Credit Markets: Theory and Implications for Agriculture Development," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 90(2), pages 1-6.
    7. Coetzee, Gerhard K. & Meyser, F. & Adam, H., 2002. "The Financial Position Of South African Agriculture," Working Papers 18056, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development.
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    Cited by:

    1. Nartey Menzo, Benjamin Prince & Mogre, Diana & Asuamah Yeboah, Samuel, 2024. "Beyond Income: The Complexities of Credit Risk in Developing Countries," MPRA Paper 122364, University Library of Munich, Germany, revised 20 Sep 2024.

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