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Does pre-defined flexibility come with teh cost of higher credit risk? Evidence from agricultural micro lending in Madagascar

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  • Weber, Ron
  • Musshoff, Oliver

Abstract

Using a unique dataset from a commercial microfinance institution in Madagascar, this paper investigates how the provision of microfinance loans with (in)flexible repayment schedules affects loan delinquencies of agricultural borrowers. We estimate different repayment functions to compare loan delinquencies of agricultural and non-agricultural borrowers and apply a quasi-experimental approach to investigate whether introducing flexible repayment schedules affects loan delinquencies of seasonal agricultural borrowers. In this attempt, three different delinquency categories reflecting different levels of credit risk are assessed. Our results reveal that loan delinquencies of non-seasonal agricultural borrowers without grace periods are not significantly different from those of non-farmers. Furthermore, we find that seasonal agricultural borrowers with grace periods show significantly higher delinquencies than non-farmers. Within the group of agricultural borrowers we find that introducing grace periods increases delinquency levels only in the lowest delinquency category, while we find no significant effect in the higher delinquency categories.

Suggested Citation

  • Weber, Ron & Musshoff, Oliver, 2015. "Does pre-defined flexibility come with teh cost of higher credit risk? Evidence from agricultural micro lending in Madagascar," 2015 Conference, August 9-14, 2015, Milan, Italy 211905, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:211905
    DOI: 10.22004/ag.econ.211905
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    References listed on IDEAS

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    Keywords

    Agribusiness; Financial Economics; International Development;
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