Sources Of Credit Research Articles

Cooperative financial institutions: A review of the literature

Financial cooperatives play an important role in the financial systems of many countries. They act as a safe haven for deposits and are major sources of credit for households and small- and medium-sized firms. A not-for-profit orientation (in many cases) and a focus on maximising benefits to members have ensured the enduring popularity and sustainability of financial cooperatives. This is particularly evident since the global financial crisis when financial cooperatives continued to extend credit to members as many profit-orientated commercial banks restricted credit to households and firms. The overarching theme of the first part of this review is the structural and behavioural characteristics of financial cooperatives. In this part we consider, the origin and diffusion of financial cooperatives, network arrangements, the business model, relationship banking, balancing the interest of members, tax treatment and regulatory framework. The second part has performance and contribution to the real economy as the overarching theme. In this part we consider, efficiency and sustainability, mergers, acquisitions and failures, the benefits (and challenges) of FinTech and the contribution of financial cooperatives to the real economy including during times of crisis. The paper concludes with a summary of what we now know (and do not know) about financial cooperatives and provides suggestions as to where future research may usefully concentrate.

Determinants of credit constraints and its impact on the adoption of climate change adaptation strategies among rice farmers in South-West Nigeria

Interventions on climate change adaptation strategies, involve capital outlays, mostly constrained in supply in developing nations. This study analysed the impact of credit constraints on climate change adaptation strategies among smallholder rice farmers in South-West Nigeria. The nexus between systems of credit constraints and choice of climate change adaptation strategies was estimated using Generalized Method of Moments with Instrumental Variable (IV-GMM) and the seemingly unrelated regression (SUR) model. A principal component analysis (PCA) was used to reduce the multidimensionality of the adaptation strategies and the loading with the highest eigenvalue was chosen and renamed as an improved technology. The results of the study show that risk credit-constrained smallholder rice farmers are less likely to adopt climate change adaptation strategies. The quantitative analysis from this study also points to the fact that age of the household, source of credit, and distance to the source of credit, interest rate, access to extension and climate information were the determinants of credit constraint amongst the smallholder rice farmers in South-West Nigeria. Considering the nexus between climatic factors and credit constraints as noted in this study, increasing awareness about how the credit market works and information on the provision of climate change can help farmers to better adapt to climate change. Therefore, it is recommended that the government frame an agriculture credit policy addressing the issues of smallholder farmers, particularly in areas that are vulnerable to climate change. The income from non-farm activities can be reinvested into farm operations to improve farmers’ adaptive capacity and subsequently increase productivity. It could also be recommended that policies enhancing and strengthening institutional support may also be valuable in augmenting the adaptation strategies of smallholder farmers. A necessary addition should be developed to the assistance already being provided under Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) in the form of loan guarantees and other risk-sharing incentives, such as a regulatory environment that supports the modern contractual obligations that are characteristic of well-functioning agricultural financing.

An Analysis of the Factors Influencing Choice of Microcredit Sources and Impact of Participation on Household Income

AbstractIt is widely accepted that rural microcredit has the potential to contribute to poverty reduction in developing countries. This paper examines the factors that affect rural residents' decisions to participate in different types of microcredit sources and how these factors influence household income and consumption, using cross‐sectional data from a recent survey in China. We use a multinomial endogenous switching regression model to account for selection bias and treatment effects. The empirical findings indicate that family size, dependency ratio, local casual wage rate, credit information and shocks mainly determine the selection of different credit sources. Furthermore, the estimates reveal that participation of households in microcredit programmes contributes to an increase in both per capita income and consumption significantly. © 2020 John Wiley & Sons, Ltd.

Assessment of Loan Repayment Performance of Smallholder Farmers: The Case of Gubalafto District, North Wollo Zone, Amhara National Regional State, Ethiopia

The main objective of this study was to assess loan repayment performance of smallholder farmers in Gubalafto district of North Wollo Zone. A two-stage sampling technique was employed to select a total of 140 sample borrowers. The two-limit Tobit model and descriptive statistics were used to analyze the data collected from the sample respondents. The descriptive statistics result indicates that about 27 percent of the sampled households are low performer and the remaining 73 percent were high performers of loan. In addition, the descriptive statistics results revealed that there were significant mean differences between the low and high repayment performance group in the study district with respect to age of the borrowers, sex, distance from credit source, education level, total land size, Loan amount received, livestock holding and purpose of borrowing. The maximum likelihood estimate of the two Limit Tobit model results indicate that 13 variables were considered in the econometric model out of which, 7 variables were found to significantly influence loan repayment rate among the farm households at less than 5 percent level of significance. Age of borrowers, Educational level of borrowers, land size, total livestock holding and Off-farm income positively and significantly influenced the intensity of loan repayment while, Distance to credit source and Loan amount received negatively influenced the loan repayment rate of small holder farmers in the study area. Keywords: Loan repayment performance, Tobit model, Gubalafto District DOI: 10.7176/JBAH/10-7-03 Publication date: April 30 th 2020

Credit access, tax structure and the performance of Malaysian manufacturing SMEs

PurposeThis study investigates the effects of credit access and tax structures on the performance of Manufacturing SMEs in Malaysia.Design/methodology/approachThis study uses the dynamic panel system generalized method of moments, controlling for firm-specific as well as macroeconomic effectsFindingsThe paper finds that (1) debt funding is not conducive to SME performance; (2) access to non-bank credit sources and tax incentives support SME performance by lowering opportunity costs of riskier projects; (3) existing tax structures in Malaysia inhibit SME growth and encourage manipulation of accounts; and (4) investors in Malaysia prefer SMEs that are more conservative in their accounting and taxation practices.Research limitations/implicationsAccess to Malaysian SME data is restricted. Although robust methods are used, there is a chance that different conclusions may arise with a much larger sample.Practical implicationsThe findings provide clear direction in the discussion and enactment of new policies that support SME growth especially in support of non-bank credit sources instead of revising tax policies. The paper also contributes by providing guidance to future SME studies that are inhibited by limited access to data.Originality/valueSME-related studies on credit access and tax structures have often relied on traditional metrics (e.g. total amount of bank loans; tax expenses) to measure its impact on entrepreneurial/SME performance. Although relevant to the past, financial policies have evolved to embrace Industrial Revolution 4.0. This paper is a shift from the traditional by investigating the impact of new and innovative sources of funding such as incubators and crowdfunding. Also, since one cannot exist without the other, examining the joint impact of credit access and tax structures provides a more holistic view on policy-making, something prior studies have not addressed.

A Study on Growth of Micro Finance In India

Indian economy is portrayed by low rate of development, predominance of rural population, overwhelming dependency on horticulture, unfavourable land mass proportion, exceptionally skewed income distribution and wealth besides, high frequency of destitution and joblessness. The last two variables poverty and joblessness posture real difficulties to the development and success of the nation. To conquer this issue, some recently created parts like micro finance are assuming an essential part. Microfinance has been viewed as a capable tool to battle poverty through the arrangement of essential financial services including reserve funds, protection, credit and transfer of funds. Microfinance has changed from being an experiment alternative option to formal or casual sources of credit to be a model for lending projects to the poor of developing nations. Microfinance has permitted giving credit to poor people who were not given the credit by the financial institutions reason for lacking of collateralizable assets. The target of microfinance establishments is to serve needy individuals and empower them to get to credit and fight poverty. Against such upgrades, the present investigation has been done to investigation of review of literature in microfinance part with the target of studying development of small-scale fund in India throughout the years.

Inter-Linkage between Credit Source and Marketing Pattern of Farm Produce

The present study has been undertaken in three agro-economic zones of Punjab to examine the linkages between the credit source and marketing pattern of farm produce. Multistage random sampling technique was used for the selection of 90 farmers. Inter-linkages between the source of credit and marketing pattern refer to the inter-linkage between farmers and moneylender indulged in trading activities. Majority of the sampled farmers i.e. 65 per cent were found trapped in linked transactions. Participation of medium farmers in linked credit contracts was found to be higher i.e. 72.22 per cent as compared to large (57.14%) and small farmers (51.72%). Credit-input-product inter-linkage emerged as dominant type in the study area i.e. 33.33 per cent followed by credit-product type (31.11 per cent).

Impact of institutional credit on agricultural productivity in India: A time series analysis

The institutional credit has always been perceived as a critical factor for agricultural development in India through complementing working capital, easing liquidity and investment constraints. The present study has examined the trends and regional variations in institutional credit flow to agriculture in India for the period 1991–92 to 2016–17 using compound annual growth rate. Further, impact of institutional credit on agricultural productivity was also assessed using panel data regression. The study is based on the secondary data collected from various published sources. Results indicated that institutional credit to agriculture in real terms has registered a significant positive growth during the past four decades and the highest annual growth was observed during 2001–02 to 2010–11. Scheduled commercial banks have emerged as the dominant source of agricultural credit. However, cooperative banks are still the major sources of production credit. Regional analysis showed that southern states had access to highest production and investment credit per hectare, while eastern and northeastern states had the least credit outreach per hectare. Panel data regression model testified that institutional credit has a significant and positive impact on agricultural productivity. Therefore, the study has suggested for better access to credit of smallholders especially in eastern, western and north eastern states through simplification of procedures.

Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market

Abstract Two main creditors exist in commercial real estate: arm’s-length investors and banks. We model commercial mortgage-backed securities (CMBS) as the less informed source of credit. In equilibrium, these investors fund properties with a low probability of distress, and banks fund properties that may require renegotiation. As a natural experiment, we test the model using the collapse of the CMBS market during 2007–2009, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated. This suggests that securitization in this market funds safe collateral.

Determinants of access to credit by cocoa farmers in osun state, nigeria

This study investigated the determinants of access to credit among cocoa farmers in Osun state, Nigeria. Specifically, the study described the socio-economic characteristics of cocoa farmers in the study area, examined the factors affecting access to credit by cocoa farmers in the study area; and identified the constraints faced by cocoa farmers in credit acquisition. The study was conducted in Osun state, south-western Nigeria. A multi-stage sampling procedure was used for selecting respondents for this study. A total number of 180 farmers were selected for the study. Data were analyzed using Descriptive statistics and logit Regression. The results for the entire respondents showed average values of 46 years for age, 25 years for year of experience, 8 persons for household size, and about 88% of the respondents have formal education. Farm size (p<0.05), income (p<0.05) and years of schooling (p<0.05) show significant and positive effects on access to credit. On the other hand, gender (p<0.05), distance to credit source (p<0.1) and interest rate (p<0.01) are significant but have negative effects on access to credit by cocoa farmers in the study area. Majority (85.6%) of the cocoa farmers acknowledged lack of collateral security as a constraint in credit acquisition, while about 71.1 % acknowledged that high interest rate was a factor hindering credit acquisition. Other factors are acknowledged in the following order: Bureaucratic procedures 60.6%, lack of information about available credit sources 45%, mode of repayment 40%, no credit association 31.1% and non- membership of farmers’-based organization had 23.3%. Following the findings of the study, government, non-governmental agencies and financial institutions should provide cocoa farmers with adequate access to credit facilities and soft loans with low interest and without collateral security. In addition, cocoa farmers should be educated on the acquisition of credit.
 Int. J. Agril. Res. Innov. Tech. 9(2): 57-61, December 2019

Predatory Inclusion in Consumer Credit: Explaining Black and White Disparities in Payday Loan Use

Payday loans are a high‐cost form of credit, yet they remain a popular financial tool used by a significant proportion of Americans. Use of these loans varies significantly across social groups. Black households in particular are more than twice as likely to use payday lending as white households. Explanations for households’ decision to use payday loans remain disputed. Some scholars argue that poor financial literacy is a major driver of payday borrowing. Others propose instead that payday loans are a form of credit of last resort used after depleting higher quality sources of credit. In this article, I argue these explanations are incomplete and miss the racialized nature of payday lending. Payday lending is a form of predatory inclusion: it provides households experiencing exclusion from consumer credit markets with a needed source of credit but under conditions that jeopardize long‐term benefits of access. Given historical and contemporary patterns of financial exclusion, this process entails disproportionate reliance on payday lending by black households. Models using data from the Survey of Consumer Finances provide support for both the predatory inclusion and the credit exhaustion explanations. Predatory inclusion, however, explains the largest portion of racial disparities in payday loan use.

Household access to agricultural credit and agricultural production in Nigeria: A propensity score matching model

Background: Agricultural production is low in Nigeria as a result of low utilisation of farm inputs facilitated by farmers’ inability to save and invest. Therefore, credit is needed by farmers to enhance their productive capacity and efficiency in agriculture.Aim: Given the importance of credit to farmers, this study examined the nexus between households’ access to credit and agricultural production in Nigeria.Setting: The study made use of data from the Living Standard Measurement Study-Integrated Survey on Agriculture (LSMS-ISA) consisting of 4210 households across the 36 states in Nigeria, as well as the Federal Capital Territory, Abuja.Methods: The study employs the propensity score matching (PSM) technique.Results: The main result from the study suggests that households who had access to agricultural credit facilities had yields that are thrice those of their counterparts who did not benefit from such facilities. In the event of a shock, the farmers who did not have a source of credit are often forced to adopt measures such as lowering consumption and selling assets, which in the long run worsen their poverty levels.Conclusion: The study recommends that policymakers should address underlying factors that prevent access to credit for agricultural production, which is capable of raising the productive capacities of farmers.

Determinants of smallholder farmers’ access to microfinance credits

PurposeSeveral years after the regularization of microfinance activity in Côte d’Ivoire, smallholder farmers’ access to microfinance credits still remains marginal. The purpose of this paper is to identify and analyze key determinants of access to microfinance credit in Sassandra-Marahoué District.Design/methodology/approachA total of 150 smallholder farmers were randomly sampled using an interview guide and semi-structured questionnaires. Univariate statistics and Probit binary modeling were employed for data analyses.FindingsResults revealed that socio-economic/demographic characteristics of smallholder farmers and credit requirements imposed by microfinance institutions (MFIs) are key determinants of smallholder farmers’ access to microfinance credits in the district.Research limitations/implicationsAlthough, the authors shed light on the determinants of microfinance credit access for smallholder farmers in this district, the study focused on a single source of financial credit. Future research will need to explore the determinants of credit demand and the choice between different sources of rural credits in Côte d’Ivoire.Practical implicationsThe findings suggest that MFIs seldom take into account smallholder farmers who are not engaged in off-farm income-generating activities and savings account; and those with low level of education. Sensitization programs on the importance of savings mobilization and credit policy by MFIs will potentially increase smallholder’s knowledge on credit access requirements and thereby increased access.Originality/valueTo the authors’ knowledge, this is the first study investigating determinants of smallholder farmers’ access to microfinance credits in Côte d’Ivoire specifically in the Sassandra-Marahoué District. The results of this study will serve as a guide for MFIs for improving smallholder farmers’ access to credit.

Social Trust Formation and Credit Accessibility—Evidence from Rural Households in China

Trust as a form of social capital plays an important role in improving the cooperation between agents, especially in credit lending activities. Trust building has attracted significant research interest, and gift giving has been shown to be one of its main drivers. Nonetheless, the mechanism of gift giving in the formation of trust networks and the channels through which gift giving and trust affect cooperation require further investigation. In this paper, we first separate social trust into community trust and personal trust, and we examine how gift giving affects the formation of each level of trust. We then explore how trust and gift giving affect rural households’ access to formal and informal sources of credit. Our results show that gift giving mainly helps in forming trust at the personal level rather than the community level. In turn, personal and community trust can facilitate access to informal and formal sources of credit, respectively. In addition, personal trust facilitates access to informal loans for consumption and medical expenses but not production. Overall, our findings show that gift giving is mainly used to build personal trust which facilitates access to informal lending for risk-sharing purposes.

The impact of the equity capital and trade credit financial sources on the company's performances sustainability

The crucial aspect of mobilizing financial sources and savings to SMEs in the agribusiness sector and its supply chains towards sustainability and productive investment is of the most importance, what has motivated the research of this paper. Key findings of exploring the impact of two external sources of finance, trade credit and equity capital on the sustainability of the enterprises, are based on the literature review and the empirical research provided in Serbia in 2019. The positive influence of the researched sources of the financing as well as the conditions of this financing on the sustainability of these enterprises is confirmed. The contribution of the research results can be seen in the further improvement of the financial market framework for development of the external sources of finance, trade credit and equity capital in the context of entrepreneurial finance.

Effect of Coronavirus Crisis on the Liquidity and Capital Structure of the Banking Sector in Egypt: A Professional Accounting Perspective

Coronavirus pandemic has its significant and severe effects on the operations of different businesses all over the world and consequently on the banking sector, which is of great importance and represents an important source of credit to individuals and corporations. The objective of this paper is to investigate the impact of coronavirus pandemic on the liquidity, as measured by cash flows from operations and the capital structure, as measured by the leverage level, of the banks listed on the Egyptian Stock Exchange (EGX). Based on a sample of 9 listed banks on EGX during the period 2019-2020, the author found no significant effect of coronavirus pandemic on the liquidity of the banks listed on EGX. However, statistical results showed that coronavirus pandemic has a significant effect on the capital structure of the listed banks. Research results imply that the strategies set by the Central Bank of Egypt (CBE) and followed by the listed banks are highly effective in absorbing the negative impact of coronavirus pandemic on the banking industry. Based on these findings, the author recommends more research to be conducted to investigate the impact of coronavirus pandemic on other aspects related to the banking industry; such as profitability and market value.

Assessment of determinants to choice of informal credit sources by broiler farmers in Enugu state, Nigeria

One hundred and twenty livestock farmers selected using multi-stage random sampling techniques were used for the study. Structured questionnaire and oral interview were used to collect information for the study. Percentage responses and multinomial logistics regression analysis were used to capture the objectives. The results show that the major informal institutional loan sources by the respondents were Rotating Savings and Credit Associations (ROSCAs) and personal savings. Also, the determinant factors to choice of informal sources of credit access were age of the farmer, educational level, land holding, membership of organization, flock size and rearing status. There is need to enhance farmers’ access to credit facility, educational program and to encourage farmers to form or join cooperative society.

Impact of Agricultural Credit on Cereal Productivity: Case Study of District Sargodha, Punjab Pakistan

Agriculture is a major sector of Pakistan’s economy, as it contributes signifi-cantly to Pakistan’s economy by providing GDP, jobs, and export income. In recent decades, the financing needs of farmers have increased rapidly due to a restructuring of the agricultural sector. Credit is seen as an important factor in raising farmers’ production and profits. The current study seeks to examine the impact of credit on the productivity of cereal in the Sargodha District. In addi-tion, the study examines farmers’ objective to receive loans and major credit sources in the Sargodha district. This study is based on the primary data from the 8 villages in Sargodha—Punjab district, Pakistan collected in 2018. The area was divided into four zones, and from each zone, two villages were cho-sen. The same number of beneficiaries, i.e. ten each, from each village was selected. The sample size, therefore, referred to 160 farmers. The data were analyzed using the Cobb Douglas Production Function (CDPF). The results of the study show that credit has a positive effect on the productivity of wheat. Research has shown that only 30% of the credit users use loan to buy seeds and fertilizers and 70% use loan for other purposes, such as marriages and ceremonies and farmland and tractor buying, among others. Similarly, Zarai Tarqiati Bank Limited (ZTBL) loans 80 percent of credit customers. It is recommended that the financial institution expands the credit facilities exclu-sively for agricultural farmers. Credit restrictions should also be reduced plau-sibly so that smallholders can easily obtain loans.

Determinants of credit access of cocoa farmers

Access to credit is one of the critical areas that are of prime interest to development practitioners, agribusiness entrepreneurs and agricultural economists, mainly access to credit by farmers in order to increase their production and also reduce poverty. This study sought to analyze the determinants of credit access among cocoa farmers in the Asunafo North of the Ahafo Region of Ghana. The multistage sampling procedure was used to collect data from 100 cocoa farmers with the aid of a questionnaire. Sources of credit, factors influencing access to credit, and constraints to credit were analyzed with the aid of descriptive statistics, multiple linear regression, and Kendall’s coefficient of concordance respectively. The results of multiple linear regression revealed that, age, marital status, education, experience, and family size were significant factors that influenced access to credit. The constraints analysis with the aid of Kendall’s coefficient of concordance showed that, high interest rate was highly ranked with a mean score of 1.93 whilst the need for a guarantor was least ranked with a mean score of 7.40. Based on the results, the study recommended that a policy aimed at expanding formal and semi-formal financial institutions credit portfolio to embrace cocoa farmers by finding alternative to collaterals and also reducing the interest rate will improve credit access with a positive externality effect of poverty reduction among cocoa farmers in the study area.
 JEL Classification: Q14

Banks and Borrower Networks: To Lend or Not to Lend?

Banks remain the most important credit source globally despite large-scale financial development. However, banking continues to be plagued by rising costs and information asymmetry. In this context, we show how an additional borrower characteristic, specifically the borrower’s network strength, helps reduce costs by altering the bank’s lending decisions. The literature on borrower network remains largely empirical and borrower-based. We fill this void by being the first to theoretically model the lender’s decision making problem with network effect. We specifically examine how a bank sets the interest rate when networks work as a default risk-mitigating attribute. We find that the interest rate reduces as network strength increases. As constraints set in and borrowing becomes more competitive, banks rely even more on network information to parse out better borrowers. Finally, bank’s substitute monitoring effort with network strength for a more feasible interest rate. This will increase lending, even to borrower’s outside the banks’ purview earlier. Thus, the proposed model can help banks alter their subjective lending decisions to maximize lending and profits. More so, in a data driven world. This has large-scale economic benefits for all stakeholders - banks and other financial institutions, borrowing firms and the economy at large.