Farm Credit Research Articles

Factors influencing smallholder participation in commercial tree growing outgrower schemes: the case of Namwasa outgrower scheme in Uganda

Over the past 30 years, outgrower/contract farming has been promoted as an institutional innovation to boost agricultural and farm forestry in less developed countries. Understanding factors that make outgrower arrangements beneficial is crucial to realizing their full potential. This study examines a commercial tree-growing outgrower scheme in Uganda, assessing socioeconomic factors influencing farmers' participation and their motivations. Data collection utilized a mixed-method approach, including semi-structured interviews (n = 80), focus group discussions, and key informant interviews. Findings revealed that participation was significantly associated with the purpose for the trees (χ2 = 19.7875, p = 0.00005), membership in farmer-based organizations (χ2 = 76.05, p = 2.77E-18), and household size (χ2 = 14.12667, p = 0.000856). Key motivations were access to quality seedlings, rated very important by 95% of respondents, and farm credits, rated very important and important by 43.8% and 36.3% of farmers, respectively. Additionally, 96.3% and 95% considered training in agrochemical application and in planting, maintenance, and harvesting techniques, respectively, as very important. Most farmers (93%) preferred on-spot cash payment over payment in kind. 55% of farmers preferred donation with charge while 45% preferred purchasing inputs at a subsidized price. Most farmers (65%) favored a cost-sharing arrangement for harvesting costs, and 98% wanted the company to cover post-harvest expenses. This study highlights the need of considering farmers' socioeconomic characteristics and preferences for contractual arrangements when designing outgrower schemes, as well providing seedlings, financial support, and training to enhance participation.

The effects of financial development on crop productivity: ARDL evidence from Indian agriculture

Purpose This work aims to empirically investigate the effects of financial development on crop productivity of India. Design/methodology/approach Time series data such as crop production index, International Monetary Fund’s (IMF) financial development index, gross domestic product (GDP) per capita, arable land, rural population, trade openness and physical capital from 1980 to 2020 was used. The autoregressive distributed lag (ARDL) bounds testing approach of cointegration was used to determine the long-run equilibrium relationship between the selected time series. Also, ARDL long- and short-run coefficients were estimated to examine the effects of selected variables on crop productivity. Furthermore, to establish the robustness of results, long-run estimators such as fully modified least squares and the dynamic least squares were also used. Finally, using the vector error-correction model, causality between the selected time series was examined. Findings The ARDL cointegration test confirmed the existence of long-run equilibrium relationship among agricultural productivity, financial development, capital formation, GDP per capita, arable land, rural population and trade openness. The estimated long-run elasticities from all the three techniques and the short-run elasticities of ARDL have consistently suggested that the elasticity of financial development is higher (1.55% and 1.40%, respectively) in explaining the crop productivity of India. The short-run causality estimates indicated the presence of positive bidirectional causality between crop productivity and financial development and seven positive unidirectional causal relationships between the selected variables. Practical implications Agricultural credit being an important non-land input and essential for overall growth and sustenance of agricultural sector, the policymakers should ensure the overall development of its financial sector which will reduce the intermediation, informational and other transactional costs associated with agricultural credit. This will possibly result in timely availability and access to adequate and low-cost credit from institutional sources. Originality/value Though extensive research is available on the effects of financial development on economic growth, limited research is available concerning the impact of financial development on crop productivity, especially for an emerging economy like India. For India, predominantly studies have investigated the impact of farm credit on crop productivity but have not exclusively examined the effects of financial development on agricultural productivity. Therefore, this study not only adds to the empirical literature but also provides new evidence on the nexus between financial development and crop productivity by examining the effects of financial development on crop productivity using the composite financial development index developed by the IMF using the ARDL bounds test for cointegration and other econometric estimators.

Determinants of net value added to produced and processed paddy rice in South East, Nigeria

The study principally examined the determinants of net value added to produced and processed paddy rice in South east Nigeria It specifically, identified the socio-economic characteristics of the respondents, analyzed the determinants of net value added to produced and processed paddy rice as well as ascertained the constraints to processed and produced paddy rice. Multi-stage sampling technique involving purposive and random sampling methods was used to select 240 respondents. Primary data were collected on rain-fed production season using structured questionnaires administered to the respondents by personal interview. Descriptive statistics,, multiple regression and principal component analysis were used to analyze the data. Results obtained showed that gender distribution of the respondents was 63%males and 38% females. More respondents are between the ages of 41-50 and31-40 respectively and house hold size of 4-6 .Farming experience showed that 136 respondents representing 57% had engaged in the business between 11-20yrs.The results also showed that 67% of the respondents accessed farm credit while 25% did not.66% of the respondents belonged to farmers association while 75% were not visited by extension agents. Variables (age, gender, years in school, household size, years of experience, training/extension visits, costs incurred, value addition technique and market price) significantly influenced the net value added while marital status, membership of cooperative, and access to credit did not. Constraints to paddy producers and processors were accessibility to farm machine, poor infrastructure and scarcity/high cost of labor, low access to credit/grant; low proactive measures to flood and drought control; insufficient knowledge of agro-chemicals, and late provision of essential training and services; and processors: use of outdated rice milling machines, high cost of modern rice processing machines, low access to modern rice processing machineries and low acceptability of local rice. Recommendations include; establishment of farm machinery hiring centers for producers and supply of modern rice milling machines to rice processing clusters, development of dams and irrigable lands, training and re-training on access to fund, utilization of biodegradable wastes from paddy rice, proactive measures of flood and drainage control, adequate use of agro-chemicals, use of modem techniques, and involvement of National Agency for Food and Drug Administration and Control in quality control. Keywords: Agriculture, Paddy Rice, Value Addition, Nigeria.

Farm Credit East's AgEnhancement Grants

Farm Credit East's AgEnhancement Grants

Does cooperative membership facilitate access to credit for women farmers in rural Kenya?

Potential borrowers' demand for credit is restrained by agricultural risk, while microfinance institutions favor male over female farmers because the latter have no collateral. We investigate whether women's membership in cooperatives facilitates access to credit. Primary data from Kenya were used. Descriptive statistics, propensity score matching, and probit regression methods were applied. The results show that 78 % of the respondents did not apply for credit mostly because of high interest rates and being risk-averse; while 60 % of those denied credit were due to lack of collateral. The estimates indicate that joining cooperatives increases the probability of female farmers' access to credit; transparency in cooperatives' financial activities increases the probability of accessing credit by 72 %. Given the core role of cooperatives, there is a need for a favorable environment in which cooperatives can form, develop, and thrive. Cooperatives need support from the government and development agencies to buffer their financial and management capacities and skills training. Subsequently bolstering women farmers' participation in cooperatives.

The responsiveness of rural poverty to structural and rural transformations in Ethiopia

AbstractThis study investigates the effects of economic opportunities created by structural transformation, such as income from labor employment and income from nonlabor sources, on the incidence, depth, and severity of rural poverty using the 2018/2019 Ethiopian Socioeconomic Survey data. The effects of rural transformations in terms of nonfarm self‐employment and improved farming systems on poverty are also investigated. Ordinary least square, Probit, Instrumental Variable Probit model, and two stage least square estimation methods are used depending on the nature of outcome variables and the Wald test of exogeneity. The findings show that labor income (especially regular salaried income) and nonlabor income (especially remittance from international sources) are crucial in reducing the incidence of rural poverty. Improvements in crop and livestock practices, on the other hand, reduce the incidence as well as depth and severity of rural poverty. The findings suggest that more attention should be given to enhancing the modernization of crop and livestock sectors by expanding access to farm credit and improved extension systems, among other things.

Self-selection out of formal credit markets: evidence from rural Vietnam

PurposeThis paper examines why farmers self-select out of formal credit markets even though they need external funds.Design/methodology/approachWe use probit and Bayesian probit estimators to detect the determinants of self-selection behavior based on a primary dataset of 2,212 rice farmers in Vietnam. After that, we use the multinomial probit (MNP) and Bayesian MNP estimators to reveal the impact of relevant factors on the decision to self-select for farmers belonging to each self-selection category.FindingsThe probit and Bayesian probit estimators show that the decision to self-select depends on household head age, income per capita, farm size, whether or not to have relatives or friends working for banks, the number of previous borrowings, risks related to natural disasters, diseases, and rice price, and the number of banks with which the farmer has relationships. The MNP and Bayesian MNP estimators give further insights into the decision of farmers to self-select in that determinants of the self-selection behavior depend on the reasons to self-select. In concrete, farm size and the number of previous borrowings mitigate the self-selection of farmers who did not apply for loans due to having access to other preferred sources of credit. The self-selection of farmers not applying for loans because of unfavorable loan terms is conditional on household head age, farming experience, income, farm size, the number of previous borrowings, natural disaster risk, and the number of banks the farmer has relationships with. Several factors, including education, income, the distance to the nearest bank, whether or not having relatives or friends working for banks, the number of previous borrowings, risks, and the number of banks the farmer has relationships with, affect the self-selection of farmers not applying for loans because of high borrowing costs. The self-selection of farmers not applying for loans because of complex application procedures depends on income and the number of previous borrowings. Finally, the household head’s age, gender, experience, income, farm size, the amount of trade credit granted, the number of previous borrowings, natural disaster risk, and the number of banks the farmer has relationships with are the determinants of the self-selection of farmers not applying for loans because of a fear not being able to repay.Practical implicationsThis paper fills the knowledge gap by investigating why farmers self-select out of formal credit markets. It provides evidence of how the farmers’ subjective perceptions of rural credit markets contribute to their self-selection.Originality/valueThis paper shows that demand-side constraints are also vital for farmers’ access to bank credit. Improving credit access via easing supply-side constraints may not increase credit uptake without addressing demand-side factors. Given that finding, it recommends policies to improve access to bank credit for farmers regarding the demand side.

Interest subvention for crop loans in India: Win-win or win-lose ?

Interest subsidies on crop loans are a common feature of rural credit markets in developing countries. The objective behind giving interest subsidies is two-fold – increasing access to credit and improving loan repayment rates, and is therefore regarded as a win-win for the borrower and the lender. This study focusses on a policy intervention that provides interest subsidy for crop loans availed under the Kisan Credit Card (KCC) scheme - India's flagship program to provide short-term agricultural credit for farmers. Using a unique dataset from a large public sector bank in India, we evaluate the causal impact of this intervention on both credit access and loan repayment behavior. We also capture the heterogeneous impact of the policy on new and existing borrowers. The results of econometric analysis - a combination of matching and difference-in-difference techniques - show a substantial increase (35%) in new loans, in addition to 20% decrease in the overall loan amount, indicating increased breadth and depth of access. However, contrary to standard economic theories, we observe a reduction in odds of repayment. Further, we find that the interest rate subsidy worsens the repayment rates of existing borrowers too. Our findings underscore the importance of various operational and behavioral aspects of the agricultural lending ecosystem to design win-win credit policies.

The role of bank and startup fintech P2P lending in supporting financial credit for Indonesian farmers

One of the challenges faced by farmers is securing capital for the development of their agricultural businesses. Banks and peer-to-peer (P2P) lending fintech startups employ various business models to assist farmers in obtaining the necessary capital. This study investigates the credit financing schemes available to farmers through banks and P2P lending fintech startups. The research, which utilized a qualitative approach, involved collecting both primary and secondary data. Primary data were gathered through comprehensive interviews with two academic experts in the agricultural business sector and five leaders of agri-tech startup companies. Secondary data included: (1) annual financial reports from BRI, Mandiri, and BNI; (2) statistical reports on P2P lending providers from the Financial Services Authority (OJK); and (3) models of financing schemes for farmers derived from a range of empirical sources. A descriptive analysis was subsequently conducted to explore the various financing schemes available to farmers through banks and P2P lending fintech startups, as well as to assess the performance of these financing programs via data on the rate of non-performing loans (NPLs). The findings indicate that the financing schemes implemented by banks predominantly focus on economic factors to facilitate loan repayment. In contrast, P2P lending fintech startup schemes emphasize both economic and social aspects, including enhancing farmers' knowledge in implementing Good Agricultural Practices (GAP) and improving financial literacy, aiming to ensure smooth loan repayments. Furthermore, the study observed an increase in the value of Non-Performing Loans (NPL) among both banks and P2P lending fintech startups during the Covid-19 pandemic.

Farmers’ cooperatives and smallholder farmers’ access to credit: Evidence from China

Farmers’ cooperatives serve as effective means of transforming smallholder farmers’ production methods in the process of agricultural modernization in developing countries. This paper aims to examine the credit effects of farmers’ cooperatives by employing a framework based on institutional finance theory. Based on the 2021 China Household Finance Survey data, an endogenous switching probit model is employed to explore the impact of cooperative membership on smallholder farmers’ access to credit. The research findings indicate the following: i) Farmers’ cooperatives possess information advantages, as financial institutions gain access to smallholder farmers’ information through the organized value chains of farmers’ cooperatives, leading to a direct reduction in transaction costs and an improvement in access to credit. ii) Farmers’ cooperatives can promote smallholder farmers’ agricultural investments, increase household income for smallholder farmers, enhance the liquidity of farmland, and further improve access to credit for smallholder farmers. Therefore, farmers’ cooperatives represent an inevitable trend in the agricultural modernization of developing countries. Rural financial institutions should alter their financial models and resolve adverse selection and moral hazard issues in the credit process through organizational approaches, thereby enhancing access to credit for smallholder farmers.

Agriculture models for restoring degraded land to enhance CO2 biosequestration and carbon credits in the Vindhyan region of India

The study's objective was to evaluate the status of converted degraded land into productive agricultural models by improving the physicochemical properties of the soil, soil organic matter (SOM), soil organic carbon (SOC) fractions (active and passive), and microbial biomass carbon (MBC), while also generating carbon (C) credit for additional farmers' income. Six models were analyzed, namely: (1) Arjun forest-based agroecosystems (AFBAE); (2) Lemon grass-based agroecosystems (LGBAE); (3) Legume-cereal-moong-based agroecosystems (LCMBAE); (4) Bael-black mustard-based agroecosystems (BMBAE); (5) Guava-wheat-based agroecosystems (GWBAE), and (6) Custard apple -lentil -based agroecosystems (CALBAE). These models were replicated three times in a randomized block design (RBD). Soil samples were collected from the study area at two depths (0–0.30 and 0.30–0.60 m). At a 0–0.30 m depth, the highest bulk density (ρb) of 1.50 Mg m−3 was observed in LCMBAE, while the lowest ρb of 1.43 Mg m−3 was recorded in BMBAE. The soil organic carbon (SOC) and SOC stock values exhibited a range of 4.2–7.7 g kg−1 and 19.0–33.4 Mg ha−1, respectively. In the AFBAE, the highest levels of 163.1 % MBC were found over LCMBAE. At a 0–0.30 m depth, the recalcitrant index (RI) and lability index (LI) ranged from 0.35–0.46 to 1.97–2.11, respectively. Additionally, the AFBAE exhibited the highest total biomass accumulation (39.23 Mg ha−1), carbon dioxide (CO2) biosequestration (287.9 Mg ha−1), and the total social cost of CO2 at US$ 277 ha−1. Furthermore, in the AFBAE, there was a 198.1 % increase in total C credit (US$ 161 ha−1) compared to LCMBAE (US$ 54 ha−1). However, at 0.30–0.60 m depths, GWBAE and CALBAE were statistically equivalent (p ≤ 0.05) in total C stocks. Principal component analysis (PCA) reveals that component-1 accounts for 77.4 % of the variability, while component-2 contributes 18.6 %. This article aimed to convert the degraded land into a sustainable agricultural module by increasing SOC and CO2 biosequestration and producing more C-credit, or climate currency, on underutilized land.

Differential taxation in agricultural credit market

AbstractThis study examines whether the market competitiveness of farm loan suppliers is affected by the US tax policy for the farm credit system (FCS) and its potential spillover on the farmers' cost of borrowing. We exploit the variation in the corporate income tax rate to estimate its relationship with the farm debt share of the FCS and the potential spillover effect on the estimated cost of borrowing for agricultural loans. Results suggest that a 10% rise in the state (federal) tax rate is associated with an increase in FCS's total farm debt market share by 1.76% (3.76%). A 10% rise in the FCS total farm debt market share tends to increase the cost of borrowing on agricultural loans by 0.06%. Overall, the findings imply that favorable tax treatment could increase FCS' competitiveness in the agricultural lending market. Also, an increase in the interest rate on farm debt is correlated with the increasing market share of FCS in the agricultural credit market. [EconLit Citations: Q14, N22, H2, H7, G21].

Do “banking deserts” even exist? Examining access to brick-and-mortar financial institutions in the continental United States

This study compares competing definitions of “banking deserts” and their applicability in characterizing access to physical financial institutions such as banks, credit unions, or farm credit lenders. Geostatistical techniques are used to locate and spatially analyze financial institutions in census tracts across the lower 48 United States. Logistic regression is used to identify the demographic, economic, and geographic determinants of access to financial institutions. Mapping results indicate that a significant majority of the U.S. population resides near at least one financial institution, challenging the suitability of the “desert” metaphor. Regression models instead measure the extent to which brick-and-mortar financial institutions serve a given area, finding that poverty, lower educational attainment, and lower population density, were consistently associated with being underserved by financial institutions.

Credit rating, repayment willingness and farmer credit default

This study, grounded in survey data collected from farmers in three northeastern provinces of China-specifically Heilongjiang, Jilin, and Liaoning in 2019-investigates the relationships among credit ratings, repayment willingness, and credit default among farmers. To address the dual sample selection issue stemming from both credit demand and credit accessibility, a three-stage Prohibit model is employed. The research empirically examines the impact of both traditional credit ratings and digital credit ratings on farmer credit default while delving into the interplay between the two. Furthermore, a mediation effect model is utilized to explore how credit ratings influence credit default through their effect on farmers' willingness to repay. The main findings as follows: Firstly, both traditional and digital credit ratings serve to deter farmers' credit defaults. Specifically, as a farmer attains a high-credit status in the traditional sense or achieves a higher digital credit score, the likelihood of credit default diminishes. Secondly, the inhibitory impact of both traditional and digital credit ratings on farmers' credit defaults is mutually reinforcing and complementary. Lastly, the mechanistic analysis reveals that both traditional and digital credit ratings effectively mitigate credit defaults by enhancing farmers' repayment willingness. In this regard, traditional credit ratings operate through the reputation and punishment mechanisms, while the supervision mechanism is not implicated. On the other hand, digital credit ratings operate through the reputation, punishment, and supervision mechanisms. Consequently, a comprehensive approach to reducing rural financial risks involves bolstering the cultivation of a robust reputation atmosphere and credit system within rural financial markets, along with the systematic enhancement of the efficacy of credit rating supervision mechanisms.

Optimizing Agricultural Growth: Targeted Farm Credit Allocation Strategies for Sustainable Crop Yields in Pakistan

Optimizing Agricultural Growth: Targeted Farm Credit Allocation Strategies for Sustainable Crop Yields in Pakistan

PERAN KREDIT DAN MODAL SENDIRI TERHADAP PENDAPATAN PETANI PADI DI KECAMATAN SUKAWATI KABUPATEN GIANYAR

The agricultural sector in Bali likewise assumes a vital part in the development and economy of the Balinese people. Agriculture is expected to be able to create a source of income, a means for entrepreneurship, and has the potential to better the population's standard of living. At present there is a lack of distribution or access to capital which causes the scale of ownership of agricultural business actors to be small so that they cannot make efficiency in production and even have no effect on income. The motivation behind this study was to examine the job of credit and value in the pay of rice farmers in Sukawati sub-district, Gianyar regency. This examination is a sort of quantitative exploration using primary data. Techniques for information assortment utilizing interviews and questionnaires. The analytical tools used to process the data are different test techniques (paired sample test) and multiple linear regression. In light of the consequences of the examination and information examination, that's what it shows credit (X1) and equity (X2) play a positive role in the income of rice farmers. Credit for rice farmers will increase the value in the pay of rice farmers

Agricultural Land Pawn as a Social Institution in Wono Agung Village, Tulang Bawang Regency

This research focuses on agricultural land pawning, distinguishing between non-agricultural and agricultural land pawning agreements. Regulations governing agricultural land pawning, such as Government Regulation in Lieu of Law No. 56/1960, aim to protect the interests of farmers, Social institutions can act as institutions that facilitate the process of providing loans with land collateral. The increase in agricultural land pawning has created several problems. There is a disproportion between the pawn holder and the landowner. The legal weakness in the pawn agreement is that it is often done orally without a written agreement. The agricultural pawn practice acts as a social institution, providing a source of informal credit for farmers who find it difficult to access formal financial institutions.

The Influence Of Climate And Weather On The Arabica And RobustaCoffee Development And Production In The Ermera District Of Timor-Leste

Referring to the research entitled the effect of climate change and weather of the development and production of arabica and robusta coffee in Ermera district, Timor Leste. Arabica coffeeis one of the prima donna commodities that play an important and strategic role in securing the economy for nearly two and seventy thousand farmer houses in Timor-Leste. The potential for Arabica coffee exports in Timor Leste is ranked thirty-ninth with a fairly highexport quality because of the taste that is favored by coffee drinkers in the world around 157 million people, but the trend of increasing national coffee production is only 1-2% per year. On the other hand, the effects of climate change and weather also threaten the achievement of the target of increasing production. This research is a review of the effect of climate change and weather on coffee production and adaptation strategies in Timor Leste. The main coffee producing areas, such as the Regencies of Ainaro, Aileu, Bobonaro, Ermera, Liquisa and Manufahi, are vulnerable to the effects of climate change and weather. Increased extreme climateevents such as drought due to El Nio resulted in a 10-15% decline in coffee production. On the other hand, the long rainy season due to La Nia reduces coffee production by 80-90%. The indirect effect of climate and weather changes is the increase in attacks of fruit borer, coffee powder and leaf rust disease (Hemelia vastatrix) which causes a decrease in production of around 40-50%. As a result of rising temperatures, coffee production centers are projected to move to areas with higher elevations. Various adaptation technologies have been produced, but the level of adaptation of coffee farmers is generally still low. This condition is exacerbated by the limited access of most farmers to climate information, markets, technology, farm credit, and information on climate risk management. To overcome these problems, policy makers, stakeholders, and farmers must accelerate adaptation efforts because climate change has occurred and will continueto take place.

Credit instruments to alleviate global food insecurity: focus on crop receipts

Abstract Global institutions have been looking for tools to alleviate food insecurity for years. COVID-19 and the conflict in Ukraine have exacerbated the situation, necessitating the mobilization of additional financial resources. This article focuses on financing instruments that can alleviate food insecurity by promoting financing in the pre-harvest phase, particularly crop receipts. Crop receipts recently attracted attention from international financial institutions, responding to inquiries from domestic policymakers about tools to increase access to credit for farmers. Crop receipts legislation has been enacted in Brazil, Ukraine, and Serbia, and several States are considering the enactment of such legislation. This article analyses the interaction of crop receipts with secured transactions and warehouse receipts legislation as well as regulatory frameworks applicable to banking, commodity exchanges, and capital markets. Guidance for those States contemplating enactment of crop receipts legislation is necessary to produce coherent secured transactions and warehouse receipts regimes and to forestall any approaches that might thwart their modernization along the lines of existing and emerging international standards. This article sheds light on the aspects of crop receipts finance for which guidance should be provided. It proposes that such guidance be included in the Agricultural Legal Financing Guide, which has been approved by the Governing Council of the International Institute for Unification of Private Law for the 2023–5 Work Programme.

E-Commerce and Preferential Credit to Enable Farmers’ Cooperative Financing

ABSTRACT Agricultural cooperatives are pivotal in promoting agricultural industrialization but face capital shortages, needing strategic financing selection between bank loans and e-commerce. This paper uses Stackelberg game theory to examine cooperatives’ and enterprises’ optimal decision-making and motivations under different financing. It scrutinizes preferences for financing methods and explores bank credit policies and e-commerce interest rates in channel selection. Findings suggest that developing favorable policies, like encouraging green credit and e-commerce support for farmers, could significantly improve cooperatives’ financing. Expanding digital initiatives in supply chains could also enable more sustainable models. This research illuminates cooperatives’ complex decision-making and offers insights to bolster agricultural finance systems.