How flexible repayment schedules affect credit risk in agricultural microfinance

Using a unique dataset of 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. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. We develop a theoretical framework and apply and estimate an econometric model for the loan repayment behavior of agricultural micro-borrowers with seasonal and non-seasonal production types. Our results reveal that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, we find that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category.


Issue Date:
2014-04
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/187434
PURL Identifier:
http://purl.umn.edu/187434
Total Pages:
35




 Record created 2017-04-01, last modified 2019-08-30

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