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Abstract

Small-scale farmers in developing countries are undersupplied with capital. Although microfinance institutions have become well established in developing countries, they have not significantly ex-tended their services to farmers. It is generally believed that this is partly due to the riskiness of lending to farmers. This paper combines original data from a Madagascan microfinance institution with weather data to estimate the effect of rainfall on the repayment performance of loans granted to farmers. Results estimated by linear probability models and a sequential logit model show that excessive rain in the harvest period increases the credit risk of loans granted to farmers

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