Abstract:One third of AccessBank's micro-business loans are extended to farmers. The portfolio of this segment has grown quickly and performed well. Why is Access-Bank Azerbaijan successful in agricultural lending, a sector often disliked by other commercial banks? And why is the bank viewing farmers as a strategic core clientele? This case study aims to give some answers and explore some of the myths around agricultural lending. 1 Greenfield Small Business Bank in a Transitional Economy AccessBank was founded in 2002 … Show more
“…Accordingly, MFIs may consider lending relationships with farmers as easier and more sustainable and could therefore apply a more targeted progressive lending for farmers. Mostly, studies that have addressed the issue of farmers' general financial access, report that farmers face higher financial obstacles than non‐farmers (Petrick, ; Weber and Musshoff, ; Zeller et al., ) owing to the higher risk perception reasoned by cyclical or irregular cash flows, relatively high capital intensity, weather and price risk, as well as the threat of diseases (Binswanger and Rosenzweig, ; Jainzik and Pospielovsky, ). Combining the above findings, the first hypothesis is formulated as follows:H1: Initially, farmers face a higher degree of loan volume rationing than non‐farmers, but benefit more from repeated interaction in terms of a decrease in rationing .…”
Section: Previous Empirical Findings and Hypothesesmentioning
confidence: 99%
“…Two types of loans are included under micro-lending: The standard micro-loan and, since 2007, the socalled agro-loan, which is exclusively available to borrowers who operate in agriculture-affiliated business. In fact, according to the bank's assertions, the pricing and conditions of the loans do not differ in order to avoid strategic manipulations of loan applications (Jainzik and Pospielovsky, 2014). For both loan types, the bank promises ever-improving credit conditions for long-term cooperation with the bank.…”
Section: Dataset Of the Accessbank Azerbaijanmentioning
confidence: 99%
“…The value of collateral is then fixed in long-term agreements from 5 to 10 years. This way, associated costs are incurred only once (Jainzik and Pospielovsky, 2014).…”
Section: Dataset Of the Accessbank Azerbaijanmentioning
Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower's identification with his micro‐lender. This article focuses on progressive lending over the course of the bank–borrower relationship. As the agricultural sector is increasingly important for Azerbaijan's economy, this study differentiates between the lending policies faced by farmers and non‐farmers, and matches the findings with the repayment performances of both client groups. By means of a rich data set spanning from 2007 through 2012 provided by an MFI in Azerbaijan, it can be demonstrated that farmers face a higher degree of loan volume rationing that cannot be justified by our findings on repayment performances. Moreover, we find that repeated borrowing increases the default probabilities of both client groups. In conclusion, we deduce that the MFI and borrowers could benefit from reconsidering the current lending policies.
“…Accordingly, MFIs may consider lending relationships with farmers as easier and more sustainable and could therefore apply a more targeted progressive lending for farmers. Mostly, studies that have addressed the issue of farmers' general financial access, report that farmers face higher financial obstacles than non‐farmers (Petrick, ; Weber and Musshoff, ; Zeller et al., ) owing to the higher risk perception reasoned by cyclical or irregular cash flows, relatively high capital intensity, weather and price risk, as well as the threat of diseases (Binswanger and Rosenzweig, ; Jainzik and Pospielovsky, ). Combining the above findings, the first hypothesis is formulated as follows:H1: Initially, farmers face a higher degree of loan volume rationing than non‐farmers, but benefit more from repeated interaction in terms of a decrease in rationing .…”
Section: Previous Empirical Findings and Hypothesesmentioning
confidence: 99%
“…Two types of loans are included under micro-lending: The standard micro-loan and, since 2007, the socalled agro-loan, which is exclusively available to borrowers who operate in agriculture-affiliated business. In fact, according to the bank's assertions, the pricing and conditions of the loans do not differ in order to avoid strategic manipulations of loan applications (Jainzik and Pospielovsky, 2014). For both loan types, the bank promises ever-improving credit conditions for long-term cooperation with the bank.…”
Section: Dataset Of the Accessbank Azerbaijanmentioning
confidence: 99%
“…The value of collateral is then fixed in long-term agreements from 5 to 10 years. This way, associated costs are incurred only once (Jainzik and Pospielovsky, 2014).…”
Section: Dataset Of the Accessbank Azerbaijanmentioning
Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower's identification with his micro‐lender. This article focuses on progressive lending over the course of the bank–borrower relationship. As the agricultural sector is increasingly important for Azerbaijan's economy, this study differentiates between the lending policies faced by farmers and non‐farmers, and matches the findings with the repayment performances of both client groups. By means of a rich data set spanning from 2007 through 2012 provided by an MFI in Azerbaijan, it can be demonstrated that farmers face a higher degree of loan volume rationing that cannot be justified by our findings on repayment performances. Moreover, we find that repeated borrowing increases the default probabilities of both client groups. In conclusion, we deduce that the MFI and borrowers could benefit from reconsidering the current lending policies.
“…Another example of a commercially oriented microfinance bank having entered the rural and agricultural client segment successfully is AccessBank in Azerbaijan. See the contribution of Jainzik and Pospielovsky (2013). Meyer (2013) also refers to a number of examples.…”
Section: The (Potential) Contribution Of the Financial Sectormentioning
Investments in agriculture, particularly in smallholder agriculture in developing countries, are regarded as critical for meeting the food demands of a growing world population. 3 Improvements in agricultural finance, mainly in providing investment credit to farmers, are widely regarded as an important approach to stimulate production. 4 While this is certainly true, it is only part of the story. Agriculture-related physical and market infrastructure have been widely neglected in the discussion despite their immense relevance for making food available in developing countries-and as a precondition for farmers to produce at all. In this chapter, we describe the investment and financing needs of every step in the food production and distribution chain: from farm to fork, from pasture to plate, or from barnyard to belly. Take your pick. 1 Commercialisation of Farming as an Opportunity The global economic framework for agricultural production has changed significantly in recent years. Most importantly, after decades of stagnating commodity prices, prices for agricultural produce, processed as well as non-processed, have significantly increased and are expected to increase further. Population growth and increased demand for high-value food products-particularly in the big emerging markets-are the underlying factors that indicate a continuing challenge. 5 This
“…Regarding the application of lending policies, several studies show that microfinance institutions (MFI) differentiate between their client groups. For instance, farming clients often face higher obstacles in terms of financial access than non-farmers since farming activities are exposed to higher external risk, which lenders often associate with lower repayment performance ( Jainzik and Pospielovsky, 2014;Petrick, 2004;Simtowe et al, 2008;Weber and Musshoff, 2012;Zeller et al, 1998). Nevertheless, findings of Raghunathan et al (2011), Vogel (1981), and Weber and Musshoff (2012) refute the higher risk perception of farming clients, indicating a contradiction between lending policies to farmers and their repayment behaviour.…”
Purpose
In order to improve the assessment of current lending policies for a microfinance institution (MFI) in Azerbaijan, the purpose of this paper is to analyse how lending conditions are adjusted based on knowledge gains during the loan relationship, with particular attention to delays in previous loans. Moreover, the paper examines what a lender can pre-determine from its own collected repayment records of clients. In addition, the repayment performances and lending policies between agricultural and non-agricultural clients are differentiated.
Design/methodology/approach
The analyses are based on a rich data set of an Azerbaijani MFI. For determining the influence of previous delays on the volume rationing in the following loan, the authors apply a generalized linear model. Subsequently, the probability of recidivism is analysed by means of a logit model.
Findings
The results confirm a positive relationship between delays in previous loans and repayment problems in present loans, which is increased by the severity of the previous delay. With respect to consequences, it is shown that the borrower with previous delays faces an increase in loan volume rationing in the subsequent loan. Moreover, the authors find that the consequences of previous delays do not differ significantly between farmers and other clients.
Originality/value
Until now, the consequences of repayment delinquencies in microfinance lending relationships have hardly been investigated. This study enhances the understanding of lending policies in microfinance by focussing on relationship aspects and by simultaneously differentiating between farming and non-farming clients.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
