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Description:
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This study investigates the case of a Zambian institution providing credit for smallholder agribusiness commercialization and compares this lender’s model with the major microfinance institutions , to identify specific mechanisms employed by the lender and how these have been adapted to suit seasonal agricultural production credit requirements . Econometric models are developed to examine the influence of key economic factors such as nominal and real interest rates , loan fees , and loan term on the supply of credit by the lender . Other important factors considered relevant in the lender’s market include availability of contract markets for financed production and the type of borrower (cooperative or investor -owned agribusinesses ) .
The study uses loan -level and firm -level loan data aggregated from an electronic loan database of individual loan files kept by the lender . Cross sectional data over three years (2005 – 2007 ) are used in the study .
The study finds that loan fees , loan term and availability of contract markets to borrowers are the key determinants of credit supply . In addition , the study finds that interest rates do not significantly influence the lender’s credit supply decisions , a finding that is consistent with literature on credit rationing in markets with asymmetric information . The study finds no evidence of economies of scale benefit to the lender being passed along to borrowers through lower loan fees .
The study contributes to the literature and development needs of agricultural lenders and smallholder agribusinesses in Zambia through the analysis of different factors that influence the lender’s credit supply decisions . |