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Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider

Author

Listed:
  • Johannes I. F. Henning

    (Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa)

  • Dominique A. Bougard

    (Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa)

  • Henry Jordaan

    (Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa)

  • Nicolette Matthews

    (Department Agricultural Economics, University of the Free State, 205 Nelson Mandela Ave, Bloemfontein 9301, South Africa)

Abstract
The purpose of the paper is to determine the influence of different factors used by a formal credit institution to evaluate loan applications in the agricultural sector. The research attempts to capture the actual factors considered by credit institutions rather than the traditional factors found in literature. Loan applications from 128 farmers, predominantly commercial farmers, were obtained from a credit institution with branches situated in various provinces of South Africa. Data consisted of loan application information which is broader than the financial information normally obtained in credit research, and the final decision of the credit provider. Principal component logistic regression was used to investigate the likeliness with which loan application variables influence the outcome of the loan application. Results indicate that loan applications that are more likely to be successful are older more experienced farmers, who can provide sufficient collateral, have more years of business with the credit provider, have an acceptable credit history, request smaller loan amounts, have lower interest expense ratio, higher production cost ratios, and have diversification strategies. This paper contributes to knowledge on information used by financial credit providers (institutions) in classifying agricultural loan applications as successful as guided by actual factors used in credit decision making by the credit provider.

Suggested Citation

  • Johannes I. F. Henning & Dominique A. Bougard & Henry Jordaan & Nicolette Matthews, 2019. "Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider," Agriculture, MDPI, vol. 9(11), pages 1-15, November.
    • Handle: RePEc:gam:jagris:v:9:y:2019:i:11:p:243-:d:286645
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    References listed on IDEAS

    as
    1. Johannes I. F. Henning & Henry Jordaan, 2016. "Determinants of Financial Sustainability for Farm Credit Applications—A Delphi Study," Sustainability, MDPI, vol. 8(1), pages 1-15, January.
    2. Davidsson, Per & Honig, Benson, 2003. "The role of social and human capital among nascent entrepreneurs," Journal of Business Venturing, Elsevier, vol. 18(3), pages 301-331, May.
    3. Abiodun A. Ogundeji & Emmanuel Donkor & Charmaine Motsoari & Stephen Onakuse, 2018. "Impact of access to credit on farm income: policy implications for rural agricultural development in Lesotho," Agrekon, Taylor & Francis Journals, vol. 57(2), pages 152-166, April.
    4. Ani L. Katchova & Peter J. Barry, 2005. "Credit Risk Models and Agricultural Lending," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 194-205.
    5. Charmaine Motsoari & Philippus C Cloete & Herman D van Schalkwyk, 2015. "An analysis of factors affecting access to credit in Lesotho's smallholder agricultural sector," Development Southern Africa, Taylor & Francis Journals, vol. 32(5), pages 592-602, September.
    6. Kumar, Anjani & Singh, K.M. & Sinha, Shradhajali, 2010. "Institutional Credit to Agriculture Sector in India: Status, Performance and Determinants," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 23(2), July.
    7. Dadson Awunyo-Vitor & Ramatu Mahama Al-Hassan & Daniel Bruce Sarpong & Irene Egyir, 2014. "Agricultural credit rationing in Ghana: what do formal lenders look for?," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 74(3), pages 364-378, August.
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    Cited by:

    1. Punlork Men & Lyda Hok & Panchit Seeniang & B. Jan Middendorf & Rapee Dokmaithes, 2024. "Identifying Credit Accessibility Mechanisms for Conservation Agriculture Farmers in Cambodia," Agriculture, MDPI, vol. 14(6), pages 1-26, June.

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