Microfinance investment vehicles and rural sector funding

Rural areas are the most affected by financial exclusion. Some microfinance institutions were created to support rural development. Unfortunately, until now, the methodologies used do not allow to change the modest and poor... [ view full abstract ]

Rural areas are the most affected by financial exclusion. Some microfinance institutions were created to support rural development. Unfortunately, until now, the methodologies used do not allow to change the modest and poor farmers’ situation. We have thus to think about new ways of funding them, f.i. the financial support of small agricultural units through a MIV. The aim of this work is to study the influence of a microfinance investment vehicle (MIV) on the agricultural production groups in which it invests.

Our study is based on econometrical regressions and on a satisfaction survey. For this research, we built a database of 60 agricultural production groups and we conducted both OLS and GLS regressions. We also conducted a satisfaction survey to support our quantitative results.

The results show that the amount invested proportionally to the agricultural production groups total assets positively influences both social (measured by the number of smallholder farmers with less than five hectares and the number of women inside the cooperative) and financial performances (measured by the cooperatives’ return on assets and the working capital turnover). Moreover, the number of transactions has a positive influence on social performances but not on financial ones.

This study therefore shows that MIV could be a good alternative to finance the rural sector when aiming specifically at it.

Bibliography:

Altman, M. (2015). Cooperative organizations as an engine of equitable rural economic development. Journal of Cooperative Organization and Management, 3 (1), 14-23.

Amha, W., & Peck, D. (2010). Agricultural finance potential in Ethiopia: Constraints and opportunities for enhancing the system. Addis Ababa: Association of Ethiopian Microfinance Institutions.

Anderson, J., & Learch, C. (2016, March). National Survey and Segmentation of Smallholder Households in Mozambique. Understanding their demand for financial, agircultural and digital solutions.

Bastiaensen, J., & Marchetti, P. (2011). Rural microfinance and agricultural value chains: Strategies and perspectives of the fondo de desarrollo local in nicaragua. In M. B. Armendariz, The Handbook of microfinance.

Castellani, D., & Cincinelli, P. (2014). Dealing with Drought-Related Credit and Liquidity Risks in MFIs: Evidence from Africa. Working Paper .

De Schrevel, J. P., Labie, M., & Urgeghe , L. (2009). BlueOrchard Finance: Connecting Microfinance to capital markets–Sequel.

Dehem , T., & Hudon, M. (2013). Microfinance from the Clients’ Perspective: An Empirical Enquiry into Transaction Costs in Urban and Rural India. Oxford Development Studies, 41, 117-132.

Dorfleitner, G., Just-Marx, S., & Pribern, C. (2016). What drives the repayment of agricultural micro loans? Evidence from Nicaragua. The Quarterly Review of Economics and Finance.

Epstein, M. J., & Yuthas, K. (2013). Rural Microfinance and Client Retention: Evidence from Malawi. Journal of Developmental Entrepreneurship, 18 (1).

Gashaw, T. A., Shahidur, R., Carlo, B., & Kindie, G. (2016). Rural Finance and Agricultural Technology Adoption in Ethiopia: Does the Institutional Design of Lending Organizations Matter? World development, 84, 235-253.

Graeuba, B. E., Chappell, J. M., Wittman, H., Lederman, S., Bezner Kerr, R., & Gemmill-Herren, B. (2016). The State of Family Farms in the World. World Development, 87, 1-15.

Hartarska, V., Nadolnyak, D., & Shen, X. (2015). Agricultural credit and economic growth in rural areas. Agricultural Finance Review, 75 (3), 302-312.

Mersland, R., & Urgeghe, L. (2013). International debt financing and performance of microfinance institutions. Strategic Change, 22 (1-2), 17-29.

Mogues, T., Fan, S., & Benin, S. (2015). Public Investments in and for Agriculture. European Journal of Development Research, 27 (3), 337-352.

Morvant-Roux, S. (2011). Is microfinance the adequate tool to finance agriculture. In M. Labie , & B. Armendariz, The Handbook of microfinance (p. 425). World scientific Publishing.

Morvant-Roux, S. (2009). Quelle microfinance pour l'agriculture des pays en développement, In Exclusion et liens financiers. Paris Economica, 458.

Stock, P. V., Forney, J., Emery, S. B., & Wittman, H. (2014). Neoliberal natures on the farm: farmer autonomy and cooperation in comparative perspective. Journal of Rural Studies, 36, 411-422.

Tregear, A., & Cooper, S. (2016). Embeddedness, social capital and learning in rural areas: The case of producer cooperatives. Journal of Rural Studies, 44, 101-110.

Zewdu, A., Bamlaku, A., & Munir, A. (2014). Policies for Agricultural Productivity Growth and Poverty Reduction in Rural Ethiopia. World development, 59, 461-474.