Repayment Performance Of Farmers: Madagascar Study

REPAYMENT PERFORMANCE OF FARMERS:
MADAGASCAR STUDY

ARIESKA WENING SARWOSRI

GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2016

STATEMENT OF THESIS, SOURCE OF INFORMATION AND
COPYRIGHT*
I hereby declare that master thesis entitled “Repayment Performance of
Farmers: Madagascar Study” is my work under the direction of the advisory
committee and has not been submitted in any form to any other universities.
Sources of information derived or quoted from works published and unpublished
by other authors have been mentioned in the text and listed in the References at
the end of this master thesis.
I hereby assign the copyright of my master thesis to the Bogor Agricultural
University.
Bogor, February 2016

Arieska Wening Sarwosri
H 351130571

*Copyright transfer due to the collaborative research work with other parties outside
the Bogor Agricultural University should be based on a related agreement

SUMMARY
ARIESKA WENING SARWOSRI. Repayment Performance of Farmers:
Madagascar Study. This master thesis is under SUHARNO and NUNUNG
KUSNADI supervision.
The initial microfinance institution(MFI) was established with the noble aim
of poverty eradication, thus MFIs were operated with donor and subsidies from
both the government or NGO. However there are facts that MFIs were urged to
acquire their financial sustainability as well as become more commercial and
profit oriented. In this circumtances, MFI might dismiss or applied the credit
rationed for specific types of borrowers which expected to have bad repayment
performance.
Farmers are disadvantages due to the high risk of farming business as well
as the seasonality of income. Those might influence their eligibility in acquiring
loan. Notwithstanding omitting farmers from the MFI is not wise since they are

abundant in numbers, a fact which makes them to be potential candidate of
borrowers. Madagascar, a country in which this study conducted are poor country
with 35.54 percent of them are farmers. There is a gap of study regarding
repayment performance of farmer borrowers in Madagascar, therefore farmer
borrowers which expected to have bad performance are still receiving low share
of loan disbursement.
Therefore, the objectives of thismaster thesisare giving information whether
farmers are more risky borrowers compare to non-farmer borrowers and
givingmore detail information of which farmers that are more risky especially by
sector and by genderin commercial MFI. The underlying data set was derived
from AccèsBanque Madagascar (ABM) which covers 53,258 observations from
the year 2007 to 2012. The punctuality of payment include short arrears (1 day of
arrears) and longer arrears (30 days of arrears) were used to indicate the reliability
and commitment of the farmer borrowers toward the due date of installment as
well as the capacity of the borrowers to settle their debt. Logit was employed to
model the effect of the variable farmer; farmer by gender: woman and man
farmer; farmer by sector: cultivation farmer and animal farmer.
The findings of this master thesis include: the variable “farmer” have
positive and significant effect, indicating that farmer borrowers are less reliable
and have poor commitment toward their due date of installment. Yet variable

farmer is not statistically significant at 30 days of arrears, indicating that farmer
and non-farmers borrowers share the same risk of having 30 days of arrears. This
findings clarify the common assumption that farmer borrowers perform bad
repayment performance. This finding do not confirm the empirical previous
studies regarding repayment performance which found that farmers are better than
non-farmers. Therefore it contributes to the knowledge of repayment performance
by giving new insight that the hypothesis of farmers‟ repayment performance is
not can not be concluded generally. For more comprehensive discussion, the
effect of variable “farmer” is collaborated with “farmer by gender” to reveal the
effect of gender on repayment and “farmer by sector” to reveal the effect of
farming sector on repayment. The finding are woman farmer borrowers perform
less reliable and poorer commitment toward the due date of installment compare

to man farmer. Yet those two groups dhare the same risk of 30 days of arrears,
indicating that woman and man farmer have the same capacity in settling the
installment.Finally, the findings of “farmer by sectors” are cultivation farmer are
statistically significant in influencing 1 day of arrears and 30 days of arrears.
Those finding indicate that cultivation farmer are not only less reliable and have
poor commitment toward the due date of installment but also have bad reayment
performance. In the other hand, although the effect of animal farmer are not

statistically significant affecting the arrears, but it showed negative effect.
Unexpectedly, almost all of the variables which are part of borrowers‟ and
loans‟ characteristics are statistically significant. This finding lead to the idea that
MFI should pay attention on borrowers‟ and loan characteristics. The
characteristics of the borrowers and loan often become the guidance of the
commercial MFI to asssess the eligibility of farmer, yet the fact is those are also
influence the repayment perfromance. Therefore, MFI should not neglected the
consideration of borrowers‟ and loans‟ characteristics beyond the grouping system
of “borrowers type”.
The application of the study finding is limited on borrowers of commercial
MFI which located in the country with similar social-economics condition. The
repayment performance report will be necessary for further loan allocation and for
delinquency handling. In addition, the repayment performance could be the
successfulness indicator in order to give an overview regarding the effect of loan
accessibility as one of development and empowerment on the prosperity of
farmers.

Keywords: commercial microfinance, farmer, arrears, repayment performance

RINGKASAN

ARIESKA WENING SARWOSRI. Repayment Performance of Farmers:
Madagascar Study. Dibimbing oleh SUHARNO dan NUNUNG KUSNADI.
Pada awalnya institusi mikrokredit didirikan untuk membantu mengurangi
kemiskinan, sehingga institusi ini mendapatkan bantuan dari pemerintah dan juga
non-government organization (NGO). Seiring dengan perkembangannya, institusi
mikrokredit didorong untuk mampu bertahan secara finansial dalam jangka waktu
yang lama; institusi mikrokredit juga menjadi lebih komersial dan berorientasi
pada keuntungan. Pertimbangan-pertimbangan tersebut bisa jadi menjadi faktor
pendorong bagi institusi mikrokredit untuk tidak mengindahkan calon peminjam
yang dianggap akan mempunyai pola pembayaran yang bermasalah.
Petani menjalankan bisnis yang berisiko dan umumnya pendapatan mereka
adalah pendapatan musiman yaitu pada saat musim panen datang. Hal tersebut
mungkin akan mempengaruhi kelayakan petani di mata institusi mikrokredit
terkait dengan upaya mereka untuk mendapatkan kredit. Namun demikian,
mengesampingkan petani sebagai calon peminjam bukan merupakan tindakan
yang bijaksana karena petani jumlahnya sangat banyak. Madagaskar, yaitu negara
dimana penelitian ini dilaksanakan merupakan negara miskin dengan 35,54 persen
penduduknya adalah petani. Hasil penelitian berkaitan dengan pola pembayaran
petani di Madagaskar belum tersedia dan mereka dianggap tidak mempunyai pola
pembayaran yang bagus sehingga mendapatkan porsi yang kecil pada institusi

mikrokredit.
Dengan demikian, master tesis ini bertujuan untuk memberikan informasi
dengan menjawab pertanyaan apakah benar petani akan menjadi peminjam yang
berisiko berkaitan dengan pola pembayaran. Lebih jauh lagi, master thesis ini
akan membahas lebih detail mengenai karakter petani terutama berdasarkan jenis
kelamin dan sektor pertanian. Penelitian dilakukan di institusi mikrokredit
komersial, yang artinya institusi tersebut tidak mendapatkan donor dari
pemerintah maupun NGO. Data didapatkan dari AccèsBanque Madagascar
(ABM) dengan observasi sebanyak 53.258 pada tahun 2007 sampai 2012.
Ketepatan petani dalam membayar akan menjadi indikator untuk menentukan baik
atau buruknya pola pembayaran petani. Indikator tersbut meliputi 1 hari
keterlambatan dan 30 hari keterlambatan untuk melihat reliabilitas dan komitment
petani pada tanggal jatuh tempo yang telah ditentukan serta mengatahui
kemampuan petani untuk membayar angsuran.
Temuan dari thesis ini meliputi: variabel “petani” mempunyai pengaruh
positif dan signifikan secara statistik pada keterlambatan 1 hari, hal tersebut
mengindikasikan bahwa petani kurang reliabel dan komitmen pada tanggal jatuh
tempo angsuran dibandingkan dengan yang bukan petani. Namun variabel petani
tidak berpengaruh pada 30 hari keterlambatan. Temuan ini merupakan klarifikasi
bahwa petani tidak terbukti mempunyai pola pembayaran yang buruk. Temuan

dari studi ini tidak menerima hasil studi empirik sebelumnya yang menemukan
bahwa petani mempunyai pola pembayaran yang lebih baik dibandingkan yang
bukan petani. Dengan demikian, temuan ini berkonribusi pada pengetahuan
mengnai pola pembayaran dengan memberikan wawasan yang baru bahwa pola
pembayaran petani merupakan hal yang belum bisa secara umum disimpulkan

Diskusi yang lebih lengkap meliputi pengaruh variable petani yang
dikolaborasikan dengan pengaruh jenis kelamin dan sektor pertanian pada pola
pembayaran peminjam. Temuannya adalah peminjam petani wanita tidak reliabel
dan komitmen pada jatuh tempo angsuran seperti terlihat pada hubungan positif
variabel tersebut pada keterlambatan 1 hari secara statistik. Namun demikian,
peminjam petani wanita tidak terkait pada keterlambatan 30 hari. Akhirnya,
temuan “petani berdasarkan sektor” adalah petani tanaman secara statistik
berpengaruh pada 1 hari dan 30 hari keterlambatan. Temuan ini mengindikasikan
bahwa petani tanaman tidak reliabel dan komitmen terhadap jatuh tempo angsuran
serta menunjukan pola pembayaran yang buruk. Di lain sisi, petani yang berbasis
usahatani hewan (peternakan dan perikanan) menunjukkan hubungan yang negatif
pada 1 hari dan 30 hari keterlambatan walaupun secara statistik tidak terbukti.
Tanpa diduga, ternyata hampir semua variable yang termasuk pada
“karakter peminjam” dan “karakter kredit” mempunyai pengaruh yang signifikan

secara statistik. Institusi mikrokredit tidak bisa mengacuhkan karakter peminjam
dan karekter kredit. Karakter peminjam dan karekter kredit seringkali menjadi
acuan untuk menetapkan kelayakan peminjam dan ternyata hal tersebut juga
berpengaruh pada pola pembayaran. Dengan demikian, MFI sebaiknya tidak
mengacuhkan karakter peminjam dan kredit di luar pembagian tipe-tipe peminjam.
Penerapan hasil dari penelitian ini terbatas pada peminjam pada komersial
institusi mikrokredit yang terletak pada negara dengan kondisi sosial ekonomi
yang mirip. Informasi mengenai pola pembayan penting untuk keputusan alokasi
kredit dan penanganan keterlambatan. Pada bahasan yang lebih luas lagi,
informasi mengenai pola pembayaran petani bisa menjadi indikator keberhasilan
program pembangunan pada kesejahteraan petani berdasarkan asumsi bahwa jika
petani tersebut sudah sejahtera maka mereka akan menunjukkan pola pembayaran
yang bagus.

Kata kunci: mikrokredi komersial, petani, keterlambatan, pola pembayaran

©All Rights Reserved by Bogor Agricultural University, 2016
Copyright Reserved by Law
It is prohibited to quote part or all of this paper without including or citing the
source. Quotations are only for purposes of education, research, scientific writing,

preparation of reports, critics, or review an issue; and those are not detrimental
to the interests of the Bogor Agricultural University.
It is prohibited to announce and reproduce part or all of this paper in any form
without the permission of the Bogor Agricultural University

REPAYMENT PERFORMANCE OF FARMERS:
MADAGASCAR STUDY

ARIESKA WENING SARWOSRI

Master Tesis
as one requirement to acquire the degree of
Magister Sains
in Agribusiness Study Program

GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2016

External Examiner

:Dr Ir Netti Trinapilla, MM

Study Program Representative Examiner

: Dr Ir Burhanuddin, MM

Tittle
Name
Student ID

: RepaSnnent Performance of Farmers: Madagascar Study
: Arieska Wening Sarwosri
: H351130571

Approvedby
Advisory Cornmitee

Mc%

Dr Ir Suharno. MAdev

Dr k Nunung Kusnadi^ MS
Member

Chairman

Agreed by

Head of Agibusiness Study Program

iffia

ffi

:Y

w_g;

Prof Dr Ir Rita Nurmalina, MS

Examination Date: February

l,2Qt6

Submission Date:

!5

FEB

201$

ACKNOWLEDMENT
This master thesis will not be accomplished without helping from several
people who are involved. This master thesis was used both in Bogor Agricultural
University-Indonesia and Georg-August-Universität Göttingen-Germany since the
author‟s study program is Joint Degree Program between these two universities.
Theferefore, sincerely gratitudes from the author are addressed to Dr. Ir. Suharno,
MAdev; Dr. Ir. Nunung Kusnadi, MS; Prof. Dr. Oliver Musshoff, Ulf Römer
through their participation and kind helps during the writing process.
An honor also adressed to LPDP (Lembaga Pengelolan Dana Pendidikan),
Ministry of Finance since the author accomplished her master degree education by
their scholarship granting.Finally, deep gratitudes also addressed for the author‟s
parents, sister, families, friends and for any silent support. This master thesis is
expected to have the benefits as already stated study objectives. Any critique and
suggestions regarding the cotent for better working in the future are well
welcomed by the author as she can be reached in arieska.wening@yahoo.com.

Bogor, February 2016
Arieska Wening Sarwosri

LIST OF CONTENTS
LIST OF TABLES

xiv

LIST OF FIGURES

xiv

LIST OF APPENDICES

xiv

LIST OF SYMBOLS

xv

LIST OF ABBREVIATIONS

xv

1 INTRODUCTION
Background
Problem Statement
Research Objectives
Benefit of Studies
Scope and Study Limitation

1
1
3
5
5
6

2 LITERATURE REVIEWS
Microfinance and Farmer Borrowers
Farmer Borrowers : by Gender and Sector

6
6
7

3 FRAMEWORK
Empirical Framework
Theoretical Framework
Operational Framework

9
10
11
13

4 RESEARCH METHOD
Dependent Variable
Explanatory Variables
Estimation Model

14
14
15
18

5 DATA AND DESCRIPTIVE STATISTICS
Data
Descriptive Statistics

20
20
21

6 RESULT AND DISCUSSIONS
Repayment Performance: Type of Borrowers
Repayment Performance: Control Explanatory Variables
Discussion and Policy Implications

23
23
25
27

7 CONCLUSSION AND SUGGESTIONS
Conclussion
Suggestions

29
29
29

REFERENCES

30

APPENDICES

34

BIOGRAPHY

45

LIST OF TABLES
1.
2.
3.
4.
5.
6.

Share of Woman Borrowers in Top 5 Madagascar MFI
List of Borrowers‟ and Loans‟ Characteristics
List of Explanatory Variables
Descriptive Statistics
Repayment Performance based on Type of Borrowers
Control Explanatory Variables

4
12
18
22
25
27

LIST OF FIGURES
1. Microfinance Distributions among Regions
2. Operational Framework

1
13

LIST OF APPENDICES
1.
2.
3.
4.
5.
6.
7.
8.
9.

Logit Regressin: Farmer 1 Day of Arrears
Logit Regressin: Farmer by Gender 1 Day of Arrears
Logit Regression: Farmer by Sector 1 Day of Arrears
Logit Regression: Farmers 30 Days of Arrears
Logit Regression: Farmers by Gender 30 Days of Arrears
Logit Regression: Farmers by Sector 30 Days of Arrears
Logit Regression: Control Variables on 1 Day of Arrears
Logit Regression: Vontrol Variables on 30 Days of Arrears
Date Cleaning

34
35
36
37
38
39
40
41
42

LIST OF SYMBOLS
α
βo
β1, β2, β2
i
Li
P
u, ε
x
Y

= significant level
= intercept
= parameter vector
= observation i
= logistic
= probability
= disturbance or error term
= explanatory variables
= dependent variable

LIST OF ABREVIATIONS
ABM
BC
CECAM
FAO
IMAGES
LOC
MFI
MGA
MIS
MIX
NGO
SSA
TB
WB
UN

= AccèsBanque Madagascar
= Borrowers‟ Characteristics
= Caisses d‟Epargne et de Credit Agricole Mutuels
= Food and Agricultural Organization
=Intervention with Microfinance for AIDS and GenderEquity
= Loans‟ Characteristics
= Microfinance Institutions
= Malagasy Ariary
= Management Information System
= Microfinance Information Exchange
= Non-Governmental Organization
= Sub Saharan Africa
= Type of Borrowers
= World Bank
= United Nations

1 INTRODUCTION
The chapter “Introduction” presents the background of the study which
mostly contains the overview of microfinance issue in general and some
consideration that need to be addressed regarding commercial MFI and the farmer
borrowers. It is then continued with the problem statement which discusses the
importance of the repayment performance report for microfinance. Afterwards,
research objectives is presented and followed by the benefit of study. Finally, the
last part of this chapter is the scope and limitation of the study.
Background
The initial MFIs mainly attempt to give financial access to the poor as the
very firstMFIwhich established in Bangladesh in 1983 was aimed to escape the
poor people who trapped in informal moneylender. Muhammad Yunus started
microfinance by serving 42 people and hardly convinced local bank to support his
movement, but afterwards it turned into a formal bank which called Grameen
Bank (Yunus, 2004). Since the focus of MFIs was poor people, this type of
bankings were well-developed especially in developing countries, showed terrific
growthand became the poverty eradication programs for many countries
(Morvant-Roux, 2011; United Nations, 2013). Imai et al. (2012) found that the
growth of loan portfolio was significantly correlated with the depression of
poverty and income disparity in developing countries. Further, microfinance
becomes tools for development projects such as women empowerment (Roxin et
al., 2010; Kim et al, 2007).
Based on the noble aim of MFIs in helping the poor, they try to increase the
number of clients and the coverage as well as pay more attention to the types of
borrowers based on the socioeconomics conditions of the borrowers (Lafourcade
et al., 2005). Microfinance Information Exchange (MIX) listed that there were
866 MFIs in the world which serve around 90 million of active borrowers. The
distribution of MFIs across regions can be seen in Figure 1.
South Asia

23%

14%

3%

Middle East
Latin America &Caribean

10%

Eastern Europe & Central Asia
34%

16%

East Asia & Pacific
Africa

Figure 1 Microfinance Distributions among Regions1

1

http://mixmarket.org/mfi

2
In Africa, microfinance was initiated in the early of 90s and often associated
with economic growth and poverty eradication. Africa was the poorest continent
among all of the continents in the world, as 46.80 percent of people there were
under income poverty line (WB,2012). UnitedNations (UN) reported that
economic development of Africa depends on small enterprises, but they face
obstacles which is lack of finance access (Buckley, 1997). MFIs therefore were
established to give them an access to finance (United Nations, 2013). There are
196 MFIs operating in Africa (MIX2) and there are four types of MFIs: Non-Bank
Financial Intermediaries, Bank, Non-Governmental Organization (NGO) and
Credit Union / Cooperatives (MIX, 2010). MFIs in Africa serve both lending and
saving, they gained low profitability but showed high outreach in terms of number
of clients that can be served per staff member and low average portfolio at risk
(Lafourcade et al., 2005).
However, MFIs should have long term sustainability if they want to be a
solution of poverty eradication, thus they are expected to have good financial
performance rather than merely depends on donor and subsidies. Moreover, there
is trade off between the outreach of MFIs and the efficiency (Hermes et al., 2011).
Thus, focus merely to the poor borrowers which often associated with bad
repayment performance harms the effort of MFIs in gaining the financial
sustainability. In addition there is a concern that MFI become more commercial,
put profit as their uppermost heading and do the expansion i.e. move to the rural
area in order to reach more clients since urban areas are to dense with other
MFIs(Charitonenko and Campiosn, 2003). MFIs attempt to minimize losses or
avoide extra expenditure in order to acquire maximum profit oriented(Dedu and
Nechif, 2010).
In this circumtances, MFIs would concern on borrowers targetting and
might dismiss poor borrowers which are suspected to perform bad repayment
performance due to their disadvantages. Regarding MFIs, agriculture based
borrowers which are small scale farmer is considered as a risky borrowers since
agriculture often associated with many uncertainty and depend on several factors
that beyond farmer‟s control (Andrews, 2006). The price of input and output
(yield) which are very dynamics lead to the income uncertainty. In addition there
is long time gap between capital investment (planting) and capital return
(harvesting). The seasonal income of farmers is not match with standard
procedure of MFIs that require immediately payment after loan disbursement.
Therefore farmers often got credit rationed (Weber and Musshoff, 2012), have to
pay higher interest rate as the compensation of the risk (Duy, 2013) and got small
portion of loan portfolio (Akudugu et al., 2009).
The concern of MFIs might dismiss poor farmer borrowers is not an empty
myth without prove. Basu and Srivastava (2005) conducted a study of commercial
MFI in rural India and revealed that commercial banks became the main source of
rural finance in India; yet they only serve the richer among farmers and afterwards
the poorest still suffer in accessing loan. This isssue become critical since almost
half of African are poor people which might considered to have bad repaymnt
performance. Whereas, repayment performance can no be assessed only by glance
and based on common perception. The repayment performance should be
2

http://mixmarket.org/mfi

3
adrressed thoroughly based on reliable and valid indicator. Since farmers are more
disadvantages and poorer, there are common perceptions that they have bad
repayment performance. This untested belief might lead MFIs to omitt farmer
borrowers from their target and loan allocation. Therefore the main discussion of
this master thesis is about repayment performance of farmer borrowers. These
groups of borrowers become interesting to be discussed based on the fact that
major people in developing countries are farmer.
Regarding repayment performance of farmer borrowers; a study was
conducted in Madagascar, a developing country in which farners are the main
occupation. The study was conducted with set of data which derived
fromAccèsBanque Madagascar (ABM), is the second largest MFI in Madagascar
in term of loans amount. ABM started to concern on rural area in which majority
of people in rural area are farmers. It was reported that in the year 2014, 25
percent of ABM‟s active borrowers were located in rural area3.The ABM defines
“farmers borrowers” as the borrowers who acquire more than 50 percent of their
income from farming activities.
In order to give more comprehensive information, the discussion of farmer
borrowers will include farmer by gender to know the effect of gender on
repayment. Women often got benefit regarding loan accessibility under the
concept of empowerment projects (Kim et al, 2007; Roxin et al., 2010)as well as
support the MFIs to fulfil the target of outreach (Lafourcade et al., 2005).
However as the MFIs become more comercial, the empowerment aims and
outreach target might not be the main concern of MFI, thus the repayment
performance as the proxy of their capacity of debt settlement should be reveald to
avoid woman farmers; discrimination.
Finally, further discussion would be about farmer borrowers based on sector.
The ABM divided the farmer borrowers into two, “cultivation farmer” and
“animal farmer”. “Cultivation farmers” are those who acquire ≥ 50 percent of
income from planting actifities. While “animal farmers” are are those who acquire
≥ 50 percent of income from animal related farming actifities such as poultry,
husbandry and fisheries.
Problem Statement
Major population in Madagascar are small scale farmers, 64.88 percent of
the population live in rural area and 35.54 percent of the population are farmers
with rice as the major commodity4.They face several problems which driven by
pest and disease as well as climate condition. The invasion of locust before the
rice cropping together with lack funding for spreading seed reduce the production
of rice to 25 percent lower (ABM, 2013). Yield losses are the main problem of
farming in Madagascar, those are driven by pest, disease, poor storage and
weather problems (Harvey et al., 2014). Pelka et al. (2015) revealed thatrainfall
during harvest impairs the production, this threaten is deemed as disadvantages
condition which lead to the consideration that credit risk of farmers‟ loan in
Madagascar is higher compare to loans which disbursed for non-farmer borrowers.
3
4

https://reports.mixmarket.org/mfi/acc%C3%A8sbanque-madagascar
http://faostat.fao.org/CountryProfiles/Country_Profile/Direct.aspx?lang=en&area=129

4
These facts might impair the eligibility of the Madagascar small scale
farmer regarding loan accessibility although the repayment performance of
Madagascar farmers have not revealed yet. However, they are several empirical
studies in other countries which argued that granting loan to farmers actually
brings advantages for the MFI. Weber and Musshoff (2012) revealed that in
Tanzania, farmers are indicated with good repayment performance since they are
asssociated with more punctual installment compare to non-farmers borrowers.
Duy (2013) found that 95 percent of farmers paid their installment and interest ontime while only 79percent of non-farmers borrowerd do. Finally, Raghunathan et
al. (2011) also found that more farmers in a group lending are associated with
higher repayment efficiency. In addition, since the numbers of farmers in
Madagascar are abundant, dismiss them as the candidate of borrowers is not a
wise decision. Therefore it is necessary to clarify whether farmers perform bad
loan due to their unfavorable conditions.
Furthermore woman borrowers often have higher share on loan portfolio in
many areas; e.g. 96 percent of the Grameen Banks clients are women (Yunus,
2004) and 73 percent of all borrowers in multi–countries study are female
borrowers (D‟Espallier et al., 2011). Table 1 depicts the share of woman
borrowers in top 5 of MFIs in Madagascar. Half of the active borrowers in
Madagascar are women, on average. The discussion of gender becomes
interesting since they are abbundant in number. In addition, most of the woman in
Africa are working in agricultural sector.
Table 1Share of Woman Borrowers in Top 5 Madagascar MFI
Total Active
Borrowers
CECAM
58,797
AccèsBanque Madagascar
31,256
MicroCred - MDG
27,789
Otiv Tana
19,730
ACEP Madagascar SA
15,454
Average
Microfinance Institution

Woman
Borrowers
24,339
16,046
14,607
9,269
8,822

Share of Woman
Borrowers ( percent)
41.39
51.34
52.56
46.98
57.09
49.87

Source5

About 60 percent of African women are farmers and their condition are
worse than man farmers. Women‟s role as labor in agriculture hardly becomes an
issue;however, there are social problems related with gender issues against
woman farmers. In Nigeria the share of woman labors in agriculture remains high,
but they lack rights in decision making regarding agricultural development
(Ogunlela and Mukhtar, 2009) and in Senegal, only 3.5 percent of them are able to
make contract farming (Maertens and Swinnen, 2012). African women farmers
often become part-time workers as they work seasonally and get lower wage
compare to men (FAO, 2011). In addition, although the roles of woman and man
farmers are dynamics but woman hardly substitutes man farmers (Doss,
2001).Finally, they are poorer, less experience and less productive(FAO, 2011;
WB, 2012).

5

http://www.mixmarket.org/mfi/country/Madagascar

5
However the empirical studies regarding women‟s repayment performance
remain unclear. Roslan and Karim (2009) found that in Malaysia women perform
better repayment performance than men. D‟Espallier et al. (2011) also revealed
that woman borrowers are associated with lower portfolio risk and write-off rate.
In the other hand, Weber and Musshoff (2012) found that Tanzanian women
perform worse repayment performance. The share of loan portfolio for women are
huge but the repayment performance of them remain unclear. Since bias targetting
will drive to the loss of MFIs thus the repayment performance of women
borrowers should be discuss more thoroughly. Although the condition of
Madagascar women farmers might be simillar with African women farmers which
are more disadvantages andmight associated with bad repayment performance.
Nevertheless omiting them from the microloan accessibility is inappropiate
decision before the MFIs are well informed about their repayment performance.
Finally, those considerations regarding farmers‟ condition and their
repayment performance lead to the main question of whether the disadvantages of
farmers borrowers lead to bad repayment perfromance. Afterwards this
information is necessary in order to avoid bias targetting of commercial MFIs on
candidate of borrowers. This question lead to several following questions include:
1. What are the reliable indicators of good repayment performance?
2. Are farmer borrowers really more risky borrowers?
3. Are all farmers borrowers associated with bad repayment performance?
Research Objectives
The main discussion of this master thesis regards to repayment performance
of farmer borrowers with the objectives include:
1. To discuss the reliable indicator of good repayment performance.
2. To investigate whether farmers are more risky borrowers compare to nonfarmer borrowers.
3. To provide more detail information of which farmers that are more risky
especially by sector and by gender.
Benefit of Studies
This master thesis provides information about repayment performance of
farmer borrowers. Repayment performance of borrowers often become the
discussion of study regarding microfinance since repayment performance report
are neccesarry for further loan allocation (Godquin, 2004). Further loan allocation
should be discuss more carefully as bias targeting will drive MFIs into loss.
Repayment performance also necessary for quick delinquency handling (AddaeKorankye, 2014), it could be soft warning for MFIs to take action regarding
improvement of repayment performance.
The finding of this study also could be used by the government and related
parties i.e. non-government organization (NGO) for a broader scope of discussion.
Since repayment performance could be the overview regarding the impact of
microloan in the development and empowerement programs towards farmers,
women and woman farmers. If the empowerement programs are successfull and
bear positive impact on income as well as able to compensate the disadvantages of

6
farmers, women and woman farmers; then they will show good repayment
performance. If the farmer borrowers are proven to have better repayement
performance or share the same risk with mom-farmer borrowers regarding
delinquency, thus farmer borrowers will get benefit by not excluded from loan
allocation by commercial MFIs.
Scope and Study Limitation
This master thesis attempts to investigate the repayment performance of
African farmer borrowers. In order to measure the repayment performance, a
study was conducted in Madagascar ABM which is fully commercial MFI. The
data was derived from Management Information System (MIS) of the MFI.
Based on the definition given by the MFI, farmer borrowers are those who acquire
>50 percent of their income from farming actifities.
There are several measurement of repayment performance, this master thesis
use the punctuality of installment as the indicator of good repayment performance.
The scope and limitation of the study is on the study result application. The
repayment performance of farmers borrowers might be different on the non-profit
MFI. The application of the result is also limited to other country which have
simillar socio-economics condition.

2 LITERATURE REVIEWS
This chapter presents empirical literature reviews about repayment
performance of farmer borrowers. Therefore it is divided into two parts; first part
is literature review about microfinance for farmer borrower; second partdiscusses
more detail about farmer borrowers by gender and farmer borrowers by sector.The
hypotheses of this master thesis is developed by the empirical studies. The benefit
of building the hypothesis from previous empirical study is to re-examine the
findings that has not adequate yet to build a general inference. Finally there are
three hypotheses which are proposed in order to investigate the repayment
performance of farmers, farmers by gender and farmers by sector.
Microfinance and Farmer Borrowers
Agricultural business has several characteristics which naturally embedded
on it. It has at least two kinds of risk (Andrews, 2006): price risk and yield risk.
Price risk is driven by the dynamic price of both input and output. In harvest
period, product price tend to decrease because of abundant supply. Agriculture is
strongly influenced and depended by environment condition which usually
unpredictable and beyond farmers‟ control such as pest, disease, climate, drought,
and flood. A study by Brehanu and Fufa (2008) revealed that agro-ecological
difference has significant effect to rate of repayment performance, he found that
farmer who life in the area with regular water supply from rainfallare able to bear
higher production and finally having good repayment performance. Pelka et al.
(2015) found that unpredictable weatherhas effect toward loan risk. They found
that abundat amount of rainfall during harvest time increase credit risk of loan
which is given to small-scale farmer.

7
Regarding microfinance, agriculture has some characteristics which
influence their eligibility of getting loan disbursement as well as their repayment
performance. Those condition therefore resulting on the poor access of African
farmer borrower to microloan. For example, in Ghana, shared of agriculture credit
Rural Banks is only 26.24 percent on average (Akudugu et al., 2009). In Tanzania,
farmer borrowers got credit rationed and they had 3 percent lower probability of
accessing credit compare to non-farmer (Weber and Musshoff, 2012). However,
Raghunathan et al.(2011) found that the efficiency of group lending scheme
increased as the percentage of farmer borrowers inside the group increased.
Morvant-Roux (2011) argued that if MFIs want to implement specific program
such as using farmers‟ production as collateral, the repayment performance of
farmers would increase as well.
Regarding repayment performance of farmer borrowers, they are several
previous empirical studies. Weber and Musshoff (2012)conducted a study in
Tanzania to investigate whether agricultural firms have different delinquency with
non-agricultural firm. They revealed agricultural firms show better repayment
performance compare to non-agricultural firms since agricultural firms‟
probability of delinquent is 14 percent lower than non-agricultural firms. They
argued that the prejudice of bad repayment performance due to risk exposition is
not proven, in the inproper scheme of loan might be the trigger of bad repayment
performance. Duy (2013)conducted study in Vietnam and found that almost all
the loan which disbursed for farmer borrowers repaid on-time. The variable wich
were statistically improve the repayment performance were level of education,
gender (female borrowers) and the expected loan amount by the applicant.
Those previous empirical studies argued that bad repayment performance of
farmers borrowers are actually only a common perception. Empirical studies
revealed that farmer borrowers are negatively accosiated with delinquency. Those
lead to the idea that farmers in Madagascar might manifest similar repayment
performance which is better than non-farmer borrowers. Therefore the first
hypothesis is:
H1 “Farmer Borrowers”:Repayment performance of farmerborrowers
isbetter than repayment performance of non-farmer borrowers.
Farmer Borrowers : by Gender and Sector
The discussion of gender regarding microfinance and farmers borrowers
becoes necessary since the share of woman borrowers are high and most African
women are working in agriculture sector. Shares of woman borrowers in
microfinance are relatively high. In Sub Saharan Africa, 62 percent from total
number of active borrowers of MFIs are women (MIX, 2010). A study in multicountries by D‟Espallier et al. (2011) revealed that 73 percent out of borrowers
are and almost all (96 percent) of the clients of Grameens‟ Bank are women
(Yunus, 2004). Moreover, in low trust countries in which the information is
usually delivered imperfectly and followed by the presence of high transaction
cost, MFIs prefers women to be their clients (Aggarwal et al.,2015).
Including women to microfinance bears advantages that encourage MFIs to
grant the loan for woman borrowers. First, the movement of including women as

8
the clients of MFIs was driven by the idea that helping woman to have access to
microfinance is believed to build better future of household sequentially (Yunus,
2004). Concerning women to participate in microfinance with the extent of
women empowerand equality is important in MFIs projects since women are
usually responsible for the income allocation especially for food and children
education. Those arguments match with the basic idea of microfinance, help the
poor. Second, including women to microfinance may also happen because MFIs
want to get good evaluation. One method to assess the outreach of MFIs is „depth‟
which means that MFIs are able to serve the most vulnerable group such as
woman and very poor group (Lafourcade et al., 2005).
Third, including women in microfinance is related with repayment
performance. Although women are indicated with shortage of property right for
land, collateral ownership and decision; yet, women usually show better
repayment performance. A research by Roslan and Karim (2009) revealed that in
Malaysia, woman borrowers show better repayment performance compare to man
borrowers. D‟Espallier et al. (2011) also conducted a study about the relationship
between woman borrowers and microfinance among 70 countries and he found
that by giving more opportunities for women to get loan disbursement would
improve MFI‟s conditions that indicated by lower portfolio risk and write offs as
well as higher profit.
However, African woman borrowers seem to manifest different condition.
Hietalahti and Linden (2006) conduct a research to compare two groups of woman
borrowers in southern part of Africa. First group was a group of poorest women;
they were unskillful business runner and got low amount of loan. At the end of
loan period, they were facing difficulties in repayment. Second group was a group
of wealthier and more skillful women, yet they still performed bad loan repayment
since there were problems of free rider among the members and income disparity.
Further, a research in Tanzania by Weber and Musshoff (2012) revealed that
woman borrowers perform higher installment default compare to man borrowers.
Anyhow, there are many development and empowerment programs for
women in Africa. Under those specific programs, women are trained to run
business, manage earnings and so on. At the end, those might drive woman to
have better repayment performance. For example, in the year 1999, Intervention
with Microfinance for AIDS and Gender Equity (IMAGES) was emerged in
Africa. There, women are brought to be a member of borrower community.
Women were grouped in joint loan, received trainings and invited in regular
fortnightly meeting. They pay their loan together with the regular meeting.
Evidently, in South Africa, this kind of method increase women participation,
keep high repayment of loan and contribute in health issue (Pronyk et al.,2008).
Women play role in agriculture as principal operator (person who run
agricultural business) or as supporter worker who work in farming business or
husband‟s helper.More than 60 percent of women in SSA work in agriculture
sector, this number makes SSA to have the highest number of women labor in
agriculture compare to any other region in the world (FAO, 2011). There,
women‟s role as labor in agriculture hardly becomes an issue;however, there are
social problem related with gender issue against woman farmerswhich related
with task and rights that commonly belongs to man farmers. In Nigeria, the
portion of woman labors in agriculture remains high, but they lack rights in

9
decision making (Ogunlela and Mukhtar, 2009). In Senegal, the portion of woman
labors in agriculture also remains high, but only 3.5 percent of woman are able to
make contract farming (Maertens and Swinnen, 2012). In Malawi, 90 percent of
women are part-time worker as they work seasonally and get lower wage compare
to men (FAO, 2011).
Further, woman farmers have different conditions compare to man farmers
in the term of productivity. Women perform lower productivity compare to men
(FAO,2011; WB, 2012).It happens because women have little chance of mobility
since they are under norms and culture limitation(Butt et al., 2010) and strong
dependency to agricultural extension (FAO, 2011). In addition, Fletschner(2010)
found that woman farmers are slower in adopting new technology, less
competitive and risk averse compare to men.
In order to provide further information about woman farmer borrowers
regarding microloan, examining their behavior regards to repayment performance
is necessary. Since they are facing less favorable conditions compare to man
farmer borrowers, hypothesis related with installment repayment performance for
woman farmer borrowers in Madagascar is as follows:
H2 “Farmers by Gender”: Repayment performance of woman
farmerborrowers islower than repayment performance of men farmer borrowers.
In addition to more detail discussion regarding microfinance and type of
farmers by sector, that are cultivation farmer or animal farmers. “Cultivation
farmer” indicated farmers whose main activities of farming are related with
planting. While “animal farmers” are farmer whose main activities of farming are
related with animal. Plant grower have characteristic which embedded in
agricultural business especially cultivation farmers i.e.seasonality. There‟s quite
long time gap between capital investment(seed, fertilizer, employee, information,
technology, etc) and capital returns (harvesting time).Since the characteristic of
agriculture which is seasonality does not fit with MFI in general, then MFIs have
to make specific policy to get deal with farmers‟ characteristic. For example,
MFIs create loan product in the form of flexible loan to guard the enhancement of
installment default (ABM, 2013; Field and Pande,2008). In flex loan, loan
payment frequency is more flexible compare to standard loan. Regarding with the
regularity of income, animal farmers are less seasonal and moreover the effect of
weather is less affected compare to cultivation farmers. Therefore the third
hypothesis is formulated as:
H3 “Farmers by Sector”: Repayment performance of cultivation farmers
islower than repayment performance of animal farmers.

3 FRAMEWORK
The chapter “Framework” is divided into three parts which are empirical
framework, theoretical framework and operational Framework. The empirical
framework mainly discusses about the measurement of repayment performance
based on previous empirical studies regarding the groupig of borrowers‟ type.

10
Each measurement of repayment performance will be followed by indicator which
is based on empirical studies. The repayment performance could be assessed
based on the punctuality of borrowers towards the due date, the amount of loan
repaid and both of them. The theoretical framework discuss about the concept of
5Cs which are very common for the commercial bank, the concept of the 5Cs
would be implemented to the commercial microfinance. Finally, the last part is the
operational framework of how this master thesis was conducted.
Empirical Framework
On-time Installment
Basically, repayment performance of the borrowers of MFIs is assessed
based on the behavior of the borrowers towards their installment. Several
empirical research defined good repayment performance based on the purpose of
the studies. Some empirical research stated that good repayment performance is
indicated by on-time installment. Borrowers usually are categorized into two,
those who repay on-time as the due date and those who do not repay on-time.
Raghunathan et al. (2011) use the “ratio of on-time installment” which
calculated by dividing the number of on-time installment and total number of
installment. With the ratio on-time installment as the dependent variable, those
who have good repayment performance are the borrowers who have positive
coefficient.
Weber and Musshoff (2012) use “ratio delinquency” which calculated by
dividing the number of loan with delinquent and the total number of installment.
With the “ratio delinquency” as the dependent variable, those who have good
repayment performance are the borrowers who have negative coefficient while a
regression is applied. They use ordiary least square to model the repayment
performance of farmer borrowers.
Finally, Godquin (2004) stated that the first level repayment performance of
MFI could be achieved if 100 percent of the borrowers repay on-time (p. 1909).
The definition of good repayment perormance as the borrowers repay on-time
could be manifested in several indicators. He created dummy dependent variable
with value 1 if the borrower repay on-time and 0 for otherwise. Probit was
employed in order to know the repayment performance. the coefficient is expected
to have positive sign to indicate good repayment performance.
Proper Amount of Installment
Several empirical studies prefer to use the proper amount of installment as
the measurement of good repayment performance. This measurement could be
manifested into several indicators. Breahanu and Fufa (2008) use the “proportion
of credit repaid” which calculated by dividing the amount of loan repaid and the
total amount of loan. Afterwards the borrowers are grouped into three include
non-defaulters which are those who repay properly, complete defaulters which fail
to repay whole amount of installment and partial defaulters which are those who
repaid part of the installment. The “proportion of credit repaid” is in the form of
ratio, therefore the range is between 0 and 1, two-limit Tobit model was employed
to make regression. With the “proportion of credit repaid” as the dependent

11
variable, those who have good repayment performance are the borrowers who
have positive coefficient.
Afolabi (2010) used the percentage of loan repaid as the dependent variable
to measure the repayment performance. Ordinary Least Square (OLS) was employ
to model the effects of several factors on the repayment performance. This study
focused on the repayment performance of farmer and found that non-farm income
as well as family size have negative coefficient; indicating that non-farm income
and family size impair the repayment performance.
On-time and Proper Amount of Installment
Further, good repayment performance is not merely about on-time
installment but also repay the overall amount of installment as agreed on the
contract. Nawai and Shariff (2012) categorize the installment of borrowers into
three include: 1) “On-time installment” if the payment which is done as the due
date scheduled; 2) “Delinquent” which is occured if the installment is paid late or
if the borrowers do not pay the full amount of installment; 3) “Default” is defined
as late payment more than three months. The dependent variable is presented in
the form of dummy variable; y = 1 if the borrower paid on-time, y = 2 if the
borrower have delinquency, y = 3 if the borrower perform default and Logit was
employed. Higher probability of the borrower to repay the installment on-time is
depicted with positive coefficient of the explanatory variable, vise versa.
Theoretical Framework
Several standards and requirements applied by the MFI for the agricultural
borrowers, yet in general 5Cs become the benchmark of the borrowers‟
characteristics. The 5Cs include: capacity, capital, collateral, character and
conditions (Gustafson, 1989). “Capacity” of the borrowers indicate the ability of
the borrowers to settle ther debt. Durguner (2007) argued that the repayment
capacity could be the proxy of the “borrowers capacity”. Regarding farmer
forrowers, the repayment capacity could be explained by the ratio of debt to asset
and the soil productivity. “Capital” refers to the financial condition of the small
firm which usually indicating by several health financial measurement. Capital
could be indicated by liquidity (Durguner, 2007) and income which generated
from investment (Ruiz-Vargas, 2000). “Collateral” indicating the assets which
owned by the borrowers that can be used to be the guaranty of the loan. Collateral
could be in the form of valuable assets such as land, building or even the yield of
farming i.e. rice yield (Bouquet et al., 2009).The presence of collateral might not
important for the non-profit MFI; yet for the commercial MFI, collateral is
neccesary regarding borrowers‟ eligibility. Moreover, Müller et al. (2014) argue
that collateral is neccesary since collateral reduce the loan risk. “Character”
indicating the borrowers‟ characteristics which often becomes the consideration of
the M