The Costs and Returns of Agricultural Credit Delivery

Borrower level data from over 1,000 agricultural lending relationships are used to examine how several factors influence the costs and returns of extending agricultural credit. The characteristics of agricultural borrowers and their demand for various financial products and services are described. The results also provide estimates of the costs and returns of agricultural lending and the extent to which these costs and returns are influenced by factors such as loan volume, lender/borrower relationship factors, and contract terms. The results indicate that economies of size exist in agricultural credit delivery and that lenders pass most of these benefits on to borrowers through lower interest rates. The length of the lender/borrower relationship also influences the costs and returns of lending. Unlike loan volume, it does not appear that lenders pass the benefits of reduced servicing and monitoring costs to borrowers through lower rates.