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Publications & Research :: Policy Research Working Paper

Credit Constraints, Agricultural Productivity, and Rural Nonfarm Participation : Evidence from Rwanda

ACCESS TO CAPITAL ACCESS TO CREDIT ACCESS TO INFORMATION ADVERSE SELECTION AGRICULTURAL COMMODITIES AGRICULTURAL FINANCE AGRICULTURAL PRACTICES AGRICULTURE AMOUNT OF LOAN ASSET OWNERSHIP ASSETS BANK ACCOUNT BANK LOAN BANK POLICY BORROWING CONSTRAINTS CAPITAL MARKET COLLATERAL FOR LOANS COLLATERAL REQUIREMENTS COLLATERAL RISK COMPARATIVE ADVANTAGES CONSUMER DURABLES CREDIT ACCESS CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDIT UNIONS DEMAND FOR CREDIT DEMAND-SIDE FACTORS DEPENDENT DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DISEQUILIBRIUM DURABLE DURABLE ASSETS ECONOMETRIC ANALYSIS ECONOMETRIC EVIDENCE ECONOMIC DEVELOPMENT ECONOMIC OUTCOMES ECONOMIC RESEARCH ECONOMICS EMPLOYMENT ENTRY BARRIERS EQUILIBRIUM CREDIT RATIONING EXCESS DEMAND EXPENDITURE EXPORTS FINANCIAL DEEPENING FINANCIAL MARKETS FORMAL LOANS FORMS OF CREDIT GDP HOLDING HOLDINGS HOUSEHOLD INCOME HOUSING INCENTIVE EFFECTS INCOME INCOME INEQUALITY INCOME SHOCKS INDEBTED INFORMAL BORROWING INFORMAL CREDIT INSTRUMENT INSURANCE INSURANCE MARKET INTEREST RATE INTEREST RATE RESTRICTIONS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INVESTMENT PURPOSES LABOR MARKET LABOR MARKETS LACK OF COLLATERAL LAND AS COLLATERAL LAND OWNERSHIP LAND PARCELS LAND TENURE LAND TITLING LAND USE LENDERS LIQUIDITY LOAN LOAN AMOUNT LOAN AMOUNTS LOAN APPLICATION LOAN APPLICATIONS LOAN MARKET LOAN TERMS LOANABLE FUNDS LOANS FROM FAMILY LOSS OF COLLATERAL LOW INTEREST RATES MARKET ACCESS MAXIMUM LIKELIHOOD ESTIMATION MAXIMUM LIKELIHOOD METHOD MICRO-FINANCE MICRO-FINANCE INSTITUTIONS MICROFINANCE MICROFINANCE INSTITUTIONS MISSING MARKETS MOBILE PHONE MONEY LENDER MONEYLENDERS OPPORTUNITY COST PAYOFFS PERMANENT INCOME PORTFOLIO PORTFOLIOS POTENTIAL BORROWERS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS REGRESSION MODELS REMITTANCES REPAYMENT RESOURCE ALLOCATION RETURN RETURNS RISK AVERSION RURAL CREDIT RURAL CREDIT MARKETS RURAL FINANCIAL MARKETS SAVINGS SMALLHOLDER AGRICULTURE SOCIAL CAPITAL SOCIAL NETWORKS SOURCE OF CREDIT SUPPLY OF CREDIT TITLES TRANSACTION TRANSACTION COST TRANSACTION COSTS TRANSITORY INCOME VALUE OF OUTPUT WAGES WEALTH WEALTH EFFECTS
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World Bank, Washington, DC
Africa | Rwanda
2014-03-18T20:04:31Z | 2014-03-18T20:04:31Z | 2014-02

Although the potentially negative impacts of credit constraints on economic development have long been discussed conceptually, empirical evidence for Africa remains limited. This study uses a direct elicitation approach for a national sample of Rwandan rural households to assess empirically the extent and nature of credit rationing in the semi-formal sector and its impact using an endogenous sample separation between credit-constrained and unconstrained households. Being credit constrained reduces the likelihood of participating in off-farm self-employment activities by about 6.3 percent while making participation in low-return farm wage labor more likely. Even within agriculture, elimination of all types of credit constraints in the semi-formal sector could increase output by some 17 percent. Two suggestions for policy emerge from the findings. First, the estimates suggest that access to information (education, listening to the radio, and membership in a farm cooperative) has a major impact on reducing the incidence of credit constraints in the semi-formal credit sector. Expanding access to information in rural areas thus seems to be one of the most promising strategies to improve credit access in the short term. Second, making it easy to identify land owners and transfer land could also significantly reduce transaction costs associated with credit access.

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