Business, Management and Accounting
8 years ago

Collateral vs. Reputation: How Loan Design Impacts Farmers' Financial Accessibility

Caijing luncong
Analysis on the Different Effects of Collateral and Reputation on Farmers' Loan and the Design of Loan Contracts
Xiangmei Fan

Paper Summary

Farmers can get loans based on their reputation rather than collateral. Collateral can make it harder to get a loan, but reputation can help. Collateral loans are better for big projects, with lower interest rates and longer terms. Reputation-based loans are good for smaller needs, with higher interest rates and shorter terms. Richer farmers should go for collateral loans, while low-income farmers can benefit from reputation-based loans.

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