Characterization of financial services
The access of rice farmers to financial services in the study region was low. This reflects the general national trend. Only 5% of farmers in Benin had access to formal credit (Allogni et al. 2010). In addition, the supply of financial services is mainly focused on short-term credit. Rice farmers are therefore unable to use this credit for their investments—a limitation for rice production development. This situation could stem from the fact that financing agricultural activities is generally costly, riskier, and less profitable for microfinance institutions (Chalmers 2005). Furthermore, most of these institutions depend on external funding, mainly from donors (Hunguana et al. 2012), limiting their capacity to finance farmers. Efforts are needed to ensure the effectiveness of financial service to farmers. The effective integration of an insurance component would improve the supply of financial services for agricultural activities, including rice production. Previous studies suggested that an insurance component should be incorporated into the schemes for commercial agricultural credit to increase the credit flow to the agricultural sector (Collier and Skees 2012; Polycarp and Odufote 2012; Collier et al. 2013). Many agricultural risks, including those relating to weather and markets, will be addressed by the insurance. Incorporating insurance has also the advantages of simplifying administrative arrangements for the financial service providers, reducing their lending risks. However, it could present some drawbacks for farmers who have other less costly ways of managing their risks. In this case, the insurance will simply increase the credit cost without adding proportionate benefits, making the credit less attractive.
Moreover, the government of the Republic of Benin is already committed to the establishment of an agricultural bank capable of meeting farmers’ needs. However, it is important to innovate in credit supply and include a technical and management support (financial education) package to reduce the failure risks.
Satisfaction of rice farmers’ expectations towards credit supply
As hypothesized, the rice farmers were unsatisfied with all attributes expected from the credit scheme. The dissatisfaction of rice farmers with the attribute “affordable interest rate” is not surprising. Previous studies pointed out the high-interest rate charged by microfinance institutions in rural and urban areas (ADB 2016; Hong and Hanson 2016). Furthermore, the interest rates charged by the microfinance institutions are high compared with market lending rates (between 9 and 15% per year)Footnote 1. This stems from the fact that it is essentially the interest on the credits granted that allows the microfinance institutions to cover the various costs incurred (Kariuki and Ngahu 2016), including borrowing from traditional banks. The reduction of costs incurred could be a solution to affordable interest rates. The future agricultural bank of Benin could make financial resources available to microfinance institutions on better terms. This would have cost implications but also a potentially high return on investment (improvement of productivity and income of farmers). The exemption from processing fees and other fees is related to the credit cost.
With regard to the attribute “flexibility of guarantee”, apart from the joint surety for farmers organizations, the terms of the microfinance institutions were relatively restrictive. These findings are consistent with those of Razakaharivelo (2013), which revealed that more than a quarter of the women beneficiaries were not satisfied with the guarantees requested by the microfinance institutions in Madagascar. Despite the necessity for the microfinance institutions to keep rigorous about the issue of guarantee, they could consider other types of guarantees, such as the inventory credit system. Regarding the attribute “flexibility in the requirements of identity documents”, the government should continue the ongoing efforts to provide each citizen with civil status documents. In the meantime, microfinance institutions may use witnesses who have valid civil status documents.
Regarding the issue of proximity, so far, most farmers are forced to travel long distances before accessing a microfinance institution, leading to extra expenses. The proximity of financial services is a key element for improved access to agricultural finance (Dhakal 2013). This proximity should improve with the increase of the solvent demand that would lead microfinance institutions to bring their agencies closer to optimize their activities. The introduction of credit reference bureaus is therefore an important policy issue for improved access to agricultural finance.
Rice producing and marketing activities last approximately 6 to 8 months, while credit repayment follows a monthly basis after a grace period of 1 to 3 months for the majority of microfinance institutions. These conditions do not allow rice farmers to harvest and market their products before starting repayment. Flexible repayment schemes adjusted to the financial flows of agricultural activities could make lending programs more accessible to farmers (Christen and Pearce 2005; Koumassa 2007). This includes the implementation of a monitoring mechanism and the education to finance management allowing the efficient use of credit. In this light, contract farming could be explored (Prowse 2012).
Although the credits are not supposed to cover all the financing needs of rice farmers, the amounts received are low to meet the annual rice production financing needs. Indeed, the average amount of credit granted to rice farmers surveyed by the microfinance institutions was XOF 232,633 (USD 400.97) per hectare; while the total cost for rice production per hectare in the study area was XOF 381,664 (USD 657.84) (Yabi 2013). This weakness in the volume of credits stems from the risk minimization strategies and the unavailability of the resources at the microfinance institutions (Kodjo et al. 2003; Niyongabo 2008; Sossou 2015). Generally, the undersupply of credit is due to information problems (adverse selection and moral hazard) leading to equilibrium credit rationing as discussed in the model of Stiglitz and Weiss (1981). Credit rationing is a frequent practice in financial markets. The future agricultural bank, as indicated above, could play a key role in the refinancing of microfinance institutions to improve farmers’ financing mechanisms.
The rice farmers mentioned their preference for individual credits. According to their perception, credits obtained through a farmers’ organization are often used in the social sphere because of their non-discrete nature. To reduce the risks associated with the low repayment rate, microfinance institutions usually give credit either to solidarity groups of farmers who cannot provide material guarantees or individually to farmers with a little more collateral. Several studies demonstrated the benefits of joint surety for micro-credit beneficiaries and for microfinance institutions (Paxton 1996; Honlonkou 2002; Mauk 2013; Noglo and Androuais 2013). Rice farmers should be made aware of the performance of the Solidarity Credit Group.
Rice farmers’ dissatisfaction about the attribute “timely processing of credit applications” stems from the long procedure in microfinance institutions, linked to the complexity of the compilation of the dossier (Pasha and Negese 2014). According to the rice farmers, a delay in the release of the credits affects the farming calendar, with many consequences: drop in yield, change in the destination of credit, and difficulties in the repayment of the credit. It could be useful in this context to sensitize farmers to request credit far in advance. Assistance in preparing the application could be also helpful.
Categorization of rice farmers based on their expectations
Three clusters of rice farmers were identified based on their expectations of a credit scheme suited to their activities. These clusters presented a variety of socio-demographic characteristics. Cluster 1 was composed of rice farmers who were relatively younger compared with the other clusters (2 and 3). They had a higher level of education compared with cluster 3. These young rice farmers (cluster 1) had less financial and material resources to meet the requirements of microfinance institutions in terms of guarantees. This explains their desire for a more affordable interest rate, flexible modalities of guarantee, and proximity of microfinance institutions, unlike rice farmers in cluster 3. This could also explain the concentration of women in this cluster. Rice farmers in cluster 2 had a high level of education compared with the other groups. This category of farmers (cluster 2) was more interested in the physical accessibility of the credit supply. The effect of borrower-lender distance results in a physical cost that farmers, in our case, need to bear to contract with microfinance institutions (Pedrosa and Do 2011). There is the direct transaction cost—transportation cost to obtain financial services from microfinance institutions—that farmers support. This is a barrier to accessing credit in rural areas.
Women were poorly represented in clusters 2 and 3. This low proportion of women could stem from the difficulties related to rice farming and the limited access of these stakeholders to certain inputs, namely land. In Africa including Benin, women have limited access to land and other productive resources (World Bank 2011; Thiessen 2016). In the study area, women were more involved in growing legumes (soybeans and groundnuts) and especially in post-harvest activities (processing, marketing).
In general, the major lowlands development programs are not financed by the rice farmers themselves but are carried out under various programs and projects. However, improved rice farmers’ access to adequate credit could allow them—in all those clusters—to grow more rice acreage, in order to increase their productivity, as well as their household cash-flow (Sulemana and Dinye 2016; Lawanson 2016). Conversely, households may demand credit, while their current income is high due to the expectations of future income, which will guarantee their repayment (Chen and Chiivakul 2008).