American Journal of Rural Development
ISSN (Print): 2333-4762 ISSN (Online): 2333-4770 Website: http://www.sciepub.com/journal/ajrd Editor-in-chief: Chi-Ming Lai
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American Journal of Rural Development. 2017, 5(2), 30-38
DOI: 10.12691/ajrd-5-2-1
Open AccessCase Study

Collateral Pledge: Does Relationship Lending Matters? The Case of Maize Farmers in Ghana

Stephen Antwi1, and Kwasi Ohene-Yankyira1

1Department of Agricultural Economics, Agribusiness and Extension, Faculty of Agriculture, College of Agriculture and Renewable Natural Resources, Kwame Nkrumah University of Science and Technology, Kumasi Ghana

Pub. Date: March 17, 2017

Cite this paper:
Stephen Antwi and Kwasi Ohene-Yankyira. Collateral Pledge: Does Relationship Lending Matters? The Case of Maize Farmers in Ghana. American Journal of Rural Development. 2017; 5(2):30-38. doi: 10.12691/ajrd-5-2-1

Abstract

A survey was employed to gather the primary data needed to assess how relationship lending affect the collateral that must be pledged by the maize farmer borrowers when taking credit from financial institutions. The farmers were selected from 8 districts in Ashanti and Brong Ahafo regions of Ghana. Multi-stage purposive and randomized sampling technique was used to sample 380 maize farmers. Descriptive statistics were used to evaluate collateral and socio-economic characteristics of the respondents while logit regression analysis was used to measure the effects of relationship lending on collateral used to secure loans taken by maize farmers. The results revealed farmer’s access to information has a reverse and significant with the collateral used to secure loans .multiple banking relationships is significant and directly related to the collateral used by farmers. The previous loan repayment behavior inversely affects the collateral pledge and is significant. Farmers who have investments with the bank are able to argue for lower or no collateral since those investments are used as securities. This explains the negative relationship with the collateral pledge. Thus farmers are encouraged to build more relationship with their banks in the form of investments, good repayments, getting more information minimizing the number of banks they deal with.

Keywords:
collateral pledge relationship lending agricultural credit information asymmetry Brong Ahafo and Ashanti Region Ghana

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