We now turn to the question of how risk preferences and discount rates are
correlated with potential credit access. In our study, potential credit access was
measured as the total amount that the households could borrow from a particular
source for various needs, given the household’s situation at the time of the survey
in 2011. Total potential credit access was calculated as the sum of potential credit
access across thirteen sources: VBSP, VBARD, unions, the village board, the
extension service, non-governmental and international organizations, government
companies, private companies, informal credit groups, money lenders, shop
keepers, relatives and friends/neighbors. We would expect that households able to
borrow more would be less risk averse because they have a higher amount of credit
they can fall back on in times of need. Pearson correlations between potential credit
access and risk preferences are shown in Table 12.7. All statistically significant
correlation coefficients were negative, indicating that higher degrees of risk aversion were associated with lower potential credit access. The correlation was statistically significant for total potential credit access, as well as for potential credit
access from VBARD, the unions, money lenders, shopkeepers, relatives and
friends. This correlation was in the expected direction, so that individuals who
were more risk averse were living in households that were able to borrow less. The
results demonstrate that an individual’s risk aversion was related to the household
situation, as measured through potential credit access levels.
Correlations between potential credit access and individual discount rates are
also shown in Table 12.7. Most correlation coefficients are shown as negative,
indicating that higher potential credit was associated with lower individual discount
rates; however, the correlation was statistically significant for potential credit from
the VBSP only.
This result somewhat contradicts the earlier findings – that discount rates are
positively associated with a positive demand for credit and with actual credit
demanded; however, a positive demand for credit and the actual amount of credit
demanded are different from the potential amount a household should be able to
borrow.
The above analyses offer an insight into how risk aversion and discount rates are
associated with credit demand. What we show here is a clear negative relationship
between risk aversion and a positive demand for credit, the amount of credit
demanded as well as total potential credit access. This indicates that more risk averse
individuals live in households which not only demand less credit, but which also
have lower credit access levels. We also found a negative relationship between
individual discount rates and a positive demand for credit, and the amount of credit
demanded, indicating that more patient individuals live in households which demand
less credit. The question of how an individual’s risk preferences and discount rates
interact with credit demand remains open. For example, does an individual’s risk
aversion outweigh his or her discount rate in terms of the impact on credit demand,
or is an individual’s discount rate more important than risk aversion? Further
12 Policies for Sustainable Development: The Commercialization of Smallholder. . .
477
correlated with potential credit access. In our study, potential credit access was
measured as the total amount that the households could borrow from a particular
source for various needs, given the household’s situation at the time of the survey
in 2011. Total potential credit access was calculated as the sum of potential credit
access across thirteen sources: VBSP, VBARD, unions, the village board, the
extension service, non-governmental and international organizations, government
companies, private companies, informal credit groups, money lenders, shop
keepers, relatives and friends/neighbors. We would expect that households able to
borrow more would be less risk averse because they have a higher amount of credit
they can fall back on in times of need. Pearson correlations between potential credit
access and risk preferences are shown in Table 12.7. All statistically significant
correlation coefficients were negative, indicating that higher degrees of risk aversion were associated with lower potential credit access. The correlation was statistically significant for total potential credit access, as well as for potential credit
access from VBARD, the unions, money lenders, shopkeepers, relatives and
friends. This correlation was in the expected direction, so that individuals who
were more risk averse were living in households that were able to borrow less. The
results demonstrate that an individual’s risk aversion was related to the household
situation, as measured through potential credit access levels.
Correlations between potential credit access and individual discount rates are
also shown in Table 12.7. Most correlation coefficients are shown as negative,
indicating that higher potential credit was associated with lower individual discount
rates; however, the correlation was statistically significant for potential credit from
the VBSP only.
This result somewhat contradicts the earlier findings – that discount rates are
positively associated with a positive demand for credit and with actual credit
demanded; however, a positive demand for credit and the actual amount of credit
demanded are different from the potential amount a household should be able to
borrow.
The above analyses offer an insight into how risk aversion and discount rates are
associated with credit demand. What we show here is a clear negative relationship
between risk aversion and a positive demand for credit, the amount of credit
demanded as well as total potential credit access. This indicates that more risk averse
individuals live in households which not only demand less credit, but which also
have lower credit access levels. We also found a negative relationship between
individual discount rates and a positive demand for credit, and the amount of credit
demanded, indicating that more patient individuals live in households which demand
less credit. The question of how an individual’s risk preferences and discount rates
interact with credit demand remains open. For example, does an individual’s risk
aversion outweigh his or her discount rate in terms of the impact on credit demand,
or is an individual’s discount rate more important than risk aversion? Further
12 Policies for Sustainable Development: The Commercialization of Smallholder. . .
477