Measuring Default Risk in Farm and Non-Farm Sector

Abstract

The purpose of this paper is to measure and analyze the risk associated with farming and non-farming sector and to investigate the liquidity and credit risk relationship. Also to analyze the market for farm and non-farm micro-finance which can be either high or low quality. The only project their borrowers, micro-finance institutions are high or low quality (MFI) because they know whether or not there is adverse selection. MFI is a competitive risk neutral, and they are the borrower's project is only profitable if they are to provide a loan agreement specifying the amount to be repaid. Otherwise, the borrower will default on his contract this. In this Research Qualitative research design is used in which different theoretical models are used to explore the default risk. Credit risk model is used to explicitly account for adverse selection, then a study of adverse selection, loan defaults, and made self-financing. This is a simple review of the existing literature related to the farm and non-farm credit risk. The main finding of this research is that Farming sector is more risky than non-farming for the loans granting.

Keywords: Loans, Default risk, farming, non-farming sector