CREDIT RISK AND THE DEMAND FOR AGRICULTURAL LOANS

This paper uses the lender-borrower relationship to provide insight in to the empirical estimation of loan demand/contract curves for agricul tural loans. Loan demand is shown to be determine partly by lenders' w illingness to provide debt. The implicit solution to the loan contract curve in the lender - borrower relationship is derived from the cumul ative probability distribution function of loan losses, which is the s ame measure used as the dependent variable in credit scoring models. C onsequently, empirical estimation of loan demand can be obtained from credit scoring models. This paper presents the theory and then provide s loan demand estimates and elasticities using Farm Credit Corporation cross-sectional and time-series data. Empirical estimates indicate th e possibility of a backward-bending loan demand curve, which may indic ate some credit rationing in agriculture.