Collateral Free Lending with Risk-Contingent Credit for Agricultural Development

38 Pages Posted: 21 May 2010

See all articles by Calum G. Turvey

Calum G. Turvey

Cornell University - School of Applied Economics and Management

Apurba Shee

Pennsylvania State University

Date Written: May 20, 2010

Abstract

This paper investigates a viable alternative to traditional credit products through the development of risk-contingent credit for operating loans and farm mortgages and applies the concept to agricultural loans for pulse crops in India. We analyze daily commodity spot prices and design risk contingent structured financial instruments. Risk contingent credit mitigates business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations.

Keywords: India, Commodity-Linked Loans, credit rationing, Development Finance, Agricultural Finance, Commodity Price Risk, Pulse Crops in India

JEL Classification: G13, 013, Q12, Q14

Suggested Citation

Turvey, Calum G. and Shee, Apurba, Collateral Free Lending with Risk-Contingent Credit for Agricultural Development (May 20, 2010). Available at SSRN: https://ssrn.com/abstract=1612504 or http://dx.doi.org/10.2139/ssrn.1612504

Calum G. Turvey (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Apurba Shee

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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