The evaluation of agricultural loans : a case study of development bank financed cattle projects in the Markham Valley of Papua New Guinea

Abstract

This study is concerned with developing a system of loan evaluation for us by a development bank , focussing on the extent to which the loan recipients experienced improvement in their financial position . It is suggested that such financial improvement is a necessary condition for success of any credit program. The evaluation system developed uses the 'owner's' net present value or work as he decision criterion to judge whether financial success had , in fact , occurred . Fourteen small-scale beef cattle farmers, operating in the Markham Valley of Papua New Guinea , and financed by the Papua New Guinea Development Bank, were used as cases to test the adequacy of the system and the criterion used. The major conclusion of this study is that the net present value criterion is adequate as a definitive measure of financial improvement. It incorporates the time value of money , is relatively simple to apply and is able to take into consideration particular constraints (e . g . , a minimum income constraint) facing the entity for which the analysis is being performed. It is also capable of incorporating the different time preference rates (and risk return preferences) of different individuals by reflecting these differences in the discount rate chosen . Finally , the net present value is a valid maximizing objective, thus improving its usefulness as an evaluation criterion .