Page 1

RURAL F INANC IAL MARKETS: A REVIEW OF LITERATURE*. Mario B. Lamberte** and Joseph

Lira

STAFF PAPER SERIES

NO,

8702"**.

* A Paper ..presented at the Workshop on Rural Financial -Market .Research jointly sponsored by the Technical Board for Agricultural .Credit (TBAC) and .the Philippine Institute for Development.Studies (PIDS), in cooperation with the Agribankers' Club and the Quedan Guarantee. Fund Board, 6 January 1.987, Central .Bank of"the Philippines, Manila, Philippines. ..... This

research

undertaking

..is made.

possible

through

the

.support. of TBAC. • The authors are grateful to Ms. Meliza H. Agabin, ExecUtive. Director (TBAC), Mr. LeopoldodeGuzman (Luzon Deve.lopmentBank)_ Dr. .Douglas Graham (OSU), Dr. Richard-Meyer _.(OSU),. Dr.. Carlos Cuevas (OSU), and Dr. Patalinghug (UP-CBA) for sharing the.ir • commen.ts"and insights.at various stages of the research. Thanks are alsodue to Ms. Josephine Rodriguez (TBAC) ...... and. Kristine chua (PIDS) for research assistance, and Ms. Juanita E. " Tolentino (PIDS) and. Merle Gonzales (PIDS) for typing the draft. .. ** Respectively, Professor(UPSE) ***

This

.is.also

Research

circulated

Feilow

as

TBAC

(PIDS)

Working

and

Paper.

Assistant


TABLE

EXECUTIVE I.

C.

i 1

Framework for the Review Organization

objectives

the

Conduct

the ON

Study

of

the

Central

D.

Various Theoretical to Rural Finance

B.

C.

Economies 9

C.

A.

AND 9

Economic

Development Banking

Behavior RFMs

BEHAVIOR OF EMPIRICAL

8

FINANCE

B.

E.

of 3

of

Description of LDCs

of 1

THEORETICAL ISSUES DEVELOPMENT A.

IV.

SUMMARY

Rationale and the Study

B.

III.

CONTENTS

INTRODUCTION A.

Ii.

OF

of

in

andFinance LDCs

R7

ApproaChes 36

Participants

of 48

PARTICIPANTS RESULTS

OF

RFMs: 75

Formal in

and Informal Lenders the Rural Sector

Saving in

in the

Behavior

Ii

the Philippines Rural Sector of

Borrowers

and 113 in

MACROECONOMIC POLICY ENVIRONMENT INSTITUTIONAL FRAMEWO_ A.

Macroeconomic

Policy

B.

Institutional

Framework

C.

Specific Pollcies to RFMS

75

the

Rural

144

AND i_8

Environment

Directly

Sector

158 164

Related 199


V.

POLICY

RECOMMENDATIONS FUTURE RESEARCH

A.

Policy

B.

Research

AND

AGENDA

FOR 218

Recon_nendations

_18

Agenda

_7

BIBLIOGRAPHY ANNEX

_49 A: Various SurveysConducted TBAC and Primary Data

ANNEX i.

B: Mr. in

Antonio Rural

H.

Ozaeta,

Development"

2.

Dr.

Cristina

David,

3.

Mr.

Leopoldo

de

4.

Ms.

Purita

Mr.

Ives

6.

Dr.

Carlos

7.

Dr.

Epictetus

8.

Mr. Ramon K. Katigbak, (Closing Remarks).

5.

by Gathered

Neri, Nisce, E.

"The'

"Comments

Guzman,

"Comments

E.

of

on

on on

the

"Can

on

the the

"Comments

Patalinghug,

Financial

institutions

Remarks).

"Comments

"Comments

Cuevas,

Role

(Opening

Review" the

Review" Review,

on

the

Review"

"Comments Money

Review"

Be

on Made

the in

Review"

Rural

Finance?"


EXECUTIVE

SUMMARY: A

This and

paper

research

REVIEW

attempts works

"RURAL

to

which

OF

MARKETS:

LITERATURE"

make

a

would

FINANCIAL

survey

shed

of

light

existing

on

the

literature

issue

of

rural

finance.

The and a

paper

starts

the

importance

Third

World

development

and

perceived

role

The

and

empirical

studies

that

affects

previous

In

the

general,

the

subsidy

to

rural

areas

rural

economy.

for

a depressed

studied.

the

are

regard will

Bank

rural and

of

in

this

concentration

on

with

its

4

of

thought

in

the

new

approaches

are

The

theor:etical

and

lenders

markets

agrees

with

the

the

99)

particularly

contrasted

and

ambitious

finance,

is

old

financial

paper

its

The

environment

Masagana

as

schools

economies

development

Central

various

in

the

stabilization.

savers,

borrowers

in

LDC

the

monetary

school

government's

(particularly

of

of

the

concerning

rural

role

and

surplus

macro

markets

financing

reviews

The

discussion

highlighted

economic

the

and

thoroughly.

The

finance.

contrasted

a

financial

is

also

rural

informal)

with

deficit

in

paper

of

the

Economy.

process

development

area

of

off

(both

areas

formal are

analyzed

instithtional are

discussed,

credit

subsidy

and

framework and

the

programs

evaluated.

With to not

the work

Direct

the

new

view

approachto

that

and subsidies

massive

cannot to

rural credit

compensate agriculture,


the

promotion

agriculture inputs %he

to

rural

of

land

agriculture

all

economy

finance

cannot

substitute

The far

to

from

to

for

also

savings

productive

expand

and

create

grow,

and

new

would

environment

Credit

lot

of

the

subsidies

development.

view

create

allocation

for

for

that

rural

liberalization

and

anti-

industrial

subsequently

agricultural

the

of

the

thrive.

financial

support

mobilization

would

in

that

of

liberalization

and

with

termination

a good of

savings as

well

atmosphere

credit

to

as for

the

most

projects.

The borrow

and

failures

institutional

rural

these

agrees

minimal

the

reform,

develop

sector

paper

correct

employment,

policies,

rural

are

rural

paper more

also from

shows

a

informal

lenders

evidence

that

and

informal

that

rural

borrowers lenders

are

lenders.

In

'%

more

efficient

particular, risk

the

costs,

needed.

for

informal markets

in

loans are

informal research

economic lending work

is

of of

power

that

takes

recommended

loans

or

markets.

this

interlinkage

to

and

lenders

resolve

ii

are are in

formalizing

these

Informal

credit

markets

causes

equitable.

issue.

and

imbalances

borrowers.

not

this

they

position

output

and

but

time

and

"rollovers"

a cautious

factor

eff{cient

the

and

with

between be

at

schemes

informal

administrative

sizes

interlinked

linked

formal

reduce

loan

however,

claim

may

can

smaller

expansion

usually

than

repayment

because

researchers the

provide

paper,

the

flexible lenders

flexible

The

calling

_more

informal

and

More

allowed.

some

and

Thus, More


Finally, away

from

scrapping rural

the

deposit

of

free

supervised

sector

and

often

(such

as

retentionJshheme), and

rehabilitation and

liberalization

unnecessary

banking

entry

selective

from

specialized, of

the

viable

apart

efficient

exit of

the in

the

rural

banks.

iii

of

and

subsidized

harmful the

interesÂŁ

paper

credit,

state

agri-agra calls

rates,

a move and

intervention requirements

for

a state

rural

banking

sector

banks

limiting

them

in a,d

policy and

to

the

the

honest,


CHAPTER

I

INTRODUCTION

A.

Rationale

The

and

emphasis

is

understanGable.

the

masses,

its

energies

live

and

depend

Objectives

so

of

it

has

and to

for

economic

their

sector,

in

general,

support

of

rural

economic

development

country's

resources.

important

role

be

asked:

development for

policymaking

study

can

question. various

respond to

the

the

give

a

However, institutions

biased

markets

sector?

planning.

has

to

be

the

is

no

answer

more

there

are

quite

individuals

complete a number

of

of

which

deal

them

are

the

an

But

RFMS

Unfortunately, and

for

play

of

this

in

strategy

sector.

role of

rural

launched,

recognition

rural

Knowledge

direct

and

been

itself

Programs

definitely

the

people

the

The

(RFMs)

of

people

committed

against

in

of

the the

particular.

changed,

from

share

of of

industrialization.

specifically

and

greater

has

envisioned

mobilization

rural

a

development support

majority

in

are

been

financial

broad

government

policies

rural

majority

which

agriculture,

has

with

where

on The

on

directing

areas

shelving

in

power

by

activities

and

what of

to

Study

government

into

development

however,

rural

came

those

without,,

The

It

livelihooa.

dismantling

the

present

resources

towards

-can

the

of

in

it the

important

comprehensive

studies with

to

that

done

by

certain

%

aspects

of

>rural

finance.

Among

Sacay

et

al.


(1985)

and

TBAC

findings

and

identify are rural

important

steps

comprehensive

of

view

existing

directions Philippines.

(I)

of

(2 )

the

discuss

theoretical

special

focus

put

together of views

critically which in

have

the

hig_lighÂŁ

and

planning

which

is

to

the

role

oÂŁ

rural

issues

on

rural

draw

lessons

other

less

developed

rural

with

future

finance

in

the

to:

rural

finance

and

weaknesses

strengths

a

implications

identifying

attempts

and

finance

policy

on

on

provide

rural

project

views

with of

finance_

from

the

varied

countries

applying

finance;

monetary

and

time,

on

on

finance

new

direct

the

same

study

paper

and

the

evaluate

integrate

the and

findings

on

on

indirect

and

cred it

bearing

on

pol ic ies

rural

finance

Philippines;

and

recommendations the

this

researches

Specifically,

certain

(4)

rural

and

at

literature

policy-oriented

experience

(3 )

of

integrating

traditional

and,

to

development.

existing

on

hopes

policymaking

rural

objective

of

paper

a comprehensive

in

studies for

for

towards

review

in

needed

markets

general

this

recommendations

gaps

financial

end

Thus,

policy

research

The

the

(1985).

Philippines;

integrate of

research and

the

findings

studies

finally,

on

rural

and

policy

finance

in


(5)

identify

weaknesses

studies

on

_ura[

and

_inance

policy-oriented

gaps with

research

o£ the

agenda

existing

purpose

on

research

of

rural

drawing

finance

up

in

the

Philippines.

B.

Frajnework

In

used

for

(1981)

shows

comprised

about

1978.

such,

40

important

markets. recognize

The agricultural

are The the

non-productive

the

income

percent

an

the

other

of the activities

for

is

twofold.

A

reason roles

c0nce_ts instead

in

aspect is

the

in

that

played

is

study

partly rural

by

farm

activities rural

the •

areas

rural is

agricultural

agricultural of farm and

TBAC

households are and

as

financial a

need and

and nonoff-farm

activities is appropriate for Our purpose. For a clearer definition of these concepts•, see H.T. Oshima, "Levels and Trends of Off-Farm Activities at Different Stages in Monsoon Development", Seminar Paper,UP School of Economics (May 1985), pp. 1-2.

3

that

activities

of

there by

non-

and

non-agricultural income

and

been

urban

[1973]).

total

(i.e.,

One

has

a

_unds

including

non-agricultural

important

used.

agricultural

between

activities

complementary

use

Report

that

economic

gap

from

of

means

reason

framework

review,

activities

activities

ILO

the is

include

The

the

(see that

This

they

in

in

markets

activities

narrowing

incomes

included

financial

non-agricultural for

theReview

be

activities.*

from

household

to

and/or

activities

responsible

of

rural

Productive

agricultural

becoming

of

productive

non-agricultural

income

Conduct

studies

framework

consumption).

in

the

identifying

simplified are

for

• to non-


agricultural

activities

the

•findings

them

with

studies

the

certainly rural

of

give

us

rural

on

findings

financial

that

in

of•studies

a

on

better

rural This

the ° special

attention

given

far,

the

demand

discussed.

Studies

are

important

equally

rural

through own by

surplus

income of

reason

the

of

demand

conjectured

at

lopsided

not

be

can

side this

in

of

stage

favor

surprising

agricultural

linking

credit

the

are

of

(1973) areas

in

of

view

of

in

the

activities

Why

they

has

self-financing that

considering issue

that to

more

and/or do

not

forced may

always

are

therefore

their

ways

markets by

whl.h One

entrepreneurshouseholds activities•

to

pointed

entrepreneurs/households engage

credit

in

track

self-financing.

record

in

self-financing.

a matter have

use AS

engage

included.

been

activities.

sources

choices.

4

three

to

be

has

financial

access

entrepreneurs/households alternative

finance

markets

the

least

(1973),

proven

to

of

their

likely

have

them not

Shaw

at

is,

finance

_inancial

side

are can

and

are

the

supply

There

funds

collateral

locality

this

on

self-financing;

McKinnon

low

Lack

be

side

entrepreneurs/households

their

in

to

and

agricultural

be

should

credit

together

sector.

So

out

can

finance

credit.

is

on

picture

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agricultural

rural

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non-agricultural

markets.

studies

development.

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banks.

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on

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lending.

unions)

in

composition

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on

time

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view

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policies rural

to

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lenders

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behavior

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the

is

rural

with

financial a

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Philippines

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on

of

therefore

dealing

of

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shape extent

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studies

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in

large

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on

policies

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rediscounting

policies

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informal

savers.

findings

that

ultimate

of

altered

major

the

policies and

the

setting,

are

credit

necessitates

those

of

namely

Philippine

certainly

credit

behavior

markets

interest

and

and

of

the

and

together

also

review

in

have

the

markets,

intermediaries

to

markets.

of

institutions,

financial

the

important impact

financial

monetary

financial

to

financial

rural

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financial

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behavior

given

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example,

borrowers,

and

is

rural

units. of

rural

included.

formal

character

Bank.

the

of

attention.

saving-investment are

of

surplus

and

given

attention

participants

function

the

with behavior

markets.

3

The

study

does

existing

studies

analysis

of

draw

more

information

data

not on

data

rural

presented

insights or

limit

on to

itself finance. in

rural

further

existing

to

reviewing In

certain

studies

finance. enrich

key

Also the

cases, is

of

a • re-

necessary

included

review.

findings

are

to new


In the

the

course

research

ones,

were

greatly

done

(1985)

C.

Organization

serves

study

the

rationale,

the

review.

finance

extensively

are

are

also

some

policy

work.

In

of

the

Study

composed

regarding

the

critically

five the

behavior

of

and

workings in

oÂŁ this

recommendations

and

the

Some

the

review.

for

the

new

Chapter major

The agenda

conduct

of

issues

on

on

the

last for

rural

RFMs

III,

of

re-examines that

banking chapter future

are

empirical

environment specific

et

I gives

participants IV

has

Sacay

views

of

of

latest

Chapter

participants

institutional

chapter.

the

and

In

of

theoretical

Chapter

RFMs.

work

framework some

many

materials

the

chapters.

chapter.

that the

research

for

traditional the

found

especially

point

reviewed.

policy

finance.

this

of

been

these

discusses The

behavior in

of and

II

to

has

particular,

take-off

is

discussed

finance,

the

the

the

rural

as

treated

conditioned

it

Access

objectives

macroeconomic

review,

TBAC.

development.

and

findings

on

Chapter

and

finance

rural

by

facilitated

This

the

materials

al.

RFMs

of

the the have

policies presents

research

on


Chapter

THEORETICAL

This issues

Chapter

on

specific

A.

ISSUES

starts

finance

Description

To markets,

it

economies

of

It

is

economy.

the

a common In

this

sector shares is

commercial

between

than

from

a brief

to

review

rural

financial

description

of

low

to

90

rest

pe.r capita

low

to

with

of

the

and

income,

percent

of

total

the

agrarian

comprises

a

of

The

the

labor

exports.

The

industrial outside

domestic

unemployment

income

an

product.

70

small

with the

have

output

percent

links

generally

to

domestic

60

punctuated

the

LDCs

gross

between

whose

with _s

total

70

usually

productivity Aside

on

agricultural

of

absorbs

enclaves

stronger

with

among

economy,

agricultural

economy

on

LDCs

literature

start

goes

finance.

of

characteristic

proportion

and

then

theoretical

LDCs.

significant

force

rural

the to

DEVELOPMENT.

on,general

and

Economies

necessary

AND

a discussion

on

appreciate

is

FINANCE

development,

issues

of

fully

with

and

theoretical

ON

II

and

world

are

economy.

Labor

rate

high.

very

distribution

is

severely r

skewed.

Land

Shaw of

LDCs

are land,

so

concentration

(1973) as

and

highly

isolated labor,

is

McKinnon

one

(1973)

fragmented. that

capital

they

face

and

cause

That

have is,

different

produced

9

of

incom_

concentration.

described

the

"firms

and

effective

commodities

and

economies households

prices do

not

for have


access

to

consists

of

produced

the

same

several

markets.

commodities

conditions

in

demand

and

urban

markets

same

commodities do

not

urban

or

rural

r i;gid

investment

preferences

market,

or

inputs,

factor to

equalize

areas,

preferences how

opportunities.

The

market

various

markets.

endowment

or

deployable

investment

opportunities

among

the

lending points

out

misuse and

or

o_

borrowing that

condemns

a

and over

and

land,

important

do

not

and

fragmented

in

suppresses sectors

deviate

for

other

markets

coexist.

most

fragmente_

market,

one's

productive for

correlated.

the

have

yields

or

external MacKinnon

market

entreprenurial of

within

these

the

capital

the

from

opportunities

the

for

Even

capital

badly

concretely,

transportation

peculiar

are

to

Investors

informal

as

supply

Prices

the

out

and

whatsoever

markets.

and

market

time

and

for

fragmented.

capital,

"fragmentation

labor

these

singled In

demand

markets.

attractive

is

capital

More

adjusted

then

labor,

markets.

are

Formal

capital

by

economy

reference

rural

in

markets

matter

no

other

from

land,

solely

_ with in

The

for

determined

segmented

tend

no

investment

Prices

conditions

are

cost,

are

that

supply

technologies."

causes

the

development,

economy

to

inferior

I

technology."

What

institutions

In other horizons

have

addition peculiar in

is

unfortunate

unwittingly

to

given

market

characteristics LDCs

are

is

relatively

10

that rise

government to

market

fragmentation, of short

LDCs' due

policies fragmentation.

Shaw economies. mainly

and

to

mentiones Temporal scarcity

of


capital

and

financial

assets.

physical it

and

doesnot

financial

is

and

which

are

input

arrangements that

will

B.

Economic

be

Given

the is:

Historical

in

and

unemployment

main

concern is

of

the

experience important

and role

by

detail

of

literature

on

market

markets,

regulations, different

which

implicitiy

be

by

with

seen

Shaw

and

hand

is

from

McKinnon.

below.

Finance

the

task

Todaro reduction

this of

logic

at

(1977) or

within

in

both hence

rural

shoula

provided

for

altogether

sector, LDCs

and

Diffusion

government

brings

rural

LDCs,

role

new

Imperfections

those

of

the

The

credit

greater

of

markets.

of

of

in

"terms

all

physical

incomplete;

interlinking

the

and

to

yields

and

expensive.

development.

What

to

This

from

conditions

in

inequality

an

in

return

regarding

aggravated

Development

the

development

has

and the

discussed

of

expensive

interlinking.

economic

posed

slow

different

This

of

quickly

characteristics

perspectives

view

and

oftentimes

economic

rapid

is

markets.

market

rates

assets

emphasizes

encourage

means

real

information

easily

usually

finance

output

in

Also,

flow

technology rural

instability

defines

elimination

the

paper,

to

context

poverty,

growth."

In be

the

question

that

finance

in

economic

development?

seem

point

to

economic

out

that

development.

a

economic

of of

stage

must

finance

This

issue

%

deserves

me_re detailed

According experience

to of

a

discussion.

Gurley

number

of

and countries

ii

Shaw

(1967)

shows

that

the a_

historical income

per


capita

increase,

national

wealth

support

this

moment

of

high

it per

product low

Asian

model

and MTwo

where

Table

can

be

usually

ratios

incomes

(or per

the

countries, the

=

YDPC

._8

+ .009

+

+

.0[3(PH)

+

+

.O_0(TH);

MTwo

=

Ratio

YDPC

= GDP

DP

=

and

R

=

of

M_

the

of

+

tO

at

any

which assets

while

to

ratios.

financial

ratios

estimated

a linear

results:

+

.O0_(TA)

GDP in

thousands in

year

the (a

of GDP

proxy

1980

US

deflator for

price

dollars during expecta9

cant

the

effect

HK

=

HongKong

IN

=

Indonesia

KO

=

Korea

MA.

= Malaysia

PH

= Philippimem

SG

- $i_apore

in

.169(HK)

change

previous

tions);

to

countries

financial

(1.986)

have

.90

capita

Percentage

lower

than

seems

countries

ratios),

Patrick

.074(SG) 2

evidence

financial

regression

.O03DP

per

higher

have

rapidly

countries

determinants

following -

that

financial

main

more

Comparing

have

capita

Cole

obtained

II.l).

also

grow

Empirical

observed

capita

investigate

eight

assets

nationalproduct. (see

time,

have

TO

or

view

incomes

national which

financial

only on

variable

MT_.

having

no

signifi-


Table Bank

Loanable

II. I

Funds in Typical (ratio of M2 to

Semi-industrial GNP)

LDCs

/

1965

1970

Argentina

0. 245

0. 209

0. 267

-_'.168

0. 234

O. 225

Brazil

0. 148

O. 156

O. 205

O. 164

0. 175

O. 170

Chile

0.123

0.130

0.183

0.099

0.208

0.149

Colombia

0.191

0.204

0.235

0.222

0.210

Mean

ratio

of

M2

to

GNP

to

four

Latin

India

0.283

0.262

0.264

Philippines

O. 186

O. 214

Sri

0.284 0. 202

Lanka

Turkey Mean

ratio

of

Bank

M_

to

1980

American

countries

0.184

0.295

0.382

0.297

O. 235

0. 186

O. 219

O. 208

0.330

0.275

0.255

0.317

0.291

O. 223

O. 237

0. _.22

0. 136

O. 204

GNP

Loanable

1975

Mean 1960 - 80

1960

for

Funds (ratio

1955

four

Asian

in Rapidiy of M2 to

1960

countries

0.247

Growing GNP)

1965

Economies

1970

1975

1980

a West

Germany

0.331

0._94 b

Japan South

Korea

TaiWan

0.448 b

0.583

0.727

0.913

b

0.554

0.737

0.701

0.863

_ 1.026

1.390

0.069

0.114

0.102

0.325

0.323

0.337

0.iI_

0.166

0.331

0.462

0.588

0.750

0.701

0.668

0.826

b Singapore

Notes:

_rce:

-

-

a

As well includes

as deposits bank bonds

b

The bias sp_ialised

is

R.

I.

McKinnon

0._42

and sold

currency directly

the German series to the public.

downward _ecause deposit credit institutions was (1986).

13

information not collected.

on


As

expected,

on

MTwo.

YDPC

TA

=

Ta iwan

TH

=

Thailand

per Figure

using

results

show

M3

a

which

+

shows

M3

measure

the

between

ratios

to

of

to

in

G urley

demonstrated

is

successful

dynamic

issue: process

Patrick hypothesized financial

and

(1966)

and

and

others

two development

sector,

economic

has

secularly

investment,

Yet,

only be

due

instead

of

there

was

to

deposit

followed is

one

may or

Using

observed.•

rising

in

a

relationship

division

financial

financial of

labor

in

intermediation. their

indeed

ideas

had

crucial

venture

to

real,

leads

for

ask in

'this the

development?

attempted

patterns • and

M2

70s,

and•

the

could

•used

be

and

growth.

is

a positive

with

Which of

Cole

the

rate• differential.

development

to

econ0mic

This

associated

who

relative

between

growthcan

the

effect

Generally,

the

ratio,

Shaw,

financial

MTwo

deposits

interest

being

Shaw

that

economic

critical

is

saving

and

and

traditional

economic

Gurley

of

Philippines

In

financial

and

positive

relationship.

substantial

finance

production,

enough,

substitutes).

financial

According

What

to

trends

relationship

Patrick

from

and

regressions.

a negative

shift due

a strong

fitted

positive

problem.

substitutes as

the

country

deposit

signifi icant

has

Curiously

measurement

(=M2

shows

strong

growth.

country some

II.l

income

individual

financial

to

capita

to of

economic

14

settle

causal growth,

this

issue.

relationship under

the

Me

between "demand-


Figure

II.l

Filled trends in monetary and real growth, 1960-1981 2.0,

I째0'

I_

Kong

1.(

_ 0.9' IE 0.8. 0.7" O.G, 0,5, 0.4. 0.3. 0.2-

sia )uth Korea

0.1, O

Philippines I_

_

Per capita

Source:

Cole and Patrick

(1986).

15

_

income (1980 US$)

4_

I

L

I


following"

phenomenon,

response

to

in

real

economy.

ind%cates

the

the

sector turn

the

elastic

for of

a

the of

and

demand

for

modern

economic

or

traditional (R)

to

the

modern

profitably

to

in

Thus,

the

growth

respond

quickly

assumptions sector

the

financial

of

the

are:

to

stimulate

the

that

is

highly legal,

The

is

supply

(_)

that

government they

16

are

for

two

commonly initially

of

financial assets,

in

main

financial capital

advance in

functions

resources

from sectors;

response

in

encountered they

This

real

entrepreneurs

entrepreneurial

private

the

(high-growth)

sectors. leading

to

done

transfer

proble_mmost

modern

using

be

modern

posits

financial

The

to

hand,

creation

demand

an

other sector

their

(i)

sectors

nascent

subsidies;

on

sectors.

institutions

government-owned,

financial

favorable,

financialservices

finance

(i)

the

financial

that

supply

growth-inducing

if:

t

from

especially

and

savers

sector.

to

a

which

in

generally

suggests

related

sectors.

circumvented

governmen

it

promote

leading

is

and

the

real

on

the

as

services,

sector

depends in

of

permissive

phenomenon,

(non-growth)

and

the

financial

running

them,

investors

their

of

develops

environment.

the

supply-leading

supply,

the

there

and

for

and

services

Specifically,

institutions

of

their

relationship

liabilities,

demand growth

"supply-leading"

causal

sector.

of

by

underdevelopmen%,

passive

that and

The

of

sector

services

entrepreneurship

and

institutional

ÂŁheir

anemic

ability

demand

financial

The

essentially The

supply

for

lack

the

is

process.

the

demand

reflects

finance

to

the

the

cannot

problem

a_dreceiving

lend can

institutions

institutions

by

be are

direct receiving


direct

or

indirect

initially

lend

sectors

a

government

large

profitably,

modern

industries

As approach

all

type

out

they

by

Before supply

Patrick,

leading

(3)

funds

their

country

be

they

to

loan

may

traditional portfolio

to

follow

one

not

the

industrial to

of

real

real

growth

less

becomes

following

growth

induce

becomes

response

may

hypothesized

able

process

gradually

financial

he

modern

may

the

impetus

demand-following

a

Instead,

As

their

shifting

sustained

investment.

supply-leading

of

or

emerge.

throughout.

sequence: underway,

proportion gradually

as

pointed

subsidies;

gets

innovationoccurs,

important,

and

the the

dominant. %

McKinnon the

(1973)

causal

economic attempted movement economic

In

The

growth to

in

of

the

additional

treated

that

financial

rigorous finance

economy

the

an

discussion

development

manner.

has

over

the

and

Specifically,

impact

business

not

they

only

cycle

on

on

but

also

rate

and

the on

growth.

a neoclassical

growth

ratio

in

accumulation

neoclassical

(1973)

between

a more

show

this

accumulation

capital

Shaw

relationship

output/capi_tal included

and

model of

of are

affect by

money

physical

model, the

money

to

17

is

savings

in

that

it

output. is

other

clear.

a reduction

is

wealth.

savers

words,

The in

of

for

implication

the

Money

part

alternative In

The

model

leads

an

capital.

substitutes. growth

growth

assuming is

the

then

to

money

and

of

the

accumulation

growth

of

physical

of


capital,

which

output.

This

in is

McKinnon

are

physical

lead

in

to

pervasive,

Shaw

are

argued and

that therefore

only

it

the

is

a substitute went

on

are

in

of

the

services

for

to

service

not

sector

turn

the

used

real

of

financial

not

for

would

a

in

complement

finance,

of

people

value

against and

the

to

enhance

produced

18

is

demand

the

like

the

by

in

is

the

other

the

financial Thus,

can

never

capital.

Shaw

shouldbe

viewed The

production of

of

debt

considered,

outputs.

more

growth

the

is When

assets

produce

treatment

He

liabilities.

system

producing

wealth.

context.

economy

physical

inputs

of

deposits,

financial

to

part

physical

wealth.

financial

of

and

different

money,

financial

Thus,

money

entire

other

inputs

money

national

since

receivespecial assets

an

Because

in

that

or

the

intermediate

sector.

outputs should

employing

equal

somewhat

of

accumulation that

as

a

part

remains out

suggest

Money the

currency

money

is

external

that

whether

sheet

of

of

In

indivisibilities

a substitute.

demonstrate

in

cancelled

and

power

problem

capital

accumulation

absence

presupposes

is

balance

physical

assets,

a

the

money,

aggregated

to

complements

in

investment.

attempt

approached

not

purchasing makingan

growth

model.

accumulation

accumulatioh,

before

the

alternative

self-finance

and

in

result!

monetary

investment

McKinnon's

reduction

an

where

accumulate

investment

capital

proposed

capital

lumpiness

a

a curious

economy

investment

causes

indeed

:has

underdeveloped

to

turn

the

the

since

real it

financialsector.

is

be then as

latter process

financial output. only

one


The

studies

economists tested

to

of

empirically

McKinnon's

intermediation Asian

favor

McKinnon's

assumptions

financed

and

money

domestic

savingsdo

and

conditions

in

the

weakens

development

countries

the in

argument

the

Jung

development

(1986)

the

causality

the

Granger

tried

between

were currency

ratio

of

M_

(i)

to

the

used, to

GNP).

following

less

in

these

that

the

the _

McKinnon's explained

the

self-

repository

of

countries. result

However,

his

In

supports

of

the

the

that

main,

importance

regarding of

developed

rejected

to

rigorous

financial

model

cannot

direction

historical

stages

of

sector

leads

and to

_6

approach

real

and

of

experience development the

real

Jung's

that

pattern pattern

more is

19

of

are LDCs

as

of

applied 19

are

financial

(i.e.,

variable

(i.e.,.

the the

follows:

have

by

which

ratio

a

frequently

supported

He

measures

currency

monetization

results

determining

development.

Two

the

the

in

countries,

countries.

hypothesis

causality

ten

Fry

financial

namely: MI)

debt-

earlier

the

test

development of

their

financial

industrialized

Shaw's

process.

causality

ratio

claimed

exclusion

a rmore

developed,

more

results

that

(1978)

financial

process.

at

Fry

is,

regarding

unequivocal

developed

hypotheses.

test

any

Fry

the

some

from

predominant

point

Further,

data

investment

apply

test,

Shaw's

produce

causation.

sector

not

empirical

McKinnon's

the

prompted

hypothesis.

that is

Shaw

hypothesisand

empirical

of.Shaw's

and

their

using

The

in

really

tegt

hypothesis

countries.

another

McKinnon

complementarity

hypothesis

of

Patrick,

supply-leading than

the

data;

a

demand-


(2)

the

hypothesis

pattern,

i.e.,

following

causality

development (3)

regarding

the

is

hypothesis

Jung

was

Indeed, his

also

less

a number

be

period

for

both

take

is

the

periods of

period. this

the

from

procedure and

third

also

be

interpreted

underdeveloped

the

robust, the

because

i_trepretation

correct

test

nevertheless,

issue

developments.

of

instance,

the

LDCs

•to test

the

stage

with

yield

it

the

into

his

supply-leading

a

result

procedure. •they

have

can

be

Although

Jung's

provided

us

relationshipbetween

in

can

•remain finance.

by

results

a way

each

his

result LDCs

prevented

sub-

correctly,

first

is,

to

later

strengthen

That

employ

is

the

test

the real

two

and

could

now,

same

procedure it

of

on

hypothesis

that

the

and

differently. they

of

hypothesis

causality

second

is

results. validity

use

development

results As

of

causal

the

divide

the

the

development

third

appropriate

of

and

characterized

financial

DCs,

apply

findings.

and

For

of

of

data.

weaken

•The

and

can•also

second

between

early

dealing

first

Multiple

and

data;

financial the

demand

course

the are

could

experience

development, Aside

that

pattern

historical

LDCs

by

his

inappropriate.

namely,•

stage

in

raised.

causality

developments

supported

a _

the

by

supply-leadin_

objections

DCs

supported

causality to

during

high-growth

committed

of

can

changing

by

moderately

results

time

pattern,

that

changing

supply-leading

moderately

predominantly is

•from

the

of

financial

applying are

not

dealing

with

and

real


Ranis between He

(1977) financial

argued

the

that

role

if as

as

words,

an

an

one

an

implies

started

attempt

lomg

epoch

are

several

at

of

_odern

colonial)

primary

secondary

import

The inde_m%dence

development industrial some

merits

West. _ in

to

strive

Hence, this

modern

21

the

financial

problem

in

such

essential

rather

In as

the

other

it

moves

transition

institutions

will

"development

epoch

of

have

into

of

post-

into

either

substitution;

and

growth.

tried

of to

LDCs

a_z_ieve

prescription

for

economic

is rapid rapid

characteristics

import-substitution. as

out

(or

there

a

states

moves

independent

export

to

economic

first

from

problem

agrarianism

two

econ(_my

experience

primary

strategy

of

an

requiremehts

these

the

or

for

be

treat

defining

a long

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23

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24

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thinking :

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25

markets

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The level,

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26

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27

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29

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31

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32

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33

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36

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38

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and

curves

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demand

and

hands

this

are

and the

MC2,

the

interest the

increases,

reverse.

D1

than

the

borrower

that

borrower

while

[1984]).

in

of

rationed

cost

borrower

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size

classes

than

big

small

restrictive.

steeper

the

ceilings

the

while

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when

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respectively

r**,'

concentrated

of

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is

advanced

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marginal

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to

MC2

this

(ILIRR)

(nonrationed)

borrower, and

through

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assumed

big

and

Further,

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to

is

big

loan.

borrower

and

MCI

borrower

loans,

expense

several

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credit,

interest-rate

redistribution

II.2.

big

the

when

granted

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demand

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will

become

credit

the

cheap

effected

of

credit

nonrationed

lending

small

further

make

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between

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that

rate

size

that

to

of

the

borrower.

the

Rate

borrowers.

marginal

amount

to

Figure

access

income-transfer

This

borrower

is

the

restrictive

in

while

distributed

hypothesizes

depicted

the

unevenly

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decreases.

higher

have

proportional

Vega

(rationed)

borrowers

are

since

of

Gonzales-

classes

small

larger only

Thus, borrower

M1 more at

ceilings experience overly

of cheap


43


The the

"second

best"

"traditional"

view

macroeconomic

For

higher

foreign

urban

consumers

Rural

areas

and

very

bridges.

they

to

neutralize

must

be

given

the

to

"new"

specific

say

because

they

just

credit,

the

rate

biased

implication

of

the

to

particular,

While cheap

be

of to

"second all

credit

farmers receive

44

in

pay the

rural

areas.

cheap

credit

is

rejected

because

of

agricultural and

employment

activities,

like

through

tariff

agricultural

credit

Instead

deal

with

reformed. argument tax,

subsidy.

of

the

policies,

the

such,

exercise

protected

directly

best"

as

to

distortion.

be

roads

loans

economic

macroeconomic should

like

cheap

cheap

favor

producers.

and

output

other

to

the

targeting

futile

heavily

form

rural

argument

particular,

Thus,

should

the

a

agricultural

already

agriculture

overemphasized. receive

on

best"

is

tend

policies,

place,

is In

diverted

approach

against

first

another

In

these

the

pol_cies.

creates

distortion.

of

results

which

capital,

incomes

LDCs,

Overvalued

agriculture,

reduce

agriculture,

are

On

"second

In

impact be

overhead

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credit.

which

exchange

policy

no

can

manufacturing, and

of

have

and

inputs.

food

by

against

policy

controls

primary

In

biased

agriculture

price

taxes

effects

view.

sector,

may

are

farmers,

fungibility

loans

of

the

of

social

production

So,

the

these

and

Food

expense

little

All

discourage

by

the

be

protection

penalize

used

credit.

to

implements

earner.

at

get

tend

taxes

justification

agricultural

industrial

farm

export

exchange

another

usually

for

and

is

cheap

instance,

prices

localcurrency main

for

policies

agriculture. in

argument

cheap

sources

which The

equity

cannot only The

are

those tax

be who is


proportional farmer,

but

received. weak

The

subsidy

the

3.

The

The

"surplus"

between

are

o_ the

"second

view for

creditors

one

trading

(traders)

little

bargaining

migratedue

to

him.

Bharadwaj

works

done

in

size

of

for

cheap

inequity

of

and

school

of the

the

the

loan

credit

that

is

results. and

and

and

finance

(1974) field.

45

of

the

"new"

power

power

cannot

his

Bhaduri

relation

the

that

transactions

are

The

(the

landlords),

even

have

the

has

liberty

creditors

represent

for

other.

tenant

(1917)

But

poor

poor

and

the

between

The

landlord

of

costs

the

land

and

relationship

below).

on

in

production

relations

over

considered

resemble

creditors

and

that and

high

be

of

discussed

capital.

strength hold

be

and

their

relations

the farmers to

can

cred it

description

unequal

and

that

whole

the

failure

dominance

this

the

by

II.2.

the

concept

market

the

sold

"traditional"

Table

parcel

(a

hand

have

the

views

lenders

markets

on

argument

another

Thus,

manifestations

farmers

is

and

informal

the

or

to

and

in

it

part

school,

produced

View

exchange.

interlinked

good

best"

between

summarized

itional

the

inefficiencies

Surplus

as

of

isproportional

differences

RFMS

relations

amount

the

to

agriculture

just

the

of

main

non-trad

this

the

Thus,

because

view

to

some

have of

very to on the


Table

DIFFERENCES

,BETWEEN THE TO RURAL

TRADITIONAL FINANCIAL

Traditional

Savings

Financial

markets

II. 2

AND THE MARKETS

View

NEW

New

APPROACH

View

I.

Rural savings minimal,

i.

Rural poor do given proper incentives.

_.

Subsidized

and

2.

Financial

supervised needed for farmers,

credit small

save

markets

should be allowed to operate without intervention and interest rate ceilings.

Target

3.

Most

loan

4.

of informal lenders

_.

Purpose

Role

borrowers

of

farms.

3.

Bankable and viable farms.

In farm production

4.

Allow financial market to allocate among uses of loans.

Monopolist, exploiters, usurers,

_.

Efficient allocator of funds to small farmers usually reached system.

Interest rate structure

6.

Artificially low interest rates for small farmers,

6.

Interest rates can be high to cover opportunity cost of money, transactions costs and risk

46

not by formal

premium.


Recently theory by

and

Floro the

applied

surplus

trader-lenders

result

is

land

that

to

their

landlessness informal claims,

but

farmers

are

may

it

may

the

study

due

perhaps

also

She

the

be

efficient

exacerbate

to

gross

offered

that

the

mortgage

increased credit

market

credits

found

forced

that

to

interlinked

informal

slowly

and

arise

market

to

of

farmer-lenders.

creditors may

mix

approach

and small

a

their

tenancy

and

debt

as

the

net

and/or

nexus.

The

recent

inequities

in

trend

the

rural

areas.

Other informal which

non-traditional credits

to

peasants

these needs.

exacerbating

the on

agriculture relations

peasants

on via Such

(1986),

the

Feder

by: for

i)

peasants

-

to

that

and occur

(1983),

47

output in

and

varying Keith

with

the

attack

the

technology making

and number

from

one

them

degrees

Griffin

more

changing

of

ways

that

via in

([_).

to

2)

is

of

merely

emphasizes and

as

inputs

the

markets

and

technology

consonant

etc.)

the

one

a

industrial

increasing

input

and

Revolution

and

rent

viewpoints

all

formal

researchers

pesticides,

from land

at

these

capital

production

"surplus

extraction

not

Green

both

a system

suffering

(fertilizers,

concentrated

Ferrer

are

new

monopoly

of

extracting

the

attack

support

Particularly, of

dependent

they

researchers

introduction

nexus".

because

schools

surplus the the

"dm_t

works

of


E.

Behavior

The

of

Participants

preceding

have

direct

micro

issues. explain

net

borrowers,

i.

Behavior

behavior

credit

are

quite

lenders

often

determined,

so

and

the net

which

deal

with

that

att_mpts

RFMs,

namely,

savers.

of

of

financial

types

and

with

of

in

the

lenders

FFIs

errors

in

and

and

rural

IMLs.

behavior

policy

making

types

borrowers

less

the

the

informal

volume

to

I,

namely the

however,

of

Chapter

lenders,

(FFIs) deaiing

in

given

effort

is

Lack

of

of or

at

these least

Institutions

models

that

attempt

institutions

has

"complete

bank's

that

in

(1980)

and

the

RFMs

policies.

models" of

will

models of

misunderstanding

Baltensperger

size

issues

section

participants

behavior

or

financial

"partial

will

Unfortunately,

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Copious.

total

two

resulted

Theoretical formal

examine

types

the

modelling

credit

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it

Studies

by

of

inconsistent

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institutions

given

has

macro

RFMs.

description

two

(IMLs).

understanding

discussed

intermediaries,

the

generally

in

have

major

substantial.

exerted

RFMs

Lenders

to

moneylenders

a)

of

financial

of

the

financial

of

are

formal

on

Specifically,

According there

sections

bearing

to

of

only

to

advanced

models".

48

question

is

behavior

of

are

quite

these

models

into

former,

"the

In

assumed of

the

economies

classified

portfolio the

explain

the

the to be

exogenously

optimal

allocation


of

this

"the

portfolio

joint

determination

liabilities the

and

bank's

operation

such

models.

asset

monetary

the

that

ot_r

by

the

mobilized

structure

but

also

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on

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emphasize

to

their

best

the

of

assets

total

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scale

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FFIs

the

savings

funds

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hand,

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are

functions

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o?ly

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addition,

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institutions created

in

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at

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because

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least

in

two of

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Because models

that

described

basically

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variants

prevail

are

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behavior

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imperfections

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modelling

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on

Some

economy.

FFIs,

not

solved,"

portfolio"

transformers.

liabilities

to

and

to

be

interaction,

(1984)

according

to of

their

Santomero models

remains

are

factors the

the

in

49

rural in

the

in

areas.

As

rural

should

commonly

areas.

In

financial

artificial

environment

be

considered

in

areas.

available

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the

areas.

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models

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describing

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models FFIs

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These described

hypotheses finance,

are by

derived they

will


(i)

The

Gonzales-Vega

The

Gonz_les-Vega

purpose The

Model

of

mode_

determining

latter

is

(1980)

socially

defined

as

was

optimum

"that

formulated•

allocation

_or of

allocationwhich

the

credit.

maximizes

the

i

aggregate

net

activity, well

income

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all

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borrowers.

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of

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distinguish

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the

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Figure

for

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•51

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Different •Interest"Rates for Large _ad Small•borro_)e_s

52


D2

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.53

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the

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54

rate

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58

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61

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II. 7

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66

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farmers

are

This

in

involved

actually what

as

borrowing

stresses

the

than

indivisibilities.

of

costs

requiring

are

only

loans.

then

earlier,

smaller

presence

in

out

making

opportunity

McKinnon

investment,

farmers in

enough

transaction

the

costs.

his

prohibitive,

pointed

loans

and

Secondly,

that

cost

expenses

attractive

above

cost

transaction

is

farmers

borrowing

and

processing

the

and

interest

in

need

effective

especially

spent

technology

decisions if

rate

themodern

assumed the

effective

all,

means

of

The

that

As

cost

model.

finance.

loans.

This

the

excessively

resort

loan.

of

over

not

technology

but

loan

borrowing,

time new

First

a

effective

out-of-pocket

rate, a

the

the

from

in

securing

for

interest

farmer-borrower's

interest

securing

nominal

arises

investment

pay

McKinnon's

the

however.:

in

with

regarding

includes

is

respects, costs

themselves

decisions

of

several

of

the

sources

of

into

account


Any

model

borrowers

that

has

cQncern

to

grapple

themselves

decision

feature

would

be

and

profit

P where

the

the

the

reality

behavior

that

cost

to borrow

or

Ladman's

it

interesting

yields

not.

to briefly

equation

=

explain

effective

worthwhile

The

to

with

with

whether

this

attempts

R

-

of

(r.L

P

=

profit

in

R

=

revenue with

+

his

farmer-

farmer-borrowers

borrowing

in

model

(1984)

testable

discuss

the

of

of

inaking has

hypothesis.

model

borrower-farmer

It

here.

may

be

written

BTC)

as

(i)

pesos,

net

of

costs

borrowed

of

funds,

the

resources

but

not

purchased

net

of

borrowing

costs, r

=

interest

L

=

loan

=

borrower's

BTC

Equation p

=

= where

This

AR

(i)

L(P) L LIAR

-=

-

rate,

size,

can

transaction

be

L[R L (r

and

rewritten

-

(r.L L

+

+ ABTC)]

=

=

average

revenue,

ABTC

=

average

borrower's

AEC

=

r + ABTC

may

be

schedule

(DD)

=

depicted

average in

consists,

marginal

value

products

employed

using

successive

condition

is

Figure

of

the (MVP) loan

69

costs.

into: BTC)] L LIAR

(2)

- AEC]

transaction effective II.8. loans

cost, borrowing The

of

for

values

from The

cost.

demand

present

resulting units.

and

the

profit

credit of

the

resources maximizing


Figure

14L_L-i. uw_

L-

and

t ii

Ccls

II.8

Borrowing Oosts ,and Be_-nue$: One Lender

70


r

To

=

MVp

maximize

would

be

the

(3)

profit,

the

L'(AR-AEC).

minimum

willing

to

remains

the

things.

farmer

Note

has

that

T1

loan

size

below

borrow

from

a lender.

same,

One

AEC

is

borrower.

The

threshold.

This

curve

the

the

reduces

other

is

that

the

profit

would

the

r

does

two

of

the

profit

confxonted

be

while

This

increases

or

not

increases

optimal

farmer

his

threshold

upwards.

it

a

and

borrowing

ABTC

shift

it

L'

borrower

If

would

that

borrow

is

which

that

means

to

borrowing with

higher

4 transaction

costs

before

the

induced

to

increase

This

of

charges on

high

cost

the

borrowing

part

part

the

of

of

below

L",

the of

loan

size

LII,

while

moneylender

he

for

of

higher cost

is

LI.

the

loan

so

that

size he

than

will

but

demands

and

the

informal

farmer.

Figure

farmer.

be

the

borrower

II.9 L",

financial

loan

would

high

have

low

farmer

would

institution

size

requirement

is

the

above

L",

from

the

former.

If

prefers

to

borrow

from

the

latter.

The

optimal

loan

Farmers

size

who 71

want

financial

for to

borrow

it

from an

amount

is

optimal

institution

borrowing

be

and

borrow

formal

who

possible

to

the

which

transaction

summarizes the

two

transaction

prefers

from

and

moneylender

requires

At

formal

one

institution

rate

otherwise

If

of

financial

but

a

case

farmer-borrower

formal

farmer

the

borrowing the

to the

the

rate

between

then

that

the

behavior

farmer

model

interest

moneylender.

then

assured

transaction

namely

interest

indifferent informal

his

nominal

the

charges on

be

the

means

lenders;

low

cost

in

extended

lenders.

choices

to

borrow.

Ladman _two

has

is

informal between


Figure

Borrowing

72

Costs

II.9

and Revenues:

Two Le2_ers


TI

and

T_

informal

of

is

that

induce

cost

credit,

This

informal

of

moneylenders

Ladman found

tested that

the

financial

rates

forced

many

Philippines

is

farmers the

basic to

informal

farmers access

view to

market. considered are

several

market,

farmers

reasons

as say

another

as for

sizes

why

before

despite

the

farmers

using

not

compare

the

sources

_ of

making

any

massive

cheap

still

say a

73

Bolivian

for

offer

concessionary

to

also

seek

been issue

look

at

the

formal

In

certain

the

formal

market, the

worth

is

One

that

from

informal of

it

market

instances, In

the credit

source is

interest

that

credit

i.e.,

the

the

examining.

credit

informal

from

experience

complementary. the

experience.

borrow%ng

loans

model

supplemental

this.

the

costs

Ladman's

from

market,

one

by

of

sources

to

farmers

alternative

loan

has

market.

access Or

the

interesting

either

these

one

facilitate

this an

credit

from

agents,

borrowers

weakness

borrow

financial

which

potential

indeed

Ladman's

formal

transaction

Whether

from

borrow

hypothesis

high

drawn

favor.

institutions

moneylenders.

The

his

institution.

does

governments,

with

the

credit

explains

many

be

from

agricultural

from

desired

funds

financial

can

economic

partly

progrmn

to

source

formal

that

borrowing

their

to

the

lessons

rational

of

given

decision.

from

farmers

As

effective

formal

main

prefer

promotingcheap

institutions.

credit

not

the

necessarily

He

definitely

moneylen@er,

One model

will

of

farmers

other

forcgs or

from

however, words,

market,

would

informal

credit

market,

may

credit. are

be

There rationed


by

lenders

on

the

because amount

institutions

as

o_,er

reason

different formal

are is

sources financial

capital capital, modelling

and or and

farmers

profit

from

farmers

of

credit.

may

credits

informal

moneylender

These

empirically

borrowers.

74

aspects

investigating

the

informal

both

markets

by

different they

must

The

assets

from

borrow

from

of

finance be

behavior

so

them.

acquisition to

ceiling

financial

by

from

example,

finance

the

formal

perceived

finance

For to

like

decisions

opportunities

vice-versa. in

borrow

source

that

the

constraint,

arbitrary

institutions from

legal

can

some

Thus,

there

certain

farmers

or

moneylenders. long

of

working

considered of

fixed

in

farmer-


Chapter

BEHAVIOR

OF

This

chapter

the

behavior

with

financial

a)

saving

in

behavior

of

and

in

It

of

is

focus

the

on

on

informal

vis-a-vis about

farmers.

Its

of

the

The

number

of

farmer's

in

the the

708,

samepattern. 70s

could

came

share

dependent

75

sector;

areas

b)

and

are

that

cannot

up

put

c)

mostly

studies

an

total

37

to

massive

temporarily

the

of

on

known informal several size

508,

in

credit

30

of

the

early

market

the

loans

percent

agricultural reduced

of

informal

value

about

percent

informal

level

indicative

of

the

precisely

together

In

to

on

the

with

dropped

rose

be

credit.

The

have

sector;

Sector

rural

(1985)

percent

then

rural

sections,

rural

rural

about

al.

formal 80

the

three

the

Rural

credit

et and

dealinc

credit.

information

middle

programs

agricultural

finance

of

understandable

of

comprised

follows

the

absence

the

less

in

Sacay

the

the

rural

rural

by

in

therefore

studies

of in

MARKETS:

sector.

of

credit

obtained

rural

volume

Recently,

studies

consists lenders

Lenders

of

participants

and'in

the

FINANCIAL

results

It

informal

Informal

total

credit.

and

THE RURAL RESULTS

major

activities

credit

The

the

(RFMs).

borrowers

agricultural.

credit

of

OF

empirical

Philippines

Economic

because

reviews

formal the

Formal

rural

PARTICIPANTS EMPIRICAL

markets

namely:

A.

MAJOR

III

in 80s.

more

or

credit importance


of

informal

forced

credit.

majority

i.

The

Loans s'ector the

of

farmers

Formal

Sector

granted

_ reached

loans

centers.

The for the

of

formal

sector•

in

(see

averaged

ways.

is

rate

to

the

is

only

was

3.27

NEDA

[1986]).

loans

to

18

agricultural 9 percent

added

87

percent. it

is

which

growth

rate

was

granted

1966

to

ratio

during

•by

•the

loan.s

to

formal

had

the

period

a reflection

the

in

and

can

been

1966

be of

which

The • other efficient of

come

than•the

loans.

informal from

biased

against

interpretation

significant the

are

is

that

the

non-agricultural

However,

this

should

proportion

of

the

sector.

In

contrast,

formal

agriculture

financial

sector be

to[al

institutions

76

taken

with

the

general ....

[198_]).

sector regard

with

agricultural

loans•

•in •the urban

is

to

caution

non-agricultural

- 84,

interpreted

(David

agricultUral

nonrising,

,

policies

non-

8 percent

ratio

This

way

for

agricultural

GVA

percent

urban

agricultural

percent

in

(GVA)

23

which

in

formal

loans

percent

of

sector

Understandably,

total

formal

has

credit.

located

for

average

that

informal

non-agricultural

non-agricultural

averaged

however,•

on

enterprises

the

only

One

This

real

value to

again

1984.

_ 84

from

both

failure,

sector

growth

1966

declined

latter

formal

formal

percent

loans

former

two

the

period

gross

agricultural

depend

in

agricultural

agricultural

the

the

average

Although

while

to

industrial

loans

share

the

of

8.4

agricultural

1984.

to

real

the

subsequent

billion

granted mainly

below

by

_27

consists

loans

Their

more

the

use

since come

loans areas.

from mainly

a


The rural

formal

banks,

savings

development reached 1985

as

other

a result

of

the

of

formal

commercial

are, _

•' and

tota_

the

_esources making

leakages

of

the

rural

credZt

the

set-up of

for

of

to

and

to

agriculture

_18

billion

one-half

provided

by

system,

in

of

the

commercial

and

the

rest,

may

firms.

resources

which be

are

from point

bank

one the to

to

in

that

big

rural

to

the

minimal _

banks

the

rural 1/3

of

sources

effect

(15

of

urbanareas.

percent

agriculture

big

agricultural

the

that

and

on

only

into

of

the

mainly

commercial

found

to

etc.,

mostly

deposits

channeled

stipulates

channeled

The

(1981)

banks

also

are

private

are

•banana,

clientele

be

cater

which

coconut,

study

The

Bank_(PNB)

projects

for

perhaps institutions

countryside.

viable

agribusiness

can

financial

National

main•conduit

policy

the

Their

TBAC-UPBRF

market

of

sugar,

financialassets

creditquota loanable

in

conslsts

Commercial

banks down

was

banking

commercial

observation

of

About

rural

and_borrowings

lending;

This

loans

Philippine

large

the

went

the

crops.

however, But

squeeze.

like

commercial

areas.

credit

lending

and

of

then

system

agric_turalexports_

landowners

loans

1983,

in

commercial

other

areas

branches

by

banking

banks

rural

banks.

reflected

the

the

and

agricultural

segmentation

partially

large

in

one-third

types

The

in

billion

about

in

Outstanding

outstanding

banks,•

sector

banks,

banks. _25

total

by

•lending•

of of

the total

percent

to

•i: •

agriculture

in

beneficiaries). which

stipulates

general, The

I0

deposit

thSt

7_

percent

retention percent

77

of

to scheme

total

agrarian of

the

deposits

reform

government, should

be


invested

in

prevented

the

area

this.

As

rural

dynamism

circumventing

system

is

repressed

always

find

outside

the • rural

rural

banks

In loan@

banks

grew,

informal •Central

Deposits

them deposits

and

rural

not

thrift

financial

absent,

funds

and •

less

risky•

for

small

farmers

These

will

projects

the the

low+risk

of

as

these

the

were

financial

incentives

they

mobilize

their

capitalization.

78

and

own

rural

has

shifted

borrowers. than

wi%_

the (see

total i+e.,

As

_g,000 rural

respect

to

+, to+-++%he ++_

on • Central Special

Bank Time

Table+III+l).

enjoy

•financial Their

farmer

• ensued.

as

the

borrowers

large

grew

resources to

over

• lo_s,+

_g,[000.

dependent such

of

the

arrearages

trend

used

of

more

below

areas

funds,

all

trend

were

ratesand

been

special

their

loans

a reverse

always

and

+this

rural

default

of

number

with

small

rate

medium

of

spread

percent

were

seventies,

volume

in

have

or

default

late

rampant,

for

the

70

the

branches

contacts+

over

in

in

and

are

closer

banks

the

But

to

head+offices

rural

as

percent

funds

attractive

of

have

by

loans

banks

(STDs),

discouraged savings

75

became

rediscounted

the

has

Theyhavegrown

198_.

But

of

formal

Bank

in

to

loans.

Rural

The

in

percent 1976,

as is

banks.

mid-seventies,

lateseventies

in

long

loans

number

granted

sharply

whereas

rural

they+

the

increased

57

commercial

attractive

1,119

Thus,

smaller.•

1979,

(rural,

low-cost

The

_10,00Oor

In

the

reached

of

the

of

1950s.

borrowers.

in

more

originated,

areas.

are

countryside.

volume

to

source

system the

and

a way

ma_n

since

deposits

banks

in

formal

the

••"resourceful"

banks)

The

where

p_actically

assets

loan-deposit

via

rural ratio


Table AVAT-LENTS

lll.•la

OF SPECL-%L TIE

SUPERVISED

:DEPOSITS (STDs) FOR

C_EDIT, 1978-83, (p _4f11 _.on )

RURAL BA_KS

Tot_! Commodi%-y

1978

RiCea/ Corn-FruiTs & Vegetables Livestock & PoulZry Fisheri@s CoTton Tobacco 01:hers TOTAL

1979

1980

1981

I982

91.i 7_0 7,1 85.9 7.4 4.5 10.5 52.4

8Q.2 6.3 11.3 131.5 13.3 8.4 8.3 33.9

88.8 7,1 12.3 140.0 5.7 i!.5 8.6 i!6._.

57.0 4.3 ,9.7 167.% 4.4 10.4 15.1 37.3

53.7 35.8 26,8 15.6 13.2 8.7 175.1. !54.7 7.3 18.5 8.6 3.5 25.9 27.0 3!.3 154.3

255.9

303.2

391.5

305.5

3_!.7

a-/Includes Maisa_=--na/Maisan 77 and corn/fmedgr_ns b--/ParticiDaZion of banks or_her than include STDs by 0zher banks. Source of

1983

basic da_:

CB.

79

__ura! banks

1978-83

Ave. % Share

Gr-ow-'Lh KaZa (%)

20._ 3.3 3.1 42..• 2.8, 2.3 a,.7 20.S

(17.0) 17:W 4.1 13.9 2!_5 (4._.) 20.8 24.1

_29.% i00.0

!0.!

Ave. Shar to _B, 5oa! (1978-831 8.0 12.7 8.9• 13,2 7._. 120.2 _/ 82.3 6.3 a_.8

.oi_..ina.-,",y loans. _a!Icwed i_ the 9roEr_mn ; hence_ da-a


exhibits

high

Policies, paid

such

capital

cheap

as

of

may

have

• high

preferred

many

rediscounting

rural

banks

farm

maihly

Land

mainly

to

of

and

real

the

targets

so,•

banks

Philippines the

(LBP)

agrarian

Thu_, to

high

closure

of

brought

most

associations)

are

for I

loans

large-scale

are

securely

are

other

specializing

on

many

coconut

serve•specific provides

reform

There

functions.

supervised

program,

(DBP)

specialized

while

the

in

term

as

those

.engages banks

credit

such

industry.

InformalSector

Floro

(1986) detailed

moneylenders. informal•

creditors

host

local

of

rural

estates.

financing.

more

removed),

smaller

have

loan

their

Philippines

a

initially

recent

financing

of•• the

with

of

ieading

80's

and

Bank

The

III._).

dependence.

the

early

Development

2.

for

this

finally

long-term

government

of

the

form

borrowers

the

Table

•was gradually

to

savings

Being

specialized Bank

the

ex___ptions

and in

(and

operations.

_ther

(which

farmer•

Bank

medium

with

in

(see

collapse.

banks in

collateralized

of

windows

thrift

subsidy

contributed

Central

near

banks

•and•tax

rate

into

The engaged

funds,

the

other

stock_

unwittingly

to

to

government

default

arrearages

The

compared

rediscounted

banks the

rates

Whereas

and

Ferrer

study the

before,

(1986)

about

the

lan_lord •now

moneylenders

palay

have

81

and

have

behavior storeowner

traders,

•arisen

recently

to

rich take

come

of were

up

informal the

main

farmers

and

their

place.

a


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" I.-.,

_.

_

i

! I

_

_

1,..i

0

0


Specialization and

•has

lenders

also

are

show

linked

the

input

has

shown

dealers,

various

same

(see

as

•traders,

people.

Tab ie

more•and

motives

therefore

Table•

more

in

the

farmers

farmers

III.3). the

storeowners

Studies It

order

stipulation a price a

to that

higher lower

markets

to

products

higher

of

from

TBAC

seems

that

the

day

(see

than

ensure

and

market the•

to

be

are

and/or is and

default

(see

for

poor

III.6).

these their

market

for

The

traders

output

use

the

more

risk

higher

a clear

manipulate

and

preferring

Table

sell

have

capital

much

(see

the

trader-lender

merchant

inputs•from

price

to

The

lower

rates

buy

sources

able

and

namely farmers,

lender

risks

price

rich

farmers.

income

should

market

as•

market

default

lenders,

of

interest

farmers

price

sm_ll

typical

high

than

well

accumulation

a

with

prominent as

to

Effective

due

most

traders

lending

as

III. 5).

the

for

acts

bankable

_at

palay

interested

at

achieved

the

trends

•become

be

IIi.4).

Floro

is

to

oftentimes same

credits

Table

still

of

at

to

them

interlinked

their

prices

traded to

their

m

advantage. owns

This

power

of

transaction-specific

the

trader-lender

assets,

such

is as

enhanced

warehouses

since which

he the

/

poor

farmer

does

not

have

Farmer-lenders, motivation with

land

therefore income

in

according

lending.

collaterals more

farmers

t

Floro,•

Collateralized .are

their

willing

to

lend

as

as

their

long

to

•83

loans, primary

to

have

lower

land

is

a

different

particularly concern.

iand-sized used

as

those They

and

are lower-

collaterals.


Table

DISTRIBUTION FROM

OF TOTAL

LO_{S

OBTAINED

BY FARM HOUSEHOLDS

INFORMAL SOURCES, O_[S-YEAR PERIOD, BY SOURCE OF LOAN (In % of Informal Loans)

BCS, 1960-6! a/ Source

_Ii. 3

TBAC, 1978-79 (Rice Farming) In % of Informal Loans No. of Loins Amount

(All No oFarm of Types) Amount Loans

TBAC, 1981-82 (All Farm Types --Survey Results) No. of Loans Amount

Landlords

24.4

23째6

20.0

22.4

7.9

_ 6.1

Palay

12.7 b--/

ii. 3_b/

25..,.5

27.2

24 째5

31.7

2.9

5,4

9.6

traders

Rice millers Store

4.1

owners/other

merchants Input

16.6

dealers

Fu!itime moneylenders (professional lenders) Farmers Relatives

20째7

-

-

2.7

3.5

-

-

2.6

1.5

4.9

3.9

12.4

17.6

3.0

3.2

2.0

9.7

-

-

29.8

24.9

17.2

30.1

28.2

c/

c/

-

Friends/Neighbors

i. 8

1.4

c/

c/

-

Loan associations/ Credit unions

0o9

i_

12.0 ,

-

! -

Profe ssiona!s practitioners

O he_-"s " Not Reported Total

-

_

-

-

0.4

O.

!00.0

i00.

--a/Derived'from BCS, PSSH Bulletin, b/Includes C/Study but reported 15.1 percent (Table 63 of

corn millers

7.0

/

7 ._2

30.1d--/ IO0.O

Series

12, Tables

....... 1490,0

2 and 12째

and merchants.

did not indicate number nor amount of loan by relation of &ffinity relations of farmer-borrowers with sources o_ inTormal loans, viz. were relatives; 10.9 percent were n eighbors and 0.4 percent, friends TBAC study_ p. 91).

d--/Includes construction

contractors,

handicraftsmen

and professional

practitioners. e/Mostly nonpaiay (e.g. copra and vegetable)e_mmodity traders; also includes overseas workers and informal sources not categorized by economic activity. Source:

Sacay,

Agabin,

Tanchoco,

"Small Farmer 84

Credit

Dilemma"

1985.


Table

III. 4

contractual an_ Effectlve Monthly Interest P_te8 By Type of Tle-ln Arrm_gement,'.297CommercJa_ Loans ByArea Category, Wet Season 1983-84"_ (interest rate in percent) Type of TI e--in Arrar_esnent

Marginal Area

C_nt[actual

Adjusted Monthly

Rate

(rc) Z. mLttnkea

Loa_

lI. Linked

Loans

Developed Area

C_ntractual Noonday Rate (rm)

20.0

19.2

_

_

_uste4 Monthly Rate (r=)

Monthly

Rate

(rm)

_4.6 _

L_

A. L.i_ed to Circulation Activities, I. _Ired

to Sell

2.

P_i_ed

to

3.

I_-qulre_ to Pant Machinery

Gutput

Buy Inputs

II._

17.0,

13.5

18.3

191

21i

10.9

lld

10.8

lO.B

4. l_equlted to Act as • Marketing Agent 4. Both (I) and (2)

8.7

9.2

14.4

8.4

L5.3

6J

6.2

12.4

15.2

11.6

93

9.1

26_i

9.2

20.7

P_ bJ.nke_ to Productio_ Activities I. Borrower

iS Tenant

2. r_/ulred to Transfer Land Rights 3, R_ulr_ to Bender l,abor Service

=/

12.8

....

13.B

Meam,fo_ each loan type is the weighted average interest rate .Forall loans under each category with size of Joan as wei9ht.

Souroe: Floro(1986). "

85

31.9


Table

llI. 5

REGRESSION RESULTSa/SHOWING •TRADER-LENDER'S P_FERENCE FOR HIGHER-INCOME AND LOWER-RISK FARMERS ALL HOHSEHOLDS, WET SEASON 1983-84

W st _[he_e

= Co + CIYi + C2ki + C3A + u

Wst

= value of loan received

Yi

= estimated

ki

= borrower's

A

= dun_ny variable 0

All variables

if

income

regression

i from trader-lenders;

in;

te default;

and

for area category area and 1 if developed

are in logarithmic

The estimated

of borrower

p_opensity

marginal

by borrower

area.

form.

is as follows:

W st

= 1.739 _ (1.833)

+

0.584Y *'_'_:_" - 0o049k (3.77) (i_. 045)

-

0o344A (1.282)

adj R 2 = 0.163 F-

value

(3, 86 d.f)

=

6.01

a/The estimated t-statistic for the intercept suggests that we reject the null hypothesis that the intercept is "zero at 90 percent confidence level. The test also shows that there is a strong positive Relationship between income level of the borrower and the lean size granted by the trader-lender. This implies tha_ traders tend te offer bigger loans tO farmers with higher income.

86


Table III.6 Results of Least-Squares Regression Analysis Trader-lender Loans, All F_se_ml'cs Wet Season, 1963-84_

MODEL

I

DependenÂŁ Explanatory Variable Variables

Coefficients F-distri Adjusted (t-values)_/ bution at Me e_n (at k-l,n-k Rz degrees of freedcm_

14.651_/ Omzstant (interest)

28.457*** (3.83)

Income_/

-2.181"** (-2.90)

Area_/

II

14.65_ Constant (interest) Default rate_/

Area_/

i

5.66*** 0.ii (2,86 d.f.)

3.199 (1.53)

6,932*** (6.25)

3_7"*

0.05

(2,86 d.f.)

1!69" (1.93) 1.62 (0.72)

_/ There are 97 trader-loans in total However, due to missing values, only 99 and 89 observations are used respectively. _/ monthly rate _/ in natural logarithm. _/ dummy variable whereby 0 value refers to deve!ou_

(area

_/ superscript * refers to 10% level of significance. "** refers to 5% level of significance. •** refers to 1% level of significance.

87

)


Floro

shows

imperfect. or

one's

such

loans

Credit

thus

becomes

excess

lenders

to

motive

structure size

that

is

and

given

is •

lower

lower

permit

the

trader-lender's the

Land

as

benefits

the

made

with

compensation)

the

rescheduling

of

to

The

on

conjunction facto_ relations

the

motive

markets

the in

production

to

ties

the

get

seem and

the

what

to farm

Ferrer

the

so

III.7). They

The

period easy

that

terms

eventually

description

of

reminds

one

behaviors

lender'is

work from be

in

the

exchange

to

to

as

well

desperate

making

cal•Is

as there.

as

"the in

as

farmers often

to

oversee

debt

rice

well

as

his

nexus"

in

production)

credit changes,

as

other

services(although

agricultural

areas

not

points

lending

technological

rural

88

Table

production

debt

(particularly

study

and

land-

ris k , are

These

farmer

farmer-lender

overall the

rate

flexible.

mortgage.

of

may

of

default

loans.

anthropological

the

Lower

most

of

land

pricing.

activities need

the

is

Farmer-

interest

(•see

farmer-lender's

household to

high

enough

land

predatory

development

with

of

a

the

"feudal"

render

be

accumulate

force

and

agricultural

focuses

to

land.

his

rates

time

farmer-lender

are

have

any

of

New

who

at

Ferrer's

farmers.

land.

farmers,

one•'s

trader-lender.

requests

primary

conclusive.

the

• market•

expanding

thus

to

can

literature

person's

found

farmers

farmer-lender

another this,

of

••the land

of

are

ro•ilo•vers•and

small

because

a means

interest

loans loan

of

that

income

the

of

to

effective

accomodate allow

fruits

precisely

opposite

Farmer-lender

and

the

arise

system product the

•in and

shifting


Table

III.7

Results of Least-Squares Regression Analysis Farmer-Lender Loans_ All HoUseholds Wet Season, 1983-84 _/

MCDEL

Depencant Emplanatory Variable Varifies

I

19.713_/ Constant (interest} Income_/

_J

¢_efficients F-dis_ri A_jus%ed (t-values)_/ bution at Me=.n (at k-l,n-k R_ degrees of fr_)

-13.482" (-1.85)

4.91 0.08 (2,96 d.f.)

3_975**, (2.S5}

z.sz3 (0.71).

IX

19.713_ Ccmstant (interesn} Default cateG/

Azea(;;V

18.H28"** (11.42)

5.27**" 0.09 (2,96 d_f.)

-__320"-* (-2.97) 3.053

(!.22) IXX

6_33C,/ Constant (loan size}

7.710*_* (3.66)

Income(./

-a_7 (-1.22)

Def_u!t_J rate

" 0-_i0"*" (2.51)

4.57 0.16 (3,96 d,_.)

._ead,/ 0.89"," (-2.s4) _/ There are 107 farmer-lenoer loans. However, _ue to missing values, only 99 and 89 observations are used respec_ive!y. _

manuhly rata in natural logari_.hm. _/ dOmu_y variable whereby 0 value refers to _eveloped (a:ea) _/ superscript * refers to i0% level of significance, "" refers to 5% level of significance, and -** refers to 1% level of significance.

89


The State

cohtroversy

University

channeling

risk

and

to

use

costs.

In

Philippines,

rates

the

Revolution

Green

informal suppliers

of

the

to

Green

show

that

Revolution

But surplus

is

pointed

out

capital to

also

own

markets

agriculture.

has

equally

that

lenders

for

school specific and

this in

work

and

equity be

of

9O

this,

is of

lowering

to

of of

fall

use

in

of

more

traders,

input

etc.,

due

to

who

the

high

verified

areas

where

that

as the

raised

Floro.

to

Organization

the

the

For two

efficient

as

below).

The

are

But,

such

te

most.

issue

the

franchises

a

further in

applied

Industrial assets,

is

in

introduction

loans

lower

purpose.

implicit

Because

for

are

may

here

storeowners,

important

efficiency

by

This

been

and

been

banks,

demand

particularly

markets

transactions

lenders

an

rural

rates

transaction

III.8).

millers,

the

more

(see

the

Table

technology.

interest

Informal

interlinked the

new

school,

objectives.

in

after

for

are

done

explained

the

rice

technology

perhaps

the

as

increase the

(see be

reduce

have

Ohio

havepushed

extent

there

sector

The

they

already

that

can

Bank

to

limited,

informal

such

responded

of

signs

rates

farmer-lenders,

input-content

a

important.

because

is

technology

dealers,

studies

this to

loans

the

World

markets

are

interest

the

interlinked fact,

in

is

lenders

there

interest

and

here

informal

although

Furthermore,

rages

researchers

funds

efficient

that

use '

the

jargon

resulting

industrial agreement

it

different may

warehouses, the

here

and

the

by

use of

informal access

to

inputs between


Table COMPARATIVE

ANNUAL,INTEREST

INFORMAL

LOANS,

III.8 RATES

VARIOUS

ON FULLY-PAID

STUDIES

Annual Study/Location and yea_ covered

Gapud,

Nueva Eclja

12.0

82.0

(11978-79)

12.0

53.5

Bulacan

12.0

32_5

12.0

.50.7

12.0

83.3

i_3

48.2

(1957-58)

Su_

Isabela TBAC,

Nationwide

Soumce:

Sacay,

(.1981-82.)

Agabin

and Tanchoco.

Small

91

Far_er

(%i

A. Inciuding - B. ExCluding zero inTeresT zero-interest loans loans

98.0

Cama_ines

(1957-58)

Interest Rate Informal

12.0

Sacay, 18 provinces TBAC

Formal (Nominal)

Average

Credit

Dilemma,

126.8

73.7 "

76.1

1985.


lender

and

bargaining even

borrower

usually

position,

his

precious

process

of

the

of

area

and land

thus

may

vertical

puts

transaction

costs

school's

•integration

process

unexplored

empirical

answer

the

informal

field, imperfect

be

access

the

and

farmers

a

very

his

the

selling

In

multinational

and

fact,

creditor

is

weak

welfare

process.

wherein

to

[1983]). credit

encouraging

the

essential succeed

in

the

goes

very

similar

of

the

firms

in

the

into to

the

vertical

(Williamson,

the this

various

cooperatives South

than

our

variables

has

feature

and

so

instances that

have

and

affect

In credit

the

main,

the small their

marketing

(see

private

are

the

markets.

and

worked.

Taiwan

since

trading

far

of

by

increasing

credit

failure

experience.

markets

thereby

financial

like

Efficiency

of

added

to

markets,

markets.

interlinking

Korea

that

Just

interlink

factor

an

theoretical

cooperatives

areas. can

cooperatives,

a dismal

are

and

rural

and

the

of

government-inspired

been

there

the

in both

cooperatives

capital,

In•Japan,

more

establishment

the

But

of

have

unions

is

as

own

history

cooperatives

i.

just

institutional

But

therefore,

credit

traders.

cooperatives

area,

product,

the_nselves

The

to

large

credit

achieved

landlords

in

the

of

explanation

markets

lenders,

particularly may

of

portion

in

and

at

.

Another and

lost

integration milling,

borrower

a great

be

trading,

Teece)

the

Castillo

initiatives The

far it

story

of•

rosier

• and

seems

that

cooperatives

ability

are: The

level

instill

of • education in

the

farmer

9_

and

organizing

a sense

of

that

is

belongingness

done

to and


loyalty

tQ

payment

of

loans,

R.

The

dues

effective

The

3.

and

use

(which

translates

obligations,

to

prompt

productive

use

of

of

technical

assistance

and

access

to

institutions•

link

of

institutions be

institution

etc.).

formal

3.

the

felt

other to

by

the

Transaction

agrarian

ensure small

Costs

reforms

that

the

with

benefits

cooperative

of

reforms

will

farmer.

of

Formal

and

Informal

Lenders J

BOth motives

private for

maximize

lending. For

between

lending.

The and

latter

deposits,

is

exogenous

be

focused

on

transaction

Big

banks of

representative

of

may

high

be

most the

Since

the

and

the

into a

have

various

objective

profit

on

to

is

total

cost

of

costs

of

part

borrowed

attention

is

margin

effective

greater

interest lender,

may

common

decomposed

i.e., to

lenders

rate

costs.

funds,

usually

the

lending

transaction cost

informal

lenders,

the

effective

because

and But

profits.

difference

funds

formal

will

of

the

the

funds

or

therefore

costs.

shy

transaction

away costs.

from

small Consider

agricultural for

example

loans this

view:

"An average loan officer can perhaps handle a portfolio of _80 million to _i00 million pesos. If his clients are mediumsized commercial or industrial companies with loans averagZng about _ million, the officer would be handling between 16 to 20 accounts. To reac_ the same loan volume, for sugar producers who average _5 hectares and who each require about _200,000 per year,

93


the same loan officer• would have to handle about 400 accounts. When one considers corn producers, who average perhaps I0 hectares and require about _0,000 per crop cycle in loans, the officer would have to handle as many as 1,600 individual _accounts to achieve a volume of _80 millions Clearly these numbers of agricultural clients, to be adequately serviced, require a greater number of staff, meaning more overhead for the bank. The bank considering making agricultural loans therefore would either _hy away or have to be satisfied with a lower margin per peso loaned • due to the higher overhead." (Dominguez [198_]).

To

service

small

clients,

however,

small

banks

apply

/

different

technology

banks.

For

managers/loan of

rural

everybody

in

will

doing

of

•some,

of•

financial

defaultrisk

Among appear

•Central In that

of

to

the

the

that

have

of

•• in

to

down

rural

areas

to

acceptable

estimated

down

into

provided

reduces Saito sector

costs

costs

but

default

and

Table

could

be

them

banks

is because by

the

expenses.

pointed

feasible

as

III.9).

rural

risk

Viilanueva

and

decline

this

to

of

Philippines.

agriculture, costs,

level.

costs

administrative

(see

in

transaction

the

increases

Less

lenders

transaction

transaction

arrangement •effect

rural

in

are

areas.

bring

transaction

4

urban

an

almost

activities

helps

small-scale

small-scaie

know

This

expected,

conclusions,

managers

by

recipient

guarantee which

in

big bank

cases,

exerted

broken

to

most

economic

than

of

high-paying

moneylenders

institutions

the • lowest

their

lending

loan

In

that

be

•(1981)

As

catered

special Bank

one

were

expenses.

those

to

than

hire

do.

areas

the

the

not

Moreover,

have

Villa nueva

do

informal

rural

lenders•in

costs

size

and

and

•.•Transaction

the

in

sophisticated

banks

investigation.

small

•Saito

big

locality.

therefore

credit

costs

of

banks

their

less

they as

heterogeneous

efforts

is

instance, officer

small

less

which

out if

the


Table

111.9

Transaction Costs of Lending By Institution and Activity and Size of Recipient (In % of Outstanding LOan in Each Category)•

Small-scale

Private

the

Phils.

development

Small-scale

banks

Bank

of

the

Phils.

Expenses (2)

3.5 3•.9

2.0 3.4

3.0

3.R

3.0

2.5

3.0 •• 4.0

3.7 _.3

0.5

1.3

"0.2 0.4

_.3 1.7

industry:

• Dev. Bank of the Phils. Private Development Corp. of the Phils. Commercial banks

Source_

Costs Cl)

industry:

Private Development Corp. of the Phils. Private dev. banks Large-scale

Default Risk

agriculture:

Rural banks Dev. Bank of

Dev.

Administrative

K.A.Saito

and

D.P.Villanueva

9_

(1981)

B_


interest This in

rate

charged

readily the

previous

interest from

to

large

-

this

In

lower

the

interest-rate

banks

to

ration to

ceiling,

away

from

small

_ and

amortizing

credit

rural

financial

by

The real banks, very loan

(1983)

banks,

obtained

and

low

occurred

a

model

model

dead-weight

predicts the

owners

that

the

tendency

the

farmers, are

for

tendency

of

loans

be

the

can

larger

ones

given

better

than

smaller

institutions

did

similar

analysis

using

the

results

are

more

or

(see

Table

Saito

and

transaction

transaction

minimal

flexibility

COSTS

of of

work.

to

deal

costs

are

allows

informal

lending

moneylenders

paper

officer

Villanueva

costs

informal

administrative their

charged

[1986]).

TBAC rural

discussed

agricultural

among

costs.

Gonzales-Vega

Indeed,

Even

these

which

greater

borrowers.

landowners

(NEDA

same

the

especial_y

ones

DBP

The

the

manner.

by

of

arrangement'generates

in

to

cover

cross-s_bsidization

interpreted

access

this

case

addition,

shy

tO

GOnzales-Vega

sector.

of

small

banks

the

sector,

kind

In

high

framework.of

small-scale

society.

commercial

the

small-scale

to

that

to

into

sufficiently

chapter.

rate

predicts loss

fits

is

have They

are

with not them

96

less

simple required

reduce

the

same

six

"good"

as

those

III.lO).

reflect

farmers.

borrowers.

to

from

moneylenders

to

artificially

data

Unlike

lending to

rural

procedures

hire

administrative

and

"qualified"

Therefore, increased.

the

their Instead, costs.


Table

Transaction

Costs

of (In

TBAC

Administrative Default Total

Risk

III.lO

Formal and percent)

InformalLenders

Formal Lenders Saito/Villanueva

Informal Lenders

Costs

4.15

3.50

4.12

Expenses

1.06

2.00

2.97

5.21

5.50

7.09

Transaction

Costs

a/ Based regular

on the weighted average agricultural loans.

of

the

cost

of

supervised

and

b_/ Refers

Sources:

to

rural

banks'

lending

(i)

TBACL pating

(2)

Katrine Anderson Saito Transactions Costs of Sector

(3)

A study in the

to

in

the

on Selected Rural supervised Credit

Banks ParticiPrograms (1983).

(1981).

the Informal Rural Selected Provinces

(_i_8i__).

97

agriculture.

and :Delano p. Villanueva Credit to the Small-scale

Philippines

T_AC, AStudy on Markets in Three Phil ippines

small-scale

Financial in the

L


InforntaÂą outweighed

moneylenders' by

agricultural banks,

default

ventures

informal

guarantee

'They

expenses,

have

But

expenses.

One

do

therefore

are

is

to

Have

to

Unlike

rural

Bank

transaction

ways

that

or

higher

their

default

risk

to

their

credit

special

for

costs

reduce

be

very

default

tO

be

noted

insurance

Central

interlinking

(198[)

analyzed

the

moneylenders

(see

Table

ad_inistrative

costs

incurred

same

as

exerted

by

those

by

incurred

informal

by

the

their

risk

expenses

incurred

by

those

incurred

by

banks.

h_gh

risk

borrowers

who

institutions.

default

risk

expenses,

riskiness

expected

defaultrisk

percent

which

is

of

3 percent.

unusual

monopoly

rural

risk

factor

informal

are

and

they

of

costs.

The

moneylenders

normally with

are

still

of

considerably This

profits

for

98

these,

resulted

in

higher

than

catering by

higher

considering In

was default

moneylenders.

the

fact,

"extra"

to formal

relatively

actual higher

could default

moneylenders

than

informal

actual

been

ventures.

higher

effort

defaults

are

low

informal

almost

extra

accomodated

even

agricultural

expenses

have

actual

are

The loan

must

informal

the

reducing

They not

of

moneylenders

banks.

in

However,

inherent

expenses

informal

administrative

rural

costs

Surprisingly,

moneylenderS

increased

lending

transaction

III.10).

have

or

the

to be

risks.

have

can

markets.

TBAC

the

by

their

other

example

not

cost

%s

higher

bound

causing

there

It

inherently

provided

are

administrative

expenses.

moneylenders

thereby

high.

product

risk

arrangement

loans.

low

the 14.6 risk

profits


Whether default

rate

profits crop

informal

is

over

the

better

than

actual

default

be

some

usual, risk

the

Provinces

Of

provinces

and

be

zero

opportunity

"break-even" Bulacan

is

more

informal

loan

in

loan

was

granted,"

(See

Table

from

the

It

is

the and

informal

for

cost

Note more

ones

the

lender

capital).

TBAC'

s

Selected

same

three

informal

market.

and

premium

risk

to break-even that

(with

ironically,

the

areas

like

"progressive"

like

enjoy

Three the

to

Isabela

mainly

due

to

on

an

Isabela.

three "at

of

the

annual

provinces the

"Hidden" price

in

at

and

se_s

and in

look

charges

calculates

III.12). market

in

in

both

administrative

higher

rates

study

(1982 )

(1981)

"backward"

TBAC

payment

of

there

moneylenders

Mark_ets

the

expected

hand,

informal

that

significantly

between

other

Quinones

for • an

cost

repayment

The

that

lenders'

needed

than

the

"extra"

thinks

and

difference

the

those

(1985)

unexpectedly

On

the

overestimate

produce

Ghate

big

Philippines

rate

to

! RuralFinancial

measures

would

ÂŁhe

"

estimated

that

time

was

expenses.

Informa

III.ll

of

showing

the

consistently

question.

hence,

profits. on

better

open year

evidence

Study

Table

an

survey

"monopoly A

a period

indeed

in

moneylenders

time

based the

charges

output

interest on

loan

"at

was

were

rate the

actually

mainly

commodities

time

that

the paid"

underpricing are

used

as

since

it

kind.

a

little

gives

an

"ex-ante"

are,

however

some

difficult estimate

points

that

99

to and will

analyze

an

the

"ex-post"

have

to be

result estimate.

raised.

There


Table Break-even

PROVINCE

IIIi.ll

inZeres_ charges of Private Moneylenders based on full knowledge of borrrower's repaymenZ perfor_uance

REPAYMENT RATE

ADMINISTRATIVE COST

RISK PREMIUM

(PMLs)

BREAK-EVEN INTERES2 CHARGE*

_lacan

70.0

1.78

43.62

45.4

Isabela

83.0

4.54

21.41

26.05

76.0

5.29

32.34

37.63

Camarines

Sur

*Assumes_that PML does not take in detemmining h_s inte_esteharges.

SOURCE:

into account

a profit

component

Quinones, Benjamin. Explaining Vamiationsin Interest Rates in Rumal Financial Markets, Unpublished Mastem's Thesis_ 1982,

i00


0

<_

t...

<

<M

_

-_

_

_

__.

,__-

_

.__=

--.


,!

i.

Quinones

and

rates

the

mainly

post"

due

result

comes

and

late

that

the

overestimated Table

opportunity

The

capital extra

even

15

amount

the

are

cost The

"monopoly

exist

profits"

over.

shows exceeds percent).

that the

Table a majority borrowing

Thirty-three

lOR

of

are

15

as 18

the is

of

inputs. cost

and

of

explicit

Quinones

says

months,

then (unless

percent

is

grossly

informal from

M-99

percent

area).

high

therefore

of

significant

indeed

informal

cost

is

cost

after

debate

III.13

of

some

low-income

If,

is

of

in

plus

opportunity

high.

,profits"

opportunity

a

hidden 6

recovered

extra

cost who

underpricing

this

underestimated).

from

the

percent)

loans Of

output

(considered

quite

real

(see

dues.

(assuming

are

18

grossly

rates

months,

underpricing

include

the

all

Premium

to be

borrowers

18

late

risk

repayment

those

estimate

"profits" all

of

Isabela

ex-post is

almost the

not

the

repayment

after

The

of

"ex-

admits

seem

on

after

the

recovered

studies

only

informal

that

himself

is based

pay

cost

show

calculation

for

in

does the

to

cost

"hidden"

This

it

high But

release.

both

include

particularly

In

for

loan

The

not

results

virtually

of

since

should

expected

2.

date

show

premium.

Quinones

are

III.ll).

risk

risk own

as

calculated

estimate

high

TBAC's

loans

from is

to

and

uncollected months

ex-ante"

of

as

to

whether

sector

a TBAC

is

study

which

credit

(60

credit

program

informal

far

percent)

loans

(34.2 are


Table . INDICATORS

OF EXTENT

SOURCES,

--

,,

Ill. 13

OF "USURIOUS"

LENDING

FROM

BY VARIOUS NORMS, FULLY-PAID (In % of .No. of Loans)

INFO_AL

LOANS

c

"

1"957-58

I, If.

;II:°

In excess

of legal _ate

In excess of actual (22.1%) In excess •

.

(1_%)

lending

of . • anticipa_ed

cost

I_

excess

Of fammem's

Loans with interest_ #ate above 75%

a--/Average interest foams, is 126o 8 percent

TBACa /

(N = 1,260)

71.5

72.0

67.1

67.9

5g:.5

57.9

62.6_ b/

50_0

_9.0

32.7

_bozTowlnK

cost wltb Bank (3_.0%) V.

Gapud a/

(N,= 22_)

cost

•(36.6%) IV.

1978-79

Tare en informal pe_ ann_.

loans,

excluding

nonintere_

--]_Estimated f-Peru. Gapud' s data. C/Calculated Financial Mamkets Source:

Sacay,

fmom maw data, TBAC, A Study using .Im.260fully-paid loans,

Agabin,. Yancheco

, 103

Small Fax_em

on the Informal RuPal

Credit

Dilemma,

198!


higher

than analyses

of

that

informal

credit

The

since and

as

does

and

charged

higher

to

higher

risk and

Bulacan

may

areas. and in

point in

This

may

more

still

that

and

characterize

the

costs

settled.

province

competition formal growing

loans

issue

opposed

possibility

between

dynamic

as

in

whether refl_cts

of This

lending is

needed.

104

one

are

backward

and

loan

charged,

stronger

in

areas

or

then

higher to

(see

however,

are This

income

g@oups

necessarily

due

"progressive"

the

credit more

informai

the

high

is

more

"backward"

would

"Monopoly

moredepressed

in

moneylenders

credit

the

where

lower

more

in

riskier

such

charged

than

exist profits"

areas.

interest

monopoly

areas

interest

informal

areas.

area

low

that

rural

credit.

Isabela.

not

the

informal

of

losses

rates

risk

subsidized

more

and

to

highly rate

In

and

fromsettled

market

among

their

far

as

insists

costs

course

but

The

latter

moneylenders

transaction being

the

the

even

Indeed, informal

to

means

perhaps the

default. Sur

of

depressed rates;

school

transaction

higher

much

Thiseven

financial

true

Interest

profits"

interest.

rates

clear.

are

interest in

is

the

III.l_).

Camarines

competitive

reduces

is

that

of

rural

sector's

rates

contention

are

new

reflect

"extra

the

Isabela

not

rate

question

however,

making

supports

the

formal

repayment

III.ll

higher

the

thing,

Isabela,

Tables

percent

most

premium.

One

75

rate

power

borrowers further

charged Or

is

the far

research

by high from is


Recently, their

lending

more

branches

areas.

a

or

As the

that

they

in

supported

on

the

obtain

by

are by

agricultural modest

of

it

funds Supervised

are

loans

financed

rediscount

rate.

by

They

Understandably,

loan.

In

banks

were

agricultural went

r983,

60

to

the

of

rural of

to of

relatively

have

the

the

highest

banks of

loan

agricultural about

type

seems and

to

1984)

are

cost at

mainly

Non-supervised of

loans the

higher

since rest

rediscount almost

very

concessionary

profit

margins on

portfolio

all

to

this of

six

of

rural

type

of

"good"

Non-supervised The

The

a by

since

percent.

loans.

by

and

loans. 30

investment

they

concentrated

the

fact

(1983

deposits

funds

the

This

III.14).

least

out

Non-agricultural

since

costliest by

pointed

game.

banks.

at

10B

rural

lending

by

their

studies

loan

financed

non-agricultural

the

certainly

explained

the

Table

second

comprised

is

(1986)

on

TBAC

rediscounted

supervised loans

rules

(see

percent

be

returns

rural

in

up

intervention.

can

yielded

opening

Funds

type

is

by

for

sectors

"good"

the

costs

banks

of

intensified

operating

Tolentino

the

have

either

II,

best

funds

are

proportion

rates.

six

deposit

rediscounted

percent

the

costliest

loans

banks

of

small

results

of

the

areas

policy

Cost

given

the

behavior

financed

banks.

of

banks

transaction

Chapter

in banking,

be

rural

optimal

and

existence

remaining

them

for

Banks

can

private

non-agricultural

discussed

that

the

their

importance

Rural

big

subsidiary

of

and

4.

in

buying

study

agricultural paramount

of

operations

A

loans

nun_er

remaining

generally

I0 tight


Tabie Cost

of

Lending, Returns Six "Good Rural

111.14

on Lending Banks,.1983

Agricultural Supervised Regular

A.

I.

Non-Agricultural

1983

8.60

11.50

1984

ii.8_

13.00

13.60

3.50 4.76

6.10 7.30

7.40 13.6_

4.24 6.86

3.82 _.70

3.18 6.43

0.90 0.20

1.60 -

3.00 0.01

20.10

Cost of Funds

Administrative Costs 1983 1984

7.

of

Total Cost iof Lending

1983 1984 2.

andNet Margins and 1984

Risk Expenses 1983 1984

B.

Returns

on

Lending 1983 1984 C.

Net

i0.0 13.60

i0.50 20.73

(i. 20) 0.41

(3. i0) 0.63

Margins

1983 1984 Sources:

10.3 17.33

1.40 1.78 (i)

(2)

TBAC, ting

A in

Study on Selected Rural Banks the Supervised Credit Programs

TBAC, Follow-up Report Banks Participating in Programs (1984)

i06

on the

Participa(_1983).

the Six "Good" Rural Supervised Credit


credit

situation

both but

the it

also

cost

did

alter

scaling

of

and

the

composition of

substantial,

the

with

informal

lenders

charged

only

ceiling

on

change

For

loans.

loans

as

of

There

change

rural

Hence,

was, of

in

banks,

banks

a result

as

did

not

however, the

between

the

narrowed

down,

not

liberalization,

or

occur,,

the

a

reduced

then

perhaps:the

In7

down

the

in

loans

data

while

interest

segmentation

than

the being

the

banks

loan

rate

Bank. on

rediscounted

the

rediscounting differential

remained

is

_ (TBAC

about

rate

the

After

1984

the

rate

that_

rural

information

with

9ery

are

December

has

was

showed

rate

differential of

higher

Central

in

interest

loans

of

interest

although

of _ the

narrowing

annum

of

the

the

times

change

informal

narrowing If

percent

widened,

7

lending

the

policy, informal

because

absence

and

study(1984)

from

whether

and

has

34

afÂŁer

known

infQrmal

annum

Formal

survey

per

policy,

the

market

TBAC

banks

as

to

which

percent

by

high of

a

and 4

on

per

sourced

view

is

being

76

percent

credit

formal

course

charged

to

In

it

latter

Between

rediscounting

the

rediscounting

up

policy,

in

example,

14

in

[1985]).

change

of

funds

went

not

of

upward

costs

structure.

,of their

volume

the

depending to.

expected.

cost

between

referred

informal

transaction

Rate Differentials Loans , ,,

differential

funds

the

a perceptible

funds.

Interest Informal m ,

former,

caused

their

the

Before

'_did

funds

change

down

5.

the

1984

not

rediscounted

rate

in

the

same,

interest

rate

most

likely

differential

hypothesis

is still


at

work

in

interesting

It the

should

nominal

Relationship

How

do

view of

is

Cite_

were

certain

there

competitors.

formal

crediÂŁ

the

i

lenders

effective topic

cos

will

b

to

rural

degree

of

that

could

markets. extended

be For

Many

that

doing

banks

and

Given

also

108

in is

loans

befor

an

directly

ien

banks.

found the

the

on

(Saito

indeed

I

to

fact

rural

b tha

secto difficul

moneylenders

complementary TBAC

70

moneylender

rural

also

informal

some

be

were

it

the

banks

the

credit

instance, b_gger

to

through

th

But

a bank

used

i

with

view.

local

Th

decline

in

rural

establish

for

other?

The

this

segmentation,

formal

each

institutions

[1980]).

demand

Lenders

concomitant

of

Bank funds

of

view

support

value.

(TBAC

view

financial

coursed

excess

They

lenders

and

Informal

market

face

that

owners

the

anothe

interested

informal

competitors,

credit

Central

tremendous

are

emergence

eventually

accept

not

This

lenders

the

were

to

to

and

to

so

a considerable

access

evidence

[1981]),

and

rural

they

at

moneylenders is

is

and

sources.

rural

as

the

cases,

informal

are

formal

Formal

informal

evidence

by

to borrowers

by

in

that

examine

this

/ Villanueva

borrowers

informal

formal

closelM

lured

and is

of

accepting

charged

Between

formal

proliferation

to

This

below.

importance

has

that

alternative

6.

oftentimes

here

interested

from

discussed

markets.

research.

rate

are

commonly-held

financial

noted

lending

borrowing

the

for

be

they

further

rural

area

Rather, of

the

(198_) meinly

roles found for

ar in out

th tha

productiv


purposes,

while

including needs

informal

consumption

of

borrowers

moneylenders

loans,

that

cannot

lent

probably

to

be

met

fully

smaller

complement by

loans

the

formal

credit

lenders

due

#

tO

the

prescribed

prohibit

loan

formal

borrowers.

ceiling

lenders

Also,

from

the

farmers

long-term

informal

lenders

gave

both

markets,

have

pieces

rudimentary.

complementary

The

in

of

the

link

recently

caught

mentioned

above,

of

them.

bank

to

the

cheap

[1981]). so be

as

to

less

rural

sector done

results

to

policy

formal

and

this

reflect _ tendency

case, _heir for

are in

109

and

credit

sometimes

competitors future

still

formal or

in

and

are

view

doing

of

the

moneylenders

researchers. can

be

linked.

As

moneylender borrowed

the

Central

moneylenders cost.

misallocate

has

There

already

their

arising Bank

is own from

(Quinones

re'priced Thus,

are

channel

from

opportunities

of

to

are

whether

the

many

opportunity

borrowers

rural

above

informal

profit

informal

months).

making.

they

policy

real

cited

moneylenders

extraordinary

while

7

the

other,

banker/informal

informal

r@discounting In

of

which

rural

than

of

lenders

months),

in

determining

be

the

exploit

have

at

through

Some

we

attention

demand

formal

IR

niche

that

other.

should

the

channels

each

(less

each

aimed

between

various

one

the

roles

significance

own

loan

that

7

loans

their

evidence

study

lenders

out

of

of A

informal

(about

regulations the

shows

complementing

independently

The

study

loans

carved

rigid

satisfying

short-term

sometimes

operating

other

fully

same

provided

Perhaps,

and

the there

borrowed

loans would funds.


The

same

thing

However, regard

the is

espouse

was

attendant

indeed

the

unsettling.

from has

also

respondents

included The

formal

and

the

rural

issue,

that

adds

Park has

more

other

channels.

below.

Quinones'

cell

informal

denotes

About study

half

belonged

absence

of

financial

with

institutions

informal

the

doing

so.

and

loan

although

can

moneylenders.

input

receive

those

who

channel, are

briefly

the the

sample

upper

two

between

Non-depositor

4

from

this

lenders.

3

them

in

relationship

Non-borrower

prohibit

premises,

to

2

of

to

of

1

behavior

Korea.

raised

These

Borrower

Rural

cannot

been

in

moneylender

Depositor

credit

(1983)

worries

banker/informal

matrix in

last

and

This

described

in

Cole

approach.

the

summarized

cells.

by

equity

"surplus"

Aside Quinones

observed

For

output

was

by

However, instance,

is

interlink that

they

the

bank

outside

resorted

to by

the

regulations

cannot

Another

deposits

recently

mimicking

bank they

markets.

repaymentsand

this

innovate

some

banks

to

i

improve (TBAC

One

sanction

informal

creditor Grains

repayment

[1984]).

official and

their

and Quedan

is

rate

the

informal

Special

the

innovative

lenders, the

in

wake

of

technique

strengthening

of

in

the

which

case

moneylender,

Financing

ii0

the

Program

that the

the of

economlc

bank

link is

retail the

crisis

has

received

between the

formal

wholesale

creditor.

government

The and

the


special

credit

program

private

firm,

have

financial

institution

eliminates

the

risk

Another of

scheme

be

conduits

seem

more

to

to

strong

to

if

weak

One

support.

One

which

genuinely

out

banks

can

As

its

perhaps

mentioned

serve

the

credit.

agricultural

activities

studies

should

in

are has

loan

cover

is

the

banks

ten

repayment been

criteria

used

those

This

in

rural

banks

rate

and

selecting are

could

banks,

to the

impressive

Which

experiments

is

Program

very

banks

rural

schemes

heavily

by

pilot mainly

have

ranging

is

that

dependent

examine

rural

been from

they

on

banks

themselves As

experience

of

are

government

innovative

subsidies.

the

as

these

yetto

subsidies,

agricultural

and

Financing

selected

of

government

at

the

included.

devised

substantial

of

Rural

The

denominator

financial

phases

the

variety

wer_

and

involve

semi-

costs

mobilization.

have

clients.

government-inspired

are

The

towards

a wider

common

a

arrangement,

a handful

Committee

biased

banks,

this

savings

mobilization

'Bankable"

useful

inc.,

administrative

integrated

However, be

by

and

funds.

savings

In reduce

tried

the

IRF

[1985]).

catering

in

of

(Tumbali

to

delivery

Technical

of

Products,

default.

IRF

results

able

being

credit

The

banks

of

Planters

features.

is

followed

(IRF).

the

these

scheme

integration a

of

techniques and

the these

do

not

government innovative

a guidepost.

outset, In

view as

both

iii

a

studies of

the

source

on

rural

growing of

agricultural

rural and

credit

importance incomes,

focus of

on non-

future

non-agricultural


lending. on

Perhaps,

the

part

of

possibilities

lenders

and

for

portfolio

borrower_

can

be

diversification examined

in

these

stud ies.

Savings

mobilization

discussed

in

banks, very

the

of

policy, rural

the

savings

to

in the

their

new

areas,

servicing

is

should

be

of called

direct

bearing

on

to

see

or

they

be

operate

applied

in

in

most

important be

some

were

With

the

rediscounting activity

made

to

rural

banks

have

savings

mobilization

of

examine

financial

already

Perhaps, to

financial whether

made

some

policies

may

focus

incurred

by

of

operating

banks

the test

markets.

lenders,

operating

and

lenders

112

formal

funds,

policy.

segmented

of

banks

study

costs

types

here

types

The

other

various

can

since

funds.

should

commercial

studied. ( i .e.,

for.

an

well

lending,

Change

by

other

of

and

(1983)

worthwhile

of

branches

transactions)

the

not

to

environment.

behavior

costs

area

agricultural

Studies

and

one

understandable

become

some

is

rediscounted

and will

lending

deposits

in

applied

and

iat ion

is

Bank

rate

policy

the

banks

areas

interest

Certainly,

Finally,

intermed

Central

techniques

adjustments

rural

engaged

institutions.

institutions.

thrift

on

lenders

This

mobilization

financial

innovative

adapt

those

dependent

freeing

formal

literature.

especially much

by

model some In

really

of

in

on

in

in

handling in

addition,

and

rural Graham

that it

with

loan

the

hypotheses

the

financial

lenders

Cuevas

compete

like

would each

have be other


B.

Savinq

in

This the

the

section

reviews

Philippines.

studies

on

sector.

Since

saving

pointed

by

earlier

out

in

This

the

studies

household

course

of

reviews

studies

of

dealing

studies

on

which

unsettled

Persoqal/Household

three

the

in

the

of

rural

in

the

literature

on

important

issues

issues

parts.

The

The

second

Saving.

Saving

lack

appeared

determinants

rate.

on

and

in

will

be

review.

the

financial

behavior the

recent

These

with

focus

the of

into

saving

saving

have

restsome

the

is divided

national

results

to

on

Philippines

however,

put

Sector

lamented

studies

studies.

section

reviews

not

the

few

Unfortunately,

Rural

(1980)

in

a

the

studies

Tan

behavior

did

in

empirical

then,

behavior

raised

and

Earlier,

saving

literature.

I.

Philippines

saving

The in

the

first

part

of

aggregate

part

discusses

third

and

rural

last

part

sector.

Rate ¢

Net the a

difference

main

on

groups,

or

reason household

Table savings

in

is

that saving

III.15 the

the

national

income

period,

namely In

personal

in

total

reference

government.

household The

savings

between

particular

three and

domestic

main

the

rate

total

a year.

of

financial

will

on

corporate

the for

113

the

accounts

It

thrust be

given will

or

may

period

of

1970-85.

during come

this

more have

just

from

corporations

of

government

composition

is

consumption

individuals,

innovations

presents

Philippines

say

or

saving

than

and

households

view

income

paper,

importance.

greater

impact

saving.

net The

domestic ratio

of


Table

Net

Total

Domestic (In _M at

III.15

Savings, Current

1970 Prices)

Net

Domestic Savings

Net Persons

Corporations

Government

85

Domestic

Savings GNP

Personal Savings GNP

(4)

(4)

1970

5,067 (100.0)

2,916 (57.6)

1,142 (22.5)

1,009 (19.9)

12.4

7.1

197S

17,882

11,074

3,185

3,623

15.6

9.7

(17.8)

(20.3) 16.6

5.8

7.4

1.4

(100..0) (61.9) 1980

1985

43,772 (i00.0) 44,844 (100.0)

15,280 (34.9)

14,_24 (33.2)

8,090 (18.0)

12,076 (26.9)

13,968 (31.9) 24-,678 (55.1)

7

Note: Source:

Figures National

in

parenthesis Income

are

Accounts,

114

percent NEDA

of

total

(various

net years).

domestic

savings.


net

domestic

dropped that

saviDgs

to GNP

precipituously started

in

during

savings

savings.

This

pattern

corporate

and

government

savings. also

About

this

encountered

economic

crisis

more

Data households by is

the

saving

or

rather

that

directly

data

comparable

accounts.

In

Private are

not

included

classes.

family

in

III.16 The

report.

the

the

non-profit

Table

income

on

is below entire income

ratio the

crisis

total

when

domestic

the

share

of

household

savings

80s,

the

burden

accounts Such

of

of

to

GNP

Philippines the

economic

the

sample.

the are

occurs

on

increases.

llg

the

among

families

to

comprise the

saving

families. households

FIES

about rate

not

income

various

whose

1985.

are

n_tional

of

1985

survey

and

FIES

institutional

which

provided

This

refer

rates

us

is

1971

by the

units

based

expected,

1965,

from

saving

Dissavers

tell

(FIES).

generated

sample

unincorporated

not

information

1961,

derived

the

do

Survey

savings

and

As

of

personal

the

it

Historically,

that

early

income

FIES,

sample.

of

economic

80s.

80s

But

households.

those

gives

the

the

surpassed

frequently:

with

of

the

Indeed,

household

_15,000.

in

Expenditures

less

rising.

portion

dissaving.

and

figures

Dissaving

in

on

are

Income

the

crisis.

national

of

broken

that

heavily

result

part

savings

the

Family

a

slowly

a major

was

from

conducted

Note

early

period,

Note

been

ks

comprised

declined.

fell

1985

the

household

had

income

preliminary

average 34

annual

percent

increases

of as


Table

Family

Income

Saving

Classes

Rates

by

III. 16

Income

Philippines

Classes,

198%

Urban

Rural

Under

R,O00

-0.32

-0.78

-0.21

2,000

-

3,999

-0.36

-0.86

-0.30

4,000

-

5,999

-0.22

-0.22

-0.22

6,000

-

7,999

-0.14

-0.17

-0.14

8,000

-

9,000

.-0.08

-0.12

-0.07

-0.07

-0.01

i0,000

-

14,999

-0.02

15,000

-

19,999

0.03

20,000

-

29,999

30,000

-

39,999

40,000

-

60,000

-

-0.02

0.05

0.04

0.02

0.07

0.i0

0.08

0.12

59,999

0.13

O.ll

0.16

99,999

0.17

0.15

0.23

i00,000

-

249,999

0.24

0.21

0.36

2_0,000

-

499,999

0.32

0.33

0.24

500,000

and

0.65

0.64

0.80

0.13

0.16

0.I0

36,024

%9,639

over

Total Total

Source

No.

of

of

Families

Basic

Data:

95,663

NCSO

1985

Survey,

116

Fimily

Philippines

Income

â&#x20AC;˘and Expen_ditures

(Preliminary

Report)


In

view

of

disaggregated Dissaving falls

the occurs

below

average

living

among

in

urban that

dissaving

compared

III.16 that

of

the

been

effect

only

observed

Thus,

policies

more

vigorously.

great

caution. saving

This

area

factors

make

the

rate. been whether

to That

generally the

improving

there

higher

studies income agreed

for

is

differential

the

personal/household

117

be

observed

no

the

cost

this will

a

have

than

bracket same

thing

far

reaching

greater

positive

u.rban

incomes.

should

however

theoretical

be

be

pursued

taken

with

explanation

households

than

research

why

for to

urban

determine

rates.

of

personal

personal

saving

controversy saving

Table

income

improving

more

were

higher

The

incomes

Note,

from is

has

of

families.

same

determinants

The

high

households

saving

determines upon.

urban

should

rural

certainlyneeds

on

relatively

the

the

differential

families

rural

conclusion

far,

households.

than

if

rural

Indeed,

rate

occurs The

- _499,999).

incomes

income

the

to

_250,000

annual

areas.

rural

belonging

rural

at

is

that

of

India.

rate

Now

rate

average

rural

can

This So

of

have

households.

in

that

saving

aimed

that

regularity

in

overall

to

the

of

Improving

on

to

we

rural

_15,000.

percent

bracket

and

dissaving

28

saving

income

below due

savings,

whose

percent

households

implication.

the

to

the

urban

(except has

that

is be

45

urban

families,

compared

about

empirical is

rural

could

areas

of

rural

families

income

class

however,

One

For

in

rates

urban

family

income

interest

saving

_20,000.

annual

cut-off

our

rate

rate

lies is

saving

mainly

responsive

has on to


interest the a

rate. .

interest high

rate

InvarÂŁably,

the

variables

as

data

personal

on

income

method.

The

because

that data

results

of

real

same

variable. Atta

used was

rates

have

while interest

and

Tan the

significant

Tan

were

been

Atta were study

thought

118

any

verified

by

covered

considered covered to

be

way

the

The

the

a

capita,

effect

the

the

has

per

on

the

studies

of

study

which

Even

income

savings.)

period

period

saving

study.

personal

above

are

time

results.

below the

data

pooled

(Tan's

on

the

for

capita

savings

have

effect

study

the

per

the

ideal

personal

in

poorest

rate

frequently.

and

(1984).

sample.

residual

been

less

of

not

are

from

series

conducte_

personal

does

yielded

Van

time

income

real

have

(1979)

interest the

on

results

no

the of

personal

interest

data,

to

rates

of

oÂŁ

Me3ia

Interestingly,

ceilings,

real

in

that

the

have

analyzed

the

come

Individual

were

the

data

Note

using

determinants

then

interest

studies

long

(1968).

in

rate.

would

were

the

countries

T_e

(1971),

on

series

and

derived

data

surveys

effect

rate

found

were

Williamson

that

semestral

market

work

positive

while

They

suÂŁ[iciently

the

five

snow

significant

Van

o_

these

rate,

summarized

time

saving

if

increase

Philippines

personal in

saving

are

inco,ne

because

to

studies

t_e

saving

however,

the

poole_

used

issue

justified

these using

of

on

be

include

househol_

earliest

is

series

studies

accounts.

FIES

available

rate

of

savings

studies,

The

would

include

determinants

national

these

they

policy

effect

studies

because

crucial

positive

results

Some

here

a very

policy

The

III.17.

included

a

rate

rate,

Table

is

has

interest

saving

not

This

when

the

interest-rate

when

the

market

interest-rate


Table 111.17. Ilmdts, _f Studies I_i_

Author(s)

Year Published

Millimmon

1968

Period Covered

1950 -64

[stinted,

Type of Data

, Imlividual countries and Pooled tim _q-leslnnual (Countriest Burm_ Jam_ Phil ipgi_ssw

Pmsmul Swiu_Fen_im

bfinition of Saving Rate

ileal pe,_._l savings per capita,

Imdemmkmt Vm._ables

h

Ileal Peyotl i_ 0er capita (S)

_.

RNI Rate of interest (J_)

1.

_ml diupouble i_ae (S) Real rate of intermt o_

Taimn).

Van ntta

1971

1947 - 67

Tim mwinamwal •-

Real peesoul savi_s

2.

uvimgs deposit (NS) Nejia

1979..

Time Ire'iNaNmal

Savinlls ratio

h 2.

Bm.k_e

1980 •

1_

- 77

Ties seriesannual

Real personal savings per capita.

1. _. 3.

119

_aiMl interest rate iNS) J_l i_erut rate iNS) Rsal diwo_ble i_m iS) Nosi_l ties ck_oosit rate (S) J_tA tim deposit rate iS)


Table IlL 17 (co.t'd)

_ho_(s)

Taa

Year Published

19e5

Peeiod Coveted

Type of I)ata

1970 - 8_

Tim swissseuest_sl

Defiaitio_ of Saving Rate

1. National' savim]s ratio

INle_mMimt Variables

1.

6ross Natioyml peoduct (NS) 2. Real eatbof intarnt o_ .oee,-year tim _,_osit ira) 3, N,sm. of b.a_tm of fiMncial t_t itqt ions (NS).

2. Psr,sonal

1,

Savi_s _atio

t.

3.

_B

1985

1961 ..- 03

Pooled tim 6ross _tional* sovies-a__.i Savi_ ratio (Co,.tries: 6a_ladnh t 9urn, China, HongY_ng,Ihdiai Indonesia, South â&#x20AC;˘Koreatl_laysis, Nepal_ pukista_ Phi Iippimm Singal]o_ I SriLa.ka),

120

I.

Gross _d_/o_l Peodeet (NS} Rsal eate of iMeeest on om-_ar tim Osoosits iNS) Huron. of b.a_ht.s of financial inst itutiows (U}

bte of _v_th in eeal 6NP. P.. Reel _te of Intwist o_ o_ymertim dnosit (S) 3. heal population m' _I lwamch of OUosltory inst itut ions.


â&#x20AC;˘Table I11.17 (con(id) -

Author(e)

6iovannini

Yesr I_bltlhed

1565

Period C_vm_d

bfinition of _ving hte

: |N_.,p_ VriiOles

1562 - 72

Pooled time reties-annual (Countrimis Bur_ Indiab South_ Palay_ia, Philippine_ Simjajxx_ Taimn)

Domestic uvi_ ratio

1.

1_ - 75 (larger smpl_ period) "

Pooled tim i)oeestic aries-artful lavino (Cmmtries: ratio Duma, India, Sosth Korea, _laysia, Philippines,. Singapore, Taimn)

t.

,.

Note:. S_e statistical.ly

Type of kta "

studies have other significant; NS-not

Rate of grmKh in real 61@ (8) P- Rml _te of interut on orrlnNe tins dep_it ()iS)

Pate-of _h in mi 6t_o (S) 2, Ibalrateof iMerest o_ orryer tim im_it (16)

independent variables not included in the statistically eiptificant.

121

table

abovL

S -


ceilings.

This

robust.

seems

This

financial

is

to

indicate

indeed

that

Williamson's

disturbing

liberalization

can

to

greatly

those

who

improve

the

findings

were

believe

that

saving

rate

in

LDCs.

Burkner

(1980)

Philippines.

He

included and

the

the

years

charged.

years

it

the

used.

the

used

an

the

of

used

the

but

she

used

semestral

increase

in

real

terms,

the

has

savings.

This

by

studies

mentioned

testing

the

personal series, series

hypothesis

saving the data,

Fry

interest

liberalization

approach

function

pooled

including

the

has

expanded

been

It

to used

semestral

strong

time

series

data

for

122

a

the total

that

to

her that

or

level

results

provided

results

of

the

in of.

of

elasticity

length

of

the

data

of

time

type

annual.

supporter by

to linciude

and

or

advanced

Philippines,

the

in show

the

interest-rate

sensitive be

seems

Van

nominal

on

the

deposits

deposits

in

effect

rate

which

results

contradicts

the

to

deposits

either

which

operative

time

time

the

interest

on

on

level,

not

on

Burkner's

earlier.

rate

a

savings

positive

finding

whether

(1978),

using

rate

are

limit

interest

regarding

rate

i.e.,

of

significant

personal the

on

was

interest

data.

interest

a

of

in

1950-77,

legislation

rate

rate

function

period,

effective

interest

Tan

saving

time

usury

placed

rate

the

a longer

when

when

of

study, an

used

Burkner

instead Atta

re-examined

of

McKinnon, of

seven

period

1962

of

fourteen

the tested Asian -72. Asian

financial a

saving

countries, The

study

countries


covering

the

the

ADB

ADB

studies,

(198_)

Ill.17. among

period

report. only

To

raise

the

on

the

study.

His

argued

that

elasticity

reforms excluded their

support

real

deposit

rate.

on

in

data

were the

and

Table series

used

in

the

financial

rates

rural

in Fry

reported

of

Increased

in

the

of

results

Giovannini's

the

interest

accessibility

areas

has

similar

However,

the

national

saving

rate

results

of

of

significant

effect

his

are -

79.

the

apply

ADB's

success

of

the

down

to

traced

in

the

sample.

two on

the

robust

by

the

to

be

1967 is

He and

that

magnitudes

Of are

the

on

confirmed

same

results

size.

I_3

interest-rate

the

his

hold

of

cases Fry's

observations.

of

estimated

tried data

with

the

196%

two have

parameters. that

to series

the

The

from

interest

the

He

re-estimated

suspicion

He

well.

presence

reform

rate.

lengthening

high

observations

observations, saving

as

the

1968

Fry's

study

then

financial

influence

have

The

verified

can

large

exclusion

1962

could

Korean

results

results

(198_)

exclusion

following

to

are

of

comparability

rate.

Korea's

disproportionately

72

latter

branches

empirical

hypothesis

for

years

incorporated

similarity

savings

variables

conclusions the

but

reason

are

domestic

saving

Giovannini

financial

model

the

higher

saving

these

the

of

gross

national

results

small.

Recently,

of

of

problem

that

national of

relatively

of

institution

the

effect

BecauSe

general,

view

depository

effect

The

results the

In

liberalization

of

- 83.

countries,

study.

directly

the

reduce

sample

ADB

1961

wit.h

the

rate

has

no

check

whether

from

enlarged

196_ sample

-


The suggest

conflicting

• that

interest in

the

the

rates

on

in

studies

should

results.

to

the

Financial

are

various risk,

cash,

deposit

them

are

and

insurance

studies

of

an

that

should

between

rural

above

increase

unsettled,

are

study

of

called produce

be

least

the

saving

for.

These

inconsistent

made

and

at

in

to

explain

urban

the

households

bracket.

in

in

deposits

The

•bonds

is

an

and

(see

deposits

country.

degree

offered

Philippines bank

financial

and

instruments

the

the

of

maturity,

cash •, only

instrument

forms

Claims.

•well[ developed

bank

a

reviewed

significance

factors

income

yield,

from

impact remains

of•the

those

rates

same

the

more

out

studies

Saving

There

•aside

making,

saving

the

still

view

addition,

differential Delonging

savings In

sort

of

regarding

•total

policy

In

varying

issue

Philippines.

function

2.

results

A

of by

of

banks,

bonds

are

[1985]).

an

important

and

the

Among

stock,

markets

Lamberte

remain

with

liquidity.

equities

sustained

indication

instruments

not Thus,

financial

significant

rise

success

in

has

dominated

in

financial

intermediation.

The

banking

commercial

banks.

three-fourths them. about only

system

In one

of

2 percent

of

the

Although the

contrast, thousand

in

total

the

there assets

the rural

Philippines

Rural banks

total

of

spread of

only

34

commercial

the•banking

Banking

assets

124

are

been

system

System,

which

all

over

the

the

banking

by banks,

belong consists

country, system,

to of owns


Is The

financial

figures

answer.

percent

of

Table

share

system

comprised•

been

in

The

banking

intermediation

has

only in

banking

This

this as

issue

In

to

a

lot

transformed

Several saving.

lack

deposits of

invariably,

have

examined

the

were

are

Van

approach

and•

deposits

has

found a

The

held

mainly

has

are a

(1971) that

significant

significant

and

i_.5

in

the rate

positive

financial financial

as

of•this

proxy

that

government

III.19.

on

for

is

purposes.

interest

effect

proxy

and

effect

banks

funds.

of

"interest-rate of

Central

most

studies

positive

were

liquidity made

Bank

Table

Bank

rates

Thus,

transactions

which

financial

provided

households,

sunlnarized

nominal

in

household

weakness

for

applied

on

growth

Central

This

58 has

Studies

determinants

these

institutional

studies

Atta

by

savings

phenomenal

out

Central

data

used

savings.

-income

saving.

funds.

of

corporate,

these

deposit

conduits

deposits

which

Bank rate.

series

from

interest

Central

the

down

failure

place,

of

deposits

period.

rediscount

than

time

the

negative

1984,

of

pointing

mere

of

financial

includes

results

studies

bank

household

cheaper

in

first

low

In

assets,

the

the

very

into

For

savings,

it

at

same

for

the

total

Philippines?

assets

1960.

despite

unanimous

culprit

total

intermediation

occurred

addition,

banks

funds

that

during•the

In

controlled.

were

has

were

the

intermediation.

Bank

appears

the

the

unequivocal

to

since

of

in

an

deposits

declining

institutions

examined

credits

bank

percent

It

weakening.

policy

been

1960.

success

III.18-provide of

40•

a

on

The Almost

financial

elasticity" on total

savings sawings


Table

Share

Source:

of Deposits Banking System

III.18

to Total 19_5 -

Assets, 1984

Year

%

1960

58

1965

50

1970

46

1975

34

1980

3_

1984

39

Central

Bank

Statistical

126

Bulletin,

various

years.


Table llIo 19 Re_lts

|luthor(s;

VlmArts

Year Published

1971

of ludies

Period Cover_J

1947- 67

I_idl

Es4imted a Financial .qaviq FunCtion

Typeof Data

Tim seriesannual

Definitio_ of Savi,gRate

INJepL_ Variables

TotalSavings I. Nationali_,me (S) Deposits (savi_s_im+ 2. Nominal rate of postal depointerest o. sits) savings Ot_osit (S) 1

9urlmer

19_

19651 1978 1975, 1977

Cross-sectim of comercial banks

Total Deposits 1. (all deposits)

Ikmbevof offices of each buk (S)

Sicat

1984

197@-81

Tim seriesareml (regional)

Real fina_ial 1. Real regioeel gross . savi_ (savings national product (S) +tim de1_osits) 2. _eightedtell iwt_-r_-it rate (S/_B) 3. Regioul density of banking i_titution


Table III.19

J_sth_(s)

Tan

(cont'd)

Year " Published

I_

Period Cov_ed

1971 - 82

TF_ of Data

Tim ser/sssemestral

I}efinitioe of Saving Rate

I. _

IMepmdm_ Variables +

I. 8.

3.

2. Tim + ' 9avings ' o_osits/ _P

IN

Mote: S = statistically

1961 -63

significant;

Pooled ties Rate of change Sm-ies-am_l in per capita (Countries: real mmey Bmngledeshw holdings (_1) Bursa, _ina, Hcn_j(ordjlIndi_ Indonesia_ South Kom_ Halaysia, Ik_a 11 Pakistan1 Philippinesl Singapore, SriLa,_a)

MS= not ststistieally

significant

Smestr_l Mtio_l Real rate interest

real gross â&#x20AC;˘ product (_} of on

one.ear ties de_itd (NS) _ of offices of financial institutio_ (_). - sam vaeiables aM fi_inos as above -

1.

2.

Rate of _ in Per capita real peema_m_ income (S} Real rate of interest m one ties deposits (S}


deposits. The

This

ADB

rate

model

of

used

change

dependen% as

Tan

in

per

one

data

elasticity"

in

M2/GNP

real

GNP,

the

and

rate

This

of

and

(1984)

function.

double-logrithmic

of

period Tan.

With

1970-81. Sicat

regard

results

were

to

The plus

as

tried

three

These

were

time were

of

some

of

exists,

while reqard

None

12.9

of

model

the

on

financial

the

"interest-

financial

data the

using

a

financial

the

of

the

series

regions,

to

explanatory

semi-logarithmic

time

others,

and

hypotheses.

elasticity"

real for

Semestral

generallysupport his

variables

the

both

rate were

deposits,

effect

linear,

annual

tested

regional

With

one-year

specifications of

-

approach

deposits)/GNP.

a rejection

using

"interest

disappointing.

results

between

significant.

on

"interest-rate For

the time

function

dependent

significant

using

as

one-year

"institution-elasticity"

relationship interest

on

the

institutions

taken

further

mixed.

Both

savings

a

countries,

(M3)

saving

alternative

were

The

the

Asian

14

"institution-elasticity"

has

forms

of

results.

variables.

interest

the

(198_)

interest

financial

financial

be

of

ADB's

holdings

1970-8_.

results

may

elasticity"

Sicat

the

period

of

data

rate

a

by

money

explanatory

variables

saving.

real

real

(time

The

explanatory

series

model.

the

offices

variables.

time

and

the

real

of

supported

estimated

approach

were

saving

the

for

incorporated

is

capita and

of

(1984)

semestral

rate

pooled

variable,

deposits

number

finding

the

and covering findings

regional

data.

hypothesis,

significant saving

and

relationship

the

positive real is

"institution-elasticity"

rate not


n_pothesis, between

almost

all

regional

regions

real

show

an

financial

insignificant

saving

and

relationship

regional

banking

densities.

The be

results

of

contradictory

mind

that

and

studies

on

savers

were

aggravated to

mobilize

a

lot

not

could

the have

elasticity Burkner

(1980)

network

is

studies

included

highly

Interestingly, variable

in

included

in

the

influence

the

could

be

pointed

the its its of

out

correlated both

study

financial national income,

130

very

the

rate

low.

part

to

with

income.

the

not

function,

function. regressed

Central

of

banking

"institution

institution

in

_ error. the

Tan

in

include

their

the

Sicat models.

accesibility

order

total

branch

and

although In

were

the

specification

variables

banks

funds

the

The

was

opportunities Of

increase

of

Thus,

of

Bank

of

Tan

This

profit

why

the

the

real

proliferation

the

Burkner

when

interest-rate

the

policy

that

saving

in

while

Central

The

due

saving

keep

data

or

rejection

did

must

the

on

explain

explanatory

ADB

that

unwanted

for

to

instruments.

rediscounting

rejected.

hypothesis

when

negative

funds.

is

seem

one

1970-82,

is

partly

Sicat

inoperative,

interest

reason

an

and

series

data

of

could

reason

Tan

deposit

lack

induced

other

to

favorable

hypothesis

time

either

deposit

This

elasticity"

used

series

was

of

However,

Between

The

than

institutions.

time

seeming

savings.

those

virtually

attracted

the

from

The

were

deposits

cheaper

arising

study

effective.

time

by

and

another.

Atta

used

became

interest

Bank

Van

Atta

one

ceilings

Sicat

ceilings

with

the

interest-rate

Van

bank

it to

was

exclude deposits


with

the

years

number

1965,

of

bank

1970,

offices

1975,

and

"institution-elasticity" series-cross 1975

elasticity

and

of

led

additional

to

one

whereas

during

million

in

that

the

increase

was

not

the

in â&#x20AC;˘ the

a

alternatives

is

theuse

of

single

interest-rate

be

risk

his

instrument"

the

of

other

rate.

than

yield

Concentrating

deposits

due

to

other and on

bank

131

the

add

Sicat

the

to

1970

deposits only

_3.44

pointed in

out

the

70s

distribution spread

folks

of

to

rural

network who

had

have

fewer

from

the

model

and

results to

test

discussed the

income

institution-elasticity simultaneous

equation

studies.

"financial impact

and

funds.

Perhaps,

future

would

branch

rural

equation

elasticity

by

total

widely in

drawn

warranted.

explored

examined

of

not

in

regional not

1970 that

196%

especially

surplus

be

period

it

â&#x20AC;˘time

particular,

offices

to

their

and

and

appealing for

the

the

the

found

In

growth

that

instruments saving

hardly

He

the

confirm

Burkner

even

for

together

million

was

can

is

of

a more

that

Using also

number

lesson

hypotheses can

is

combined

197_,

Both

main

elasticity,

to

phenomenal

investment

The

_7

accessibility

although

He 1970

during

of 1970

by

results

declining.

office

deposits.

Thus,

and

His

runs.

been

period

This

model

separate has

196_

deposits

occurred.

above

did

accompanied

offices. areas

for

additional

total

1977.

data

coefficient

opening

cross-sectiondata

hypothesis.

section

together

using

approach,

_

characteristics accessibility

bank closure

deposits, is

real.

Burkner

('1980)

of

financial

on

the

financial

he

noted

that

However,

the the


deposit

insurance

depositors, risk

due

to

to

be

offer.

failure.

regard

to

aware

of

the

financial

information•dr_ive,

second

informetion

• of drive

network

and

instruments education

offered

by

to

investment

requirement.

3.

in

There pattern These studies.

and are

the

are

Rural

at

Both

rate

do

• due

government,

of

include

need

the

Therefore,

•the

the

vigorous

rather

expansion

due of

to

branch

living.

in

financial

the

•coverage,

emerged,

because

deposit

instruments,

insurance

recently savers

to

wanting

Some

high-

towards

•but

rate,

they

deposit

not

changes.

were

to

minimum

the

of

special

but the

like •

they

high

are

minimum

Sector

least

determinants the

access

be

still

large

deposits

not

is

hawe

the

• deposits

standard

that

• and

of

the

banks.

people

the

•all

reduced

the

who

interest

of

of

volume

the

high

etc.,

only

Saving

by

in

plans

to

interest

could

variation

terms,

accessible

as

improvement

trust

credit

7Os

launched such

Product

to

percent

do" •not have due

•in the

the

banks

depositors,

respond

factors,

of

98

considerably

•majority

depositors

big

about

has

•existence

increase

half

ones,

instruments Only

observed

covered

information,

small

requirements.

other

small

bank

However,

yielding

the

which

especially

With found

scheme

two of

excellent household

TBAC-UPBRF

(1979)

extracted

studies saving and

information

13_.

dealing in

the from

the

with

rural

TBAC-UPBRF farm

the

sector. (1981)

households


themselves.

The

sample

of

1,215

1977.

On

the

BAECON

farm

year

period,

farm

record

(1979). been

farm

record

hand,

1978.

The

project the

in

of

dissaving

(1981)

farm

to

the

the

proportion

increasing

_ had

_5,001-7,500 of

from

average

points al.

24

percen%

to

propensity

to

conducted

over of

two

the

a

three

the

BAECON

Rodriguez

these

a in

utilized

aspect in

from

e__t all

studies

have

(1985).

provides

rising

who

very

income from

bracket

37

was

respondents

of

The

income

households

127

data

(1981)

discussed

study

been

survey

operational

households.

occurred

1976

of

is

et

analyzed

TBAC'UPBRF

salient

Sacay

TBAC-UPBRF

patterns

the data

keeping

incorporated

study The

keeping

19.76 -

of

(1979)

households.

other

Some

The

The

TBAC-UPBRF

had

1978.

saving

below

_2,001

-

which

3,000

in

Interestingly,

negative

percent

save

class

the in

detailed

savings

durfng

the

had

same

(APS)

ranged

from

groups,

the

results

been

period. 13

to

18

percent.

Looking amortizing

at

savings

owners

have

percent),

followed

by

expected,

share

obseryed to be

to

tenants

increase

expected

by

since

with

tenure the

highest

APS

owners

(see

full have farm

household

the size

(between

lowest (see

income

show 27

to

Table

III.RO).

APS.

The

Table

III.21).

increases

with

that

As

APS This

the

38

size

was is of

landholdings.

A

Simple

Keynesian

data.

The

value

between

.R4

and

model

of

the

marginal

.50.

The

unusually

133

was

fitted

propensity high

MPS

to

the

cross-section

to

save

(MPS)

for

1978

could

ranges be

due


Table

Average

Tenure

Group

i.

Share

2.

Leasehold

3.

Amortizing

4.

Full

5.

Combination

tenant

Owner

Owner

TOTAL

Source:

Propensity

SAMPLE

TBAC-UPBRF(1981)

III. 20

Save

by

Tenure

Group

1976

1977

1978

13.4

8.5

0_6

-

19.9

i0.2

P.8.1

35.6

26.9

P.I.I

16.8

]9._

18.8

2.0.2

15. I

13.5

18.4

14.1


Table

Average

Propensity (In

Farm Size (has.)

0 -

Source

III.2i

to Save percent)

and

Farm

1976

Size

1977

1.0

3.5

9.7

1978

-

i.i

-

2.0

4.6

27.8

0.6

2.1

- 3.0

16.3

19.0

14.2

3.1

- 4.0

17.7

29.4

25.0

4.1

-

18.0

9.9

21.8

:

TBAC-UPBRF

(1981 )

135


tO

the

good

household

harvest

income,

•agricultural 60

higher

probable

activities

same out

the

MPS

liquid,

The

transitory

that

was

income

set.

for

show

given

usually

The

independent

variable,

into

agricultural

and

income

income

than

permanent

data of

Agricultural

reason is

year.

disaggregated

Results

is

The

that

of • total

respectively.

The

was

income.

percent

income

in

that and

the

is

years

1976

MPS

of

non-agricultural

income

out

also

consistently

to

and

1978,

agricultural income.

to

spend.

tested

using

indicate the

57,

non, agricultural

ready

was

than

of

from

therefore

higher

_3,

the

hypothesis

findings

income

out

constitutes

non-

MPS

that

out

of

the

the

MPS

permanent

income.

Other perform

explanatory

as

expected.

statistically result

not

"interest-rate

the

loans

represent likely not units, that

be

taken

used

which

taken the

affects yield

return the

@nough

especially in

administratively

out

1977,

is by

as

on an

the

the

average

weighted respondent It

Moreover,

the

by

the

136

Central

not

the

rate

on

necessarily

would

administratively

fixed

place,

data

is

and

the

cross-section

if

deposit

This of

interest

a

most

interest

the

have

that

in

rate

first

not

a variable

variability the

not

saving.

may is

did

rejection

In

borrower.

did

household

outright

saving.

model

rate

hypothesis.

each

on

in

•interest

effect

elasticity"

rate

included

Specifically,

significant

should

interest

variables

loan Bank.

rate

•across fixed.

rates In

sample

short,

Note

were it

still is

very


hard

to

arrive

elasticity"

The farm

_efinitive

hypothesis

in

attitudinal

desire the

tO

factors

purchase

greater

motives

for

education, primary

of

old

Aside

from

studies

etc., saving

saving.

financial

assets

Financial

assets

total

The

total

farm

Although save of

money

it

saving

consisted Bank

only deposits

assets.

accounted

However,

was

that

high

incOme

with

bank.

farm the

Nonetheless,

households

bank.

137

were

the

general,

total

24

about to

30

any

40

that assets. and percent

percenf given

households

to

of

deposits

a significant found

the

APS.-

noted

of

_or

farm

Other

determinants

bank

in

reflect

as

in

study

only

deposits

the

may

the

children's

with

cash,

bank

with

with

mentioned

and

most

areas.

2 percent

had

revealed

rural

impact

The

This

(1981)

of

the

behavior

pattern

a mere

(1981)

correlated

usually

"hohseholds

low-income

balances

for

TBAC-UPBRF

correlated

TBAC-UPBRF

"interest-rate

emergencies,

are

TBAC-

hypothesis,

the

_

of

the

behavlor.

the

for

the

accounted

financial

in

not

than

Keynesian

positively

household

examined

loans/receivables. of

are

analyzing

financial

saving

which

behavior

investigated

fertilizers_

as

saving

the

also

is

and/or

such

also

the

in

self-financing

age, for

APS

cross-section.

and

household

"interest-rate

â&#x20AC;˘context

done

study

the

the

testing

was

that

saving,

motives

both

on

seeds

role

are

hypothesis, as

is

used

broader

(1979)

result

about

examined

from

Income

TBAC-UPBRF

interesting

study much

hypothesis L

the

_the data

Aside

Permanent

study,

a

study.

elasticity"

conclusion

(1979)

households

the

if

TBAC-UPBRF

UPBRF(1981)

of

at

have

of year.

tend

to

proportion positive


The

,interest-rate

regressing

bank

interest and

rate

other

be

balances

(again,

proxied

taken

effect

as

an

The

It

is

households

were

ignorant

of

institutions.

Specifically,

that

institutioDs

financial

instruments Burkner was

aside

(1980)

found

in

their

banking

syst_n

tend

of

bank

of

farm

financial

households

did

not

in

also bontrast

the

have to

offer

level

with

who

level

effect

of

educational

those

the

functions

is

associated

this

above.

proportion

locality

This

Average

strongly

the

farm

know

deposit

with of

what

household

level

larger

have

a

of

bank

degree

of

level

of

is

that

higher

deposits.

One it

many

Interestingly,

confidence bank

be

true

have

"interest-rate

the

significant

lending.

claimed.

to

deposits..

from

a

to

examining

on

rate)

Again,

cited

by

by

income,

loan

found

the

reasons

the

in

was

of

factors

that

with

average

income

further

attitudinal

tested

depositbalances.

same

went

revealed

weighted

rejection

the

(1979) and

deposits.

the

bank

was

farm-households

Only

on

for

TBAC-UPBRF

non-economic

by

outright

hypothesis

hypothesis

of

variables.

positive

elasticity"

of

deposit

explanatory

significant cannot

elasticity"

was

regarding pointed

of able

to

saving out

determinant

of

strengths

of

cross-check with

the the

those

increasing of

promotional stability

the

of

income

TBAC-UPBRF perceptions rural

level

of

bank

activities

of

banks

and

the

bank

in

that

138

order.

of

bankers.

levels

the

(1979)

as

the

study

farm Rural most

deposits, safety Note

of that

households bankers important

followed deposits only

by and/or

5 percent

of


the

total

responses

determinant. support it on

Caution for

should

be

still

rate

mechanisms

reasons

for

Most the

on

the

rural

have

have

no

the

survey,

important

taking

this

bankers

This

ceilings not

alter

for

non-

looked could

a

approach.

could

therefore

as

be

one

of

the

rate.

that

the

saving

impact if

in

an

interest-rate

Since they

inculcate

effect

as

elasticity"

deposits.

felt

immediate

exercised

place.

response

to

short-run

during in

bankers

rate

"interest-rate

attract

low

be

deposits,

to

government

would

the

that

were

interest

price

by

noted

interest

should,

rejecting

deposits

the

mentioned

on

it

promotional

scheme

devised

habit

school

children

among

savings.

were

Such

addressed

program

instead

would to

farm

households.

The

"institution-elasticity"

alluded

to

in

the

hypothesis

TBAC-UPBRE

(1979)

was

study.

The

indirectly

role

of

rural

Q

financial saving from

institutions

and

credit

analyzed.

The

general

was the

results

of

the

financial

institutions

financial

savings

schemes"

showed

implementation

The information by rural

Sacay areas;

of

potential still

regarding

saving

(198_),

a majority

is

above in

the

139

farmers,

that

the

areas

raising

"savings of

that

rural

leaves

raising

impressidh

The

financial

much

to

have rural

be

one

can of

get these

hardly

raised

"forced

saving

deposits,

but

the

of

desired.

provided

us

a wealth

areas.

As

pointed

out

exists

in

potential in

financ%al

presence has

households.

for

discussed

al

the

farm

studies

et

study

in

scheme

two

said

union !_ in

fact,

not do

only save."

However,


most

of

little

these in

financial

Sacay time

savings

et

deposits

are

held

al.

do

would

not

believe

increase rejecting

hypothesis

seem

be

evidence is

already the

no

from

need

great

areas

is

right.

synchronized

reverse

however

during

can•be

to

To

of

saving,

changes

the

•of

unchallenged. they

suffice

to

in

in

them,

pieces

since

may

and

elasticity"

gone

It

mobilizing

the

price

and

were

say

that

general,

interest

and

rate

is

savings

in

on

Perhaps,

Burkner's surplus

become certain into

and to

physical

"financial units

to

months

140

of

financial

accessible assets,

in

not

usually

financial

receipts

at

dissavers,

instrument" save

financial

season,

Although

instruments are

are

harvest

net

in

Specifically,

season.

financial

saving

disbursements

during

during

financial

for

farmers.

planting

preferences hang

induce

as

transformed

offer

farmers

to

a

savings

the

again

for

among

farmers

realized

institutions farmers'

long

Receipts

some

s_rpluses•

not

here

earlier.

disbursement

true

be

have

them

potential so

exceed

the • year,

rate.

However,

cited

particular

on

"interest-rate

responsiveness

especially

is

only

settled.

rhral

usually

have

discussed

in

is

while

rates

saving

the

discuss

saving,

There

terms

to

the

being

form,

higher

convincing.

they

regarding

financial

the

thoroughly

issue

far

to

that

financial

evidence

There

phYsiCal

form.

empirical

empirical

in

•year.

savings

tO

the

the

end

surpluses the

whose

and

if

like approach form.

can These

financial

features them.

of •

suit

the

Otherwise,

rice can

inventory. be

applied


The the

possibilitY

TBAC-UPBRF

likely

to

pointed

(1979)

save,

out

Table

the

rural

be

for

TBAC-UPBRF

information basis.

on

October, are

in

the

what

of

by

and

of

area

is

that

can

be

a

role

when

This

one

they

are

(see

Interestingly,

province.

from

in

December

months

surpluses

shown

months

months,

choices

is

farmer-respondents

November,

harvest

in

end of

the

to

data

year and

would

(1981)

cash

However,

the

asked

farmers

to

farmershows

anotheD

efficiently

the

in

the

played

by

institutions.

The

This

This

of

proportion

classified

moving

sector.

financial

of

observed

were

potential

flow

only was

could

of the

farm net

us

the

haMe

position It

us

on

detailed a monthly

farm-households

be

cash

a more

perhaps

of

might

monthly

a better

given

households,

analyzed.

analyze

give

worthwhile

flow

understanding

of

of

at to

the

go back

farm-households.

the

saving

behavior

farm-households.

studies on

months

savings

When

significant

These

can

respondents

mobilizing

study.

a

III.RR).

variations

of

of

farm

the

not

areas

saving give

rural

(1984)

us

a

have

are

pointed

as

in

has

not

picture

Note

that

differ

out,

as

been

from

sector

concentrated

enterprises/households farm

the

cash

that

households.

flow of

This

saving

certainly pattern

pattern

among

As

in

And

of

farm-households

linkages.

heterogeneity

141

rural

analyzed.

of the

andbackward

the

non-farm

important

good

could forward

behavior However,

behavior

sector_

households they

saving

households.

rural

their

on

does in

and

households

in

'the

non-farm with

Meyer

yet,

whom

Alicbusan the

rural


Table

III.22

Months ParTna_sare Likely tD Save__

t

t

, j_

........ _ Jantmz_. .........

Fetrxm_. 4 ' _

_,_....

'

Yes

'

r

v -

._

,_.

' V-

No

'

Yes

TOTAL ,.sA, MPLZ 9.5

-

' Y

=

_

, t. '

T-- •

7.2 _-

B_VL_3

/ ,,_

!2.2

'

'r" .......

,

V

' No _,....

' _v "

92.8 ....

' T

'

15.6

'

•84.4

'

87.8 _ _

' ,_

5.9

'

_

_

p_,,

-

_.0

T

' _

!

, _,

v

80.5 ' "_ "' _ _ v

'

_TNA ECIJA

L'_

,

ILOIL0

'

8,2

,

....

J •

96.O ......

' v

7.1

91.8 _

' _

= 9.2

v

'-

.

94.i ......

' 92.8 • .... "

_ ; --I : "

80.8

'

12.2

'

'

11.9

'

87.8

'

#

Yes '

No .

' Yes ' 19.9 T-- ....... -r"...... ' NO ' 80.1 ......._ .... _ , ....

April

' Yes ...._ _

May

"'-"T June ....... July

AUgUS%

September

'

t4b

• Oc_b_ _

....

NOvember

' -, ' '_t

8.6

.._

' 38.4 _ .... ' 61.6 -__ ....

' 9.1 ,--_

9] .).t ' 90.9 ' _ ' ,........

' _

88.9

' ,

93.3

'

2,5

' ?

96.0

' 95.4 v.....

' _-_ v

9_.4

' Yes _.....

' ,

1.3

'

NO

'

98.7

' ,

Yes

' _

3.1

'

No

'

96.9

'

' -v.

Yes

' .,

8.9 _ ...........

'

_b

91 .I

' ,_

1.3 ' _ • ---= ,

'

98.7

9").5

' ,

8.1

'

1.2

97.2

'

91.9

'

98.2

' _

5.9 "_

' "¢

2q .2

' •

6.0

'

94.I

'

75.8

'

9L_.0

2.8.

, ' ,_

27.2 ' 12.4 ..... r- ......

'

NO

'

72.8

'

' 't _

No

'

70.3

v

' _

-Yea

'

NO

,

' _T

'

"_

' ,

30.8

87.6

'

69.2

"'

_v

:

' ,

35.9

63.5

_

64.i

It8.1

'

51.9

'

16 .q.

_"

83.6"

_'I

'

31_.9 -_.......

' ._

49.7

_ _ ....

'

65.1

'

50.3

'

142

' ,: •_"_""

36.5

r_,-_'-_-_

Source: TBAC-UPBRF (1979).

T

z

_ _

_T

_

" -"--'-'-""T

Yes

20.7 •

_.5

'

i _;

r'--....

' _--,-,

97.0

1-- ....

'

3.0 - •

_

' 97.5 "_'-"'"

'

_

Yes

3.7 " ..... r 96.8 F 6.7

' T

'

'

' ,

5,6

"7,

88.I

Ii.I

'

--"-'--_ ......

......

' ,

4.6

'

=n

'

"

No

66.2

' L_.O -,-------

T

Deck.

' 21r. 6 i ' 75._ _4....

33.8

' Yes .............

T

....

"

9.6 90.4

"_--

' _4.8 , .....

'

'

, _t_

75.2


areas

(in

the

and

hence,

sense

that

different

opportunities

for

locality.

should

cash

future

include

as

enterprises/households. produce if

those

given

kinds

to

the

the

of

and

I)

will

this

compete

for

occur

as

favor

financial

to

instruments

rural

poor

and

2)

and

of

in

farm

the

the

same

the

rural

and

can

nonfarm

more

suggested

easily

by

potentials

rural

and The

over

Burkner

of

rural

save,

data saving Engel's

show

other

rate.

This

the

This

Law.

143:

be

because:

monetization

indeed

higher course

proliferate

cash

and will

crops

will

assets.

incomeswill

vital

portion

oÂŁ

necessary

of

the

agricultural

2)

of

is

discourages

to

increased

may

problem

institutions

increased is

the

increase

may

types

a sizeable that

to

policies

of

which

development

evidenceshow, savings.

part

areas

dynamism

savings

financial

but

Policies

increase.

do

correct

many

financial

savings

the

of

behavior both

provide

in

institutions

about

activities,

could even

saving

savingspicture,

promote

farmers'

total

kind

possible

as

services.

empirical

the

much

financial

encourage

increased

higher

on

situation

incomes

most

studies

liberalization

financial

As

pattern)

intermediation

information

financial

incomes

some

of

impoverished

rise

flow

economic

save.

Financial improve

different

Financial

adequate

households

have

financial

Thus,

sector

they

of

the is

because them

are

mean I)

even

if

dissavers,

incomes

group,

_xpected

as

part

the of


C.

Behayior

why

of

The

low

the

formal

s_ctor

as

a

shows

most

sector

source

of

program

This

in

of

the

1984)

reveals

that

for

60 Around

have

availed

of

were

still

among

the dropouts

farmer

operators.

It

explain

the

farmers.

sources

during

informal

Table

III.23

have

always

the

Farm

all

period

formal

from

of

in

loans.

that

dynamism

many

of

any

of

a the

(SFIS, system

formal

credit

respondents

only

tenants

i0

percent

ranked

dropouts

the

in

formal

1981-82,

more

is

Survey

number

Share

perhaps,

farmers,

the

with

total

proportionately

noted

of

and

Indebtedness

the

but

small

lack

farmers

of

credit,

to

and

dropouts of

of

lending

Small

loans,

and

be

may

behind

except

incomes

one-third

of

farmers

farmer-borrowers

credit

to

total

formal

should

small

the

of

TBAC,

availing

our

to

informal

percent

experience.

of lagged

that

depressed

The

most

always

aversion

areas.

Sector

mid-seventies.

for

rural

accounted

credit

the

RUral

of

has

sources

sector's

reflection

the

indicate

preference

formal

in

position

informal

M-99

the

income

studies

preferred the

Borrowers

first

are

dropouts

small

pointed

4

to

high

arrearages

dropping

oUt.

the

defaults

high

burdensome

The

as section in

the

the on

single M-99

formal

requirements

and

144

most will

sector. delayed

important

detail Other

the

reason main

compiaints

releases

also

for

causes such figure

of as


Table

Ill. 23

SUMMARY OF STUDIES INDICATING EXTENT OF ,BORROWING • FORMAL AND INFORMAL SOU RCES_a/ =

FROM

,

1954,55

de Guzman

1957-58

Gapud

(1958)

1957-58

Sacay

(1961)

1960-61

BCS (1963)

1957-70

Mangahas

1970-71,

Mangahas

1959-70

Almario

1969-70

Balago_

1973

DA (1974)

19_3-74

(1957)

88.0

256 _loans

10.0

90.0

916 loans

13.0

87.0

loans

7.8

92.2

(1975)

151 borrowers

11..9

88.1

(1975)

297 borrowers

20.9

79.1

(1970)

138 loans

37.7

62.3

(1974)

134 boz_owe_s

•21.6

78._

51.3

48.7

loans

92.2

7.8

421 borTowers

94.0

6.0

1,679,000

Cigaral

1975-76

DA

620 loans (1974)

Iloilo

(Feb. 1977)

341 loans

82.7

17.3

Iloc0s

(Jan. 1977)

703 loans

87.8

32.4

551 loans

74.6

25.4

268 f_ers

17.2

82.8

•1,079 loans

36.9

63.I

5.2

94.8

25.8

74.2

3.8

96.2

17.4

82.6

20.0

80.0

(April

1976

DA (1975)

1977

UPBRF

1977

DA

1977

TBAC

1978

DA (1978)

1978

T:BAC (1981)

1979-80

NIA-SGV

1981'82

TBAC

- "

a/Data

-

"

3,30_

(1977)

Zamboanga

loans

1977 _

(1977)

(1977)

405 rammers

(1978)

338 farmers

"

2 ,ii0 loans

(1980)

(1984)

"

655 borTowers

299 far_ers 871,600

loans

40.2

59.8

626,300.

farmers

34.0 -_-bl

58.7 b--/

"

Z'

compamability

is limited

by diffel-ences

in samplinEo

b/some 7.3,percen_ of the born."owe_-responden_s tapped informal c_edit sources. Source:

Sacay,

±

12.0

PCARR-Baecon

1974

2,411

,

Agabin

and Tanehoco.

Small 145

Farmer

Credit

both the formal

Dile_a,

1985.

and


prominently.

All

present

system

formal

these

implications

here

to

incomes

improve

policies needs

of

of

the

One to

of

1981-82

the

all loans

Table

use

of

the

small

higher

however, This longer reflects

on has

means

also

it

be

introduced

system

in

be

to

the

policy adopted

the

would

III.24

far

banking

answer

in

half

small-sized

have

shows

better

practically for

be

seen

matured

to

the

that

do in

servicing the

loans

bigger

comprise

in

Table and

is the

small

number

gives

more

of

of

informal

in

higher

highec

ratio informal

repayment

effects

of

146

loans

are

for

most

important

the

informal

of

the

household

put

on

need

of

sector.

Borrowers

past-due

of

next

flexibility

iII.26. a

chunk the

farmer-borrowers

arrears

the

serve

loans.

a higher

a

the

formal

rate,

The

that

to

the

that

that

period.

is

Again,

than

repayment

borroweres

changes

Table

expenses

allows

can

The

should

2)

formal

loans

shows

fund.

priority

services

the

demand

also

farmer

The

of

farmers.

policies

and

loans.

Household

system

macro

suitability

advantage.

credit

credit

of

small

should

comprise

big

III.25

production.

lack

farmers.

which

a distinct

o_

sector

informal

The

needs

farmers;

small-sized

loans.

the

i)

adjustments

(_50-999)

to

clear:

formal

survey,

loans

the

of

small

accomodate

to

are

the

point

informal

Informal percentage from than

the in

credit rate

interlinked

in

credit of

credit has

fully

paid

informal

sector,

formal

sector.

the

extends the markets

a

through

informal

system

and

better

a


'tab.' e

111 ..14

DISTRIBUTION OF LOANS, BY SIZE, BY CREDIT ALL REGIONS, CROP YEAR 1981i82

Formal Number % Dis_riof Loans bunion

Loan Size Classes (_)

50 -

999

Informal N_ber % Distriof Loans bution

SOURCE,

All Loans Number % Dis_riof Loans bution

115

17,3

913

62.5

1,_28

48.4

31.6

270

18.5

480

22.6

17.7

ll3

7.7

231

i0.8

1,000

- 1,999

210

2,000

- 2,999

ll8

3,000

- 5,999

145

21.8

2!7

8.7

272

12.8

6,000

- 9,000

46

6.9

25

1.7

71

3.3

and above

31

4.7

13

0.9

4_

â&#x20AC;˘2.1

100.0

2._126

i0,000

Tozal

665_/

Average Sfze (_)_'an

3. formal loans

b/Excludes

2 informal

C/RepomZed

averaKes

"TBAC_

100.0

i_461 b/

3,642

a/Excludes

Source:

b

Small Farm

1,228

with unspecified

amount.

loans with unspecified ad.jusZed for missing Indebtedness

Sumvey,

147

amount.

values. June

1986.

i00.0

1,983


Table PERCENTAGE

III.25

DISTRIBUTION'AND

AVERAGE

LOAN

SIZE, BY PURPOSE, BY CREDIT SOURCE, ALL REGIONS, CROP YEAR 1981-82 ,

Formal Loan Purpose

Pemcent Distribution

Purely

Informal

Average Loan Size

(F)

,,,,

All Goans

Percent Disrri-

Average Loan

Percent'Dis1_i-

bution

S_ze

bution

(_)

Avemage Loan Size

(_)

production

expense Purely household expense Purchase

73.8

2,819

56.2

4.5

2,210

22_3

9.5

8,445

4.7

.

I _472

61.7

1,976

. 72!

16.7

8q6

6.2

4,814

of farm

equipment/ invesi_nent Frocessing

of

produce Investment

in other

I_98 •

0.2

4,000

0.I

_00

0.1

2,150

1.5

7,527

2.0

_73

1.9.

2,_13

0.5

_8,_67

0.6

t

22

0.5

12,708

3.6

3.6@4

2.1

V72

2.6

2,021

4.2

2,961

5.9

.1,_33

'5.4

' %_733

Others

_1..6

1,925

2.3

1,_02

2..1

1,.533

Don't know

0.5

5,!30

3.8

2.8

"1,007

100,0 z/

3,642

I00.0 b,_

busin¢=s Household expense/ farm investment Production expense with.fb_v_n investment

"

Production and households expenses

Total

_32

10.0.0 | J

_/Excludes

3 formal

loans

with

unspecified

_/Excludes

2 infot_aal loans with

unspecified

148,,

amount. am@unt.

1,983 '


Table

III.26

PROPORTION OF FULLY PAID BORROWERS_ AND PAST DUE RATIO, BY CREDIT CROP YEAR 1981-82

AVERAGE SOURCE,

REPAYMENT

Credit S_rce Formal Informal No. of borrowers

598e-/

No. of borrowers with matured % fully paid % wiZh past due

loans a/

Ave. repaymen_

rate_/(%) b/ Ave. past due ratio-- (%) For CY I_o_-o_ loans only For loans prior _o CY 1981-82 a/ Ave. _nount Past due-- (_persOn)

a/Refers

to matured

only

1,15_

No_e:

58 mixed

1.699

747 81.3 18.7

1 _I11 73.1 26.9

67.5

87.2

77.8

30.0 1!.9 50.6

48.0 22.2 95..2

32.9 13 8 56.1

512

801

loans only.

b/Unless otherwise classified_ refers to all outstanding as of end CY 198!-82 regardless of dates when the mespondents C/Includes

Total

355 56.1 _3,9

1.:060

CY 1981-82

/

RATE

b_,rowers.

See Annex Table ii for the regional

149

breakdoa_.

loans0 borrowed.


collection lender

and

It formal the

efforts

has

formal

But

been

sector.

farmers.

can

shown

(as

in

section

incomes

the

farmers the

and

than

their

and

in

the

areas in

paddy-irrigated

informal

in

for

result

sectors rates

the

but the

taken

of

SFIS

which

together,

large

more

and

of

repayment

(which

use

they formal

small

observation

use

of

areas

The

SFIS

the

defaulters.

counterparts

(which

terms

the

sizes

repayment for

concerning

picture.

the

that Within

land

informal

account

SFIS)

levels.

are

smaller

accounts

formal

has 1979)

results

show

clearly

patterns

which

policy

III.27b,

and expenses into

hectares,

income

cropland

(1981)

(February-July,

III.28a

between

that informal

than

their

relatively

more

loans).

TBAC

down

the

higher

better

in

(including

complicates

also

other

counterparts

income,

contacts

the

rates

the

performed

formal

personal

studies

lower-income

lower

difference

in

loans)

by

with

therefore,

It

_armers

oÂŁ

have

for

no

is

the

repayraent

that is

many

those it

of

This,

shows

in

information

now

better

there

are

more

above

borrowers have

shown

system,

that the

about

borrower.

borrowers

M-99)

brought

to

studied

34

employing

intensive

thatsurplus makers show

and

surplus

III.28c farms

from

the

ful_ show 1.5

and

should

III.27c

leaseholders,

farmers

past

(deficit) owners

similar hectares

150

be

one

crop-season

record-keeping. borrowings

aware

of.

surplus

have

The monthly

Tables

III.27a,

(deficit)

monthly

of

the

respondents

broken

and

CLT

holders.

Tables

for

farms

figures to

for

3 hectares,

and

below farms

1.5 above


Table AVERAGE

Carry-over Total

INCOME

Balance

Income

Total Expense Balance

AND EXPENSE

290

-1,085

Balance

April

May'

June

-1,386

873

1,750

_uly

2,277

453

523

1,268

5,52_

2,317

3,905

1,828

824

755

2,901

1,790

1,272

-873

1,750

2,277

4_Sl0

AND EXPENSE

February

Carry-over

OF A LEASEHOLDE_

March

Table INCOME

PLOW

Febru_y

-1,085

AVERAGE

Ill. 27a

-1,386

III. 27b OF A FULL

March

OWNER

Apmil

May

June

JU!5_

804

190

-243

-201

3,q69

4,q35

Total

Income

1,127

873

1,117

6,642

2,78£

2,817.

Total

Expense

1,841

1,306

1,07S

2,£72

1,823

1,5!£

-201

3,469

4,435

5,533

Balance

190

Table AVEF_&GE INCOME

Total

Balance

Income

.Total Expense Balance

III. 27c

AND EXPENSE HOLDER

February

Carry-over

"-2q3

March

FLOW OF A CLT

April

May

2,263

615

-180

-257

690

292

885

1,087

962

-180

-257

2,338 615

151

June

July

2.,010

2,426

4,778

2,230

8,788

2,511

1,814

1,953

2 ,.010

2 ,_26

g 1261


Table AVERAGE

IIl. 28a

INCOME AND EXPENSE FLOW FOR FARMS BELOW i. 5 HECTARES

February

March

April

May

June

July

Cart-y-over Balance

554

-372

-683

-723

2,5.99

2,216

Total

Income

467

405

803

5,470

1,208

2,998

Total

Expense

1,393

716

843

2,148

1,591

1,127

372

-683

-723

2,599

2,216

4,087

Balance

Table AVERAGE

•.

Carry-over

Income

Total

Expense

Balance

INCOME AND EXPENSE FLOW FOR FAR/_ 1.5 to 3.0 HECTARES

February

March..

•April

May

June

July

860

-288

-1,181

-586

2,423

2,966

344

541

5_306

1,811

3,900

1,992

934

805

2,297

1,268

]',352

-788

-1,181

-586

2,423

2,966

5,514

Balance

Total

llI. 28b

Table AVERAGE

i,,400

iii.28c

INCOME AND EXPENSE FLOW FOR FARMS ABOVE 3.0 _CTARES -..

Carry-0ve_

Balance

._

February

March

April

May

June

July

1,779

1,373

816

596

3,314

6,143

Total

Income

1,653

591

698

6,103

4,437

9,345

Total

Expense

2,058

1,148

918

3,385

1,608

2,130

1,373

816

596

3,314

6,143

13•,358

Balance

152


3

hectares.

than

3

For

hectares

holders'

position

(February-April) are or

provide the

time

shows in

the

next

The pay

or

same

the

funds

smallest

the

last

made

season.

The

concentrated

the

lenders

to

carry-over

the

also

the

start

are

made

the shows

and

growing

of

during

July

perhaps

more

farmers.

The

planting

season;

increase.

the

borrowings

months

reflects

the

deficits

CLT

(May-July)

made

the

more

and

months

of

of

repayment

III.l

to

current

graphs

It

palay, planting this

season

with timed

is

so

Harvest

some in

a

traders)

time.

the

capacity

total that

III.3

full

slight

preparation

sho W

owners

an

the

and that

and lowest has

and

outs tandzing

clearly

season scheme

patterns

loan

show

planting

obligations of

owners

(particularly

studies

Figures

repayment during

if

with

season.

The

during

planting Harves_

even

of

•full

February,

level

those

of _borrowings

leaseholders,

respectively.

for

pQsition

in

this

cumulative

highest

the

deficit

month

stu:_y also

for

• (except

and

level•

borrowings

the

farmers

months.

during

far_n_L-s.

borrowings

As

after

planting

repayment,

study

O elicit

are

biggest

increase

percent

Februray,

informal

credit

that

to

in

surplus

most

of

months

The

decline

that•

for

all

borrowings

borrowings fact

for

months.

the

biggest

types

are

surplus less

all

graphs and

CLT

for total

holders,

borrowings

duri'ng

opposite

capacity

the

are harvest

patter_

and

is

harvestseason.

to

repay

comprise borrowings based

153

on

the a

the

significant

made net

debt,

during

income,

study amount the

shows about

season.

_all farmers

that 75 The

in

all


i

; G

h:

-

.. -

,_,:_.-

-..-

_..............

" ,.,

.'"-.'-_ ..... ,e_.... ' _

'_: ....

-.

_.,"

_

7

._" _-

7 "

"

" !-.. _' ' - .-:,

a. ......

_._

• ..

,:.__"_'_ ,c 7-'_.- .:-',_-. I',_'-L..._.... ' . _. "

-'-:..._.'-:.&_-".':"..." :. " • " " :-, ""-_.,,.'._-,-_.-...

_:."'_--" ,_-.._.___, ,-" _ _: ._-._:_.:,c.._.:._.¢,._L&_.._.-'.£-_ a= ;'__-. ,.,_' %/9 '' T-',r-." " ..... _ -._ ""F:'" :_-:' ,: • "--.-.. :K:: ' -._.:..:,_.., "..,L • , . .....

:

=1_ _ , '. "" • ;7

....

_,_'-"

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c;

.- _ . _,_

.,.,-." . '. ,_.. ,.._" ._.:!.:+ ,.. _.-_,,.'.' .' , :_:." ._-'--_:'-..-,-_:._-'_. :.7"_':-.'-'.. , ':,6, - ' ..._ .," . .. • t_ ,'.._,-,.." F....-.-_:. _ :-.. ,:.., ..:...,

",

'_ "r

r-

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0

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e-

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__.- .E _ "_

=_

-_.=.+,,._'-:,-,_v.._.'=;'. ...... L-`._;_:_:.:._.c_;_-iJ_-_"_s_.._-_r:_:_`_._L_._._;.__. O_

am,..

_ • ,u, _ . -.:.' ...: .......:_--_':'"i:..... . .-,i: :_ i".':<:".!._'" .--i :.'!.:_'

:- : .... _.-: ..,_, _.% ...... : -- " ,' , " . :F "_ " , .": ._. ., -_._, . .... _ _ ........ _

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.

"

:. ,-. .....

0

_" ' ',:-.-" ,-_7_I_-..F._-'" _ o -''_"_"_ "_ "-_,F": -_ .....

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-....:

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- 7'

_p,"

_ : W_.... ".... " ___ _ . "" • I_ _ . • ; | _.. ,:. ,

_

• '-.,. _...._.___,:

..._.. _.7_- ,:-_ T_-.-:: _,_i _

_,.'::'-. -_-.+t :.>-.>--." _.7, '. ',..... :" ,.-_,,"*.°-T7'2

•-"7 " ' --:,.,-, "_.',:'-'_-_m._--"-...L ,.- " _-:" .:,-,:,_- :-::,-;_rL,,:ij_..::_J_'. _-_-_-_-:=...,_--.--;-_,:,...

- .....

_ _. t_-'.'

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'>"-'""'_ "'-"_

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,.'_ +- -: ...F -:

7= ..

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o

:L -,........._ ' ":' "_ • ,_,_ "_ k" ' .. "

!

._ :

• -

• :

r,;

_

:

*U ?-.

_m

_.m">-

_.m

*, ....

C:,

¢,_

"el _


categories due

will

(including

that •

is

that

will

not

including

These

rice

areas

of

i,l£ormal

was

In

dropouts

from

preference

the

"trauma"

pay

the

high

is

used, loans

loan.

This

rates

in

both

while

past

due

need

for

said

and

by M-99

they

the

fact

M-99

Program

and

not

to due

credit

since

majority

borrow

system).

154

(i .e. the

lack

a

72

significant

more

many

Small percent

who

Farm of

system

60

the

to

have

was to

borrow of

dropouts.

non-borrowers

non-borrowing access

to

from

percent

system

seems

the Non-

came

not

than

formal

of

and

non-borrowers.

decided

of

those

formal

TBAC

that

that

total

formal

to

the

dropouts,

comprised

that (either

were

in

(particularly

show

reports

this

want

studies

which

[1986])

strong

(particularly

non-borrowers

1981,82

the

the

months"

some

SFIS

of

to

particular,

(SFIS

especially

not

"deficit

are

notably

the

here,

flow

outstanding

repayment

point

country)

exacerbated

system,

do

the

In

covering

again•.

they

of

Survey

borrowing

to

adequately

contradicts

sources).

respondents

to

in

respondents

Indebtedness

net

versus

why

are

seems

This

wide

•portion

b_aring

systems

particularly

covering

The

explain

if

obligations

high.

•areas).

credit

perhaps

observations

borrowings

will

total

But

be able

informal

their

Obligations).

t%ley

formal

also

pay•back

borrowings

can

and

to

additional

mature,

are

able

carry-over

observation

_atios

be

any

some said their credit


The

NEDA

families

StudY

do

these

not

non-bor

is

borrowed

would than A

•from

as

debt

This

a primary

of

invest

in

the

and an

to

key

rates

of in

looked be

upon

"healthy"

•farmers

most

to

the

as

a necessary

Tl_is

working

fact

incurs

capital

prokits

and

income.

depressed

rural

areas

will

nonnever

(which

that

freedom

credit

in

if

to

the

order

with

the

expectations

The

credit

system

never

thrive

and

for

that,

contrary

a debt

is

lenders'

evil

is completely

who

their

mention

points them

tileLc

informal

borrowers

of

ing

have

percent

future.

borrower

or

15

who

the

by

avoi_led.

and

for

those

rura].

percent

_inanc

reason of

of

Ii.7

for

below

programs

percent

only

the

per.cent

higher

to of

for

prosper

the in

environment.

More

evidence

Run

Mang

continued

frequency

of

in using

of

this

Pedro's

the. farmer

income

A

simply

physical

generating

drove

is

sources

interest

goal

52.5

However,

94.2

credit

that

Other.

percentage

should•

motive

State

pr.efec

large

farmers

such

that

phenomenon

possible,

He

the fact

finds

borrow.

}lave

existing

rates).

poor

to

also

production.

borrowing

small

wish

t-owers

agricultural

lower

(1986)

his

behavior

Farm?"

the' study the

to

new

cred it

can

be

seen

Crop

failures

drop

out

HYV

availments

• and

from

technology once

in

any and his

"Should

the

loan

default

credit

market.

increased

the

production

and

recovered.

Is •should effective

institutional be

recalled •cost

of

cheap that

borrowing

credit

what

really •which

155

really

cheap

matters

to

includes

the

to

farmers?

borrowers basic

It is

the

interest


rate and

ÂŁor

the

amount

transaction

in

in

January

_ar_ers

in

TBAC's crop

a Review

the

costs,

premium

for

(supporting

loans)

percent.

It

less

the

it

for

the

Samahang

the

interest

risk

is

premium. risk

Barrio

6 percent

contributions,

and

noted

the

assumed

various that

Nayon. is

Nayon,

will

more

then

the

interest be

much

156

premium

for

the

is

less

covered is

offset percent

rate

that than

by will

should 34.2

as

not

the

34.2

this

samahang the

on

explicitly

whether

is

Nayon.

various

correct;that

34.2

higher

by

cheap

is "mainly high

is

fees

for

After

become

as

clear

fees

others.

subsidy

not

shows

Transaction

not

is

for

transportation

and

It is

Esguerra or

Fund.

the

risk

this If

includes

does

that

costs III.29

includes

rates

that

calculations.

The

Savings

discounted

be

Table

credit

Programs

borrowing

expenses

claim

Credit

cost

and

the

(1981)

subsidy

Samahang

accomodate

be

the

borrowing

"facilitator"

than

Perhaps

the

to

should

more

to

or

Rrogram.

the

everything,

defaulted

in

calculate

The

and

Esguerra's

included

to

1981.

expenses,

accounting

or

tried

for

estimated

meal

fees

A_ricultural

formallMasagana-99-

insurance was

o_ÂŁ_su_e_vised

1981

estimates

cost

regulated

costs.

TBAC, done

borrowed,

is

fees --

various

that fees

not

include

the

be

charged

to

percent.


Table

III._9

_TI};AT_D ':_OSTOF _O_4_i_GFOR SMALL _A_ERS (_

PeP Annum)

Interest at MatumÂŁty R!ce.Fa*naer, Non-Rice SN Non-SN Far_ner MemSer Member ._

,

.

Interest

t

Rate

BSF Crop

Insurance

Sub-Total Transactions TOTAL

Interest Discounted Rice Farmer Non-Rice SN Non-SN Farmer Mer_er Member

Cost

12.0_

12.0_

12.0,

6.67

-

-

., .,_

,. 17

-

15.38

i,.28

13.6,

7.69

-

-

5.13

_.76

-

19.O_

13.6,

_3.15

16.21

12. O.

28.20

6.00

6.00

6.00

6.00

6.00

6.00

22.21

118.0.

3.. 20

25.0:"

19.6_

29.15

,.c

157


Chapter

MACROECONOMIC

This

chapter

section

section

and

influence

financial

which

to

the

growth

vacuum_

policies

that cannot

sector

of

severely

In _ several

a

second

operating

last

in

on

the

section the

the

the rural

deals

with

workings

of

the

financial

markets

Environment

effectiveness

large

the

RFMs

the

are

the

them rural

last

changes

in

by

three its

on• the

environment

enterprises

are

indirectly make

economy

in when

unfavorable

decades, economic

Ig8

i_

has RFMs

also

not do

not

penalized.

the

growth

case

by

in

conducive

operate

in

a

existing

Countervailing

financial

pushing

within

the

been

penalized

rural

effective

environment

as

The

also

rural

policy

sector.

artificially make

the

Philippines,

policy

rural

rural

of

extent

In

constrained

the

The

focus

on

first

in

economy.

with • special

impinge

The

environment

framework

and

FRAMEWORK

sections.

the • rural

directly

overall

When th@

•viable

and

of

measures,

three policy

third

Policff

operate.

LDCs, the

system

that

_

growth

they

on

•INSTITUTIONAL

markets.

Macrgecoqom_

depend

into

overall

The

policies

The

AND

the • institutional

markets.

specific

to

its

financial

financSal

(RFMs)

divided the

Philippine

Many

is

reviews

rural,

ENVIRONMENT

discusses

Philippines

A.

POLICY

IV

or

institutions

dragging of

the

the

real

latter

is

policies.

the

Philippines

development

has

strategy.

initiated Import


_ubstitution

policy

Development

was

strategy

National

Capital

started

in

was

development

plans

(see

et

taken prepared

[1983]).

reform

program

In

the

took

the

economy.

effect

Thus,

in

of

various

this

concern

interest

shifted

the

January

earnestly

the

embodied the

the

dimension

and

80s,

69.

of

was

spatial

government

-

favor

policy

time,

1947

in

consideration,

by

of

period

biased

promotion

same

into

liberalization

ÂŁariff

the

the

heavily

Export

About

al.

during

then

Region.

development

towards

was

1970.

Pernia

prominent

1981

first and

major will

be [

completed also

over

a

the

rural

ace

five

extensively

years.

Financial

reforms

were

the

the

an

The

Sector"

policy

in

policy

agriculture

the

(1986).

"Agenda of

biases

in

biases

Some

against

particular

against for

agriculture

Action

these

have

for

policies

the

will

be

agricultural

of

through

exports

export

the

"this

tax.

government

has

consistently

peso

Ranis to

be

at

overvaluation

which

receive of

agricultural

have

fewer

agricultural Since 159

than

the

just

pesos

the

for

greater

estimated

level a

of

25

to

25

to

30

burden

been

produc_s, a

(1986)

represents

far greater

taxes

farmers

and

currency.

exporters,

export

words,

zero

on

agriculture

The

domestic

Indeed, tax

for

rate.

overvaluation

percent.

percent

price

exchange

overvalued

current

other

and

intact.

macroeconomic is

pursued

general

the

below.

One trade

however,

discussed

Rural

discussed

changes,

in

remained

Philippine

the

these

sector

Virtually

earn

of

initiated.

Despite

30

period

of

the

removed."

every

In

dollar

they

notwithstanding proportion

of

the


exportabies

are

curref_cy sector has

overvaluation (In£al

6o

the

At

stiffer

(e.g.,

yellow

import

the

coo;L) of

tariff

the

and

the

;[Lore heavily other

the

from

whose

prices

adverse

• o,]

end,

co,npet itio_

overvaluation

The

pt-oducts,

falls

11985]).

face

products by

agricuL_urai

eC[ects

the

agricultural

agricultural

i!nPorted • are

o[

sector

agricultural

e[fectively

lowered

[Jeso.

expo/t

tax

structures

have

also

placed

i

greater

burden

continued

even

IV.l,

(EPRs)

noted

that

EPRs

a

of

have

the

still

although

tended

to

locate

Industrial

Region

concentrated

(see

social felt

overhead once

one

centers. capital

capital

The was

very

to

in

much

in

24

primary

to

a lesser

National

et

al most

areas

just

160

to

percent.

extent

after

Indeed,

the

rural

a

few

kilometers

the

the

areas

place

industrial

T RP.

TRP.

the

7Us

industries and

capital

to

the

in

Region

in

ssctors

•Many

of

by

after

initiated

Capital

(1986)

However,

agricultural

results.

where

p_otec£ion

succeeded

terms

and

has Table

Me(_alla

12

overhead

regarding

influenced

(TRY).

has

thrust

[1983]).

This

e£fective

relative

and

social

in

•decision

average

desirable

where Pernia

goes

from

development

limited

program

program

same

exportable

very

the

tra(/e.

manufacturing.

EPRs

the

rural/regional

produced

ot

reform

the

remained

agricultural re£or_l

and

tariff

stiil penalized

has

tariff

a_riculture

reducing

Specifically,

The

the

and

cotnparison

the

substantially the

agriculture

after

presents

rates

are

on

is

the is

Central mostly

absence

immediately

away

•from

social policy

urban

overhead of

the


Table

AVERAGE

EFFECTIVE (In

IV.l

PROTECTION Percent)

RATES

1979 (Pre-TRP)

All

Sectors

(EPR$)

198g (Post-TRP)

24

12

ab les

-3

-3

Impor tab les

44

9.5

Export

Primary

and

Agriculture

1

Manufacturing Export Impor

Source:

ab i es tab les

Medalla

40 '

9.3

1

l

_0

(1986).

16].

-i

33


government. up

by

Naturally,

the

iJrivate

In

the

,]haloing

those

initiated

is

policy

However,

subsidy

6o

times will

in

because

transaction

Thus,

most

result loans

was granted

subsidized

past

banks

that

the

credit

the

that

of

take of

into

of in

programs

account

agricultural away

share

more

from

formal

the

last

initiated

162

to

rate

other

risk

despite 70s.

which

and

[1985]).

lending. loans

by

sectors

(Intal

agricultural

in _ the

rate

created

agricultural

decade

or

incentive

greater

lending

1

two

interest

the

the

of

only

increased

interest

than

a

favor

unfavorable

the

meant

in

the

rate

against

has

non-agriculture

fixing

discussed

interest

amounts is

of

policy

bias

cent

the

agriculture

shied

declined

clear

such

the

per

of

effects

policy

differential is

government

are

policy

rate

vis-a-vis

costs

big

6

the

policy

rate

Of

instead

One

that

the

significantly

hurt to

of

rate

Moreover,

failed

higher

correct interest

it

alter

out

subsidy

agriculture

the

it

that

magnitude,

policies." done

to

this

the

But

adverse

agriculture. of

by

development

this.

the

(1982)pointed failed

put

enterprises

agriculture,

(details

interest

not

in

on

pursued

rural

offsetting

effective

if

in

against

differential

the Even

structure

was

recognized

above

David

borrowing

percent.

price

long

"Assuming

agriculture,

subsidy

has

policy

agriculture

agriculture. of

supported

at

ies

â&#x20AC;˘agricultural

have

aimed

credit

polic

made

biases

communication,

follow.

way

mentioned

cheap

below).

three

no

policies

the

cos_

in

e.g.,

macroeconomic

government

policies

to

literally

and

course,

services,

have

the

have

unprofitable

those

sector

summary,

government

other

to

the Aside

The total massive from


this,

•the

rural

financial

The various

cheap

fronts

(David

to

achieve in

has

impaired

recently

economic

the

document

has

the

growth

of

the

[198_.]).

government

growth•

official

policy

markets

present

sustained the

• credit

recovery

_ong-run.

entitled,

initiated

The "Policy

in

reforias

the

reforms

short-run

are

Agenda

in

for

and

en_odied

in

People-Powered

I|

Development

(1986).

employment-or

iented,

medium-term.

Essentially, rural-based

This.

development

is

in

is

the

general

orovision

removal

sector.

rural

RFMs

are and

signals

will stand special

of

to

firm

to

this

groupswhose It of

also

policies

in

capital

against

be

reduce•

lenders..

•Under

perform

better.

to

nonfinancial

the

previous

rural

be

new

They

market

the

towards given

transaction this

sector

addition,

will

the

the

•new development

shifted

facilities

an

in

the

•In

will

adopting

emphasized

this

particular.

would

due

costs-of environment, can

signals

the

respond

since

these

ones.

this

determination

strategy. package

biases

and

strongly

success

and

of

expected

are • genuine

The

feature

these

to

greatly

important policy

is

strategy

contrast

which

overhead

pr0ducers/savers

quickly

direct

Post-harvest •All

government

development

agriculture•in

social

importance.

the

An

and of

rural

in

strategies

industrialization. strategy

the

new of

new

development the

depends into

government

commitment

interest

and

without

runs•counter on

programs

163

strategy

the

and

it

the

its

being to

way

on

depends

the

new

concretizes managerial

on

abili£y swayed

£he to _. by

development the

new

talents

it


can

pull

together

B.

Institutional

The

to

institutional

of

the•RFMs

framework It

the

various

programs.

Framework

workings

system.

i_nplelaent

may

is

very

operating

be

much

in

worthwhile

to

conditioned

the

by

Philippine

review

•this

the

financial institutional

framework.

Before several

the

banks

Table

had

IV.2).

notes.

. establishment already

Some

Note

of

that

of

been

them

only

Central

operating

were

few

the

in

the

authorized

of

them

Bank

to

were

in

1949,

country issue

(see

currency

Filipino-owned

or

government-owned.

Almost of

all

course°

colony,

a

like

tradables

banks

concentrated

familiar the

were

feature

Philippines.

agricultural

tobacco

and

helped

promote

agriculture.

did

do

to

not

As made

copra,

much

early

several

•as

government-owned

1908

(Lirio

secured

it

the

[1986]).

agricultural

banking

To

the

extent

products,

the

to First

of

their

develop

loans.

164

as

that

20th the

most

Bank

deposits,

is,

in

any

of

the

banks

_ugar,

indirectly in

Manila

markets.•

century, rural

This

abaca,

concentration

financial

Agricultural

•It accepted

said

system that

such

be

rural

the

financing.

the

But

turn

trade

of

•can therefore

develop

attempts

The

in

the

• financial

government markets.

was

_established

in

but

specialized

in


Table

BANKS

Name

A

C.

D.

OPERATING BEFORE THE ESTABLISHMENT OF CENTRAL BANK OF THEPHILIPPINES (1949)

Bank

Commercial i. _. 3. 4. 5. 6. 7.

B.

of

Bank

Monte

_. 3.

Philippine Postal Banco Hipotecario

de

Piedad

Agricultural

Bank

Agricultural

and

_. 3. 4. 5. 6. 7.

Source:

Ecclesiast_.ca] Chinese _aerican Filipino Chinese Ecclesiastical Goverr_ment

Bank

I.

Foreign

THE

Ownership

Bank of the Philippine Islands China Banking Corporation Peoples Bank and Trust C_. Philippine Bank of Co,mnerce Philippine Bank of Communications Philippine Trust Company Philippine National Bank

Savings

i_

IV. P.

Eccles_.astical Savings Bank de Filipinas

Industrial

Bank

Government Filipino

Government

Branches

The

Chartered Bank of India, Australia, and China The Hongkong and Shanghai Banking Corporation Mokohama Specie Bank National City Bank of New York Bank of Taiwan, Ltd. Nederlandsch _ndische Handelsbank The Bank of America, NT and SA

Lirio

(1986).

165

British British Japanese American Japanese Dutch American


It

was

(PNB)

later

which

was

to

of

this

long-term bank.

Rehabilitation Development

of

Marketing

Bank

Law

rural

of

up

rural

and

trade

themselves relative banks

f_nancial and

for

197_ in

colonial

Industrial

Then

it

in

Bank

loans

1947,

was was

the

Bank

1935,

was

the

created.

transferred absorbed

predecessor

from by

the

of

the

(DBP).

given

Law

the

Act

an

added

(191_)

push

and

the

with

the

Cooperative

the

first

areas,

the

offices Thus,

time.

it became

of

in

Postal

the

irrelevant

Savings

provinces

banking The

the

economy

venture.

So,

urban

agricultural

and

government creating

intervention system.

post

bank.

mostly

the by

rural

was

brought

Postal

Savings

due

the

to

were to Bank

presence

countryside.

these

markets

All

nature

of

the

this

when

a profitable to

in

1904.

sector

its

and

was

Credit

of

prompted

government

bank

in

neglect

financial

1916.

Philippines

savings

banks

The

in

sector

branches

to

in

National

(1927).

created

considered

lasted

the

Rural

mobilize

was

the

the

Philippine

Corporation,

agricultural

passage

To

But

of

the

agricultural

Finance Bank

The

by

Agricultural

granting

PNB

absorbed

established

government-owned The

on

But

subsequent

_s the

to its thus

creation

absorption

166

actually private

commerce

banks

oriented

economic

activities.

long-term

credit

directly

own

made

intervene

specialized

not

new

of

a

by

another

by

specialized bank

the

private in

banks.

in

The

the

Direct Philippine

agricultural portrays

the


difficulty

encountered

supporting

the

The

agricultural

establishment

the

Philippine

of

t_e

objectives,

coordination

branch

of

the

Changes less

in

were

Moreover,

securities. reluctant

to

[1980]).

The

was

because

is

pay

of

be

maintained

to

reason

the

income

the

Central

credit

and

reserve

sweeteners

Bank

climate

Table

IV.3).

the

executive

by

including

due

the

fact

not the

requirement operations

to

were of

market

the

why

and

level

Board.

and

to

rising

(see

-

traditional

promote

Bank

competitive

only

to

era for

development its

Central

open

due

from

new

underdevelopment a

the

inoperative

This

have

real

of

rates

virtually

financially

in

the

and

Monetary

monetary

to

mandated

was

the

of

aside

was

instruments

frequent.

Bank

Bank

rediscount

in

ushered

view

proper

Thus,

in

overall

Bank

In

deemed

government

policy the

was

between

officials

affect

Central

employment,

Strong

government

system.

Central

production,

The

the

bank.

the

government

of

it

central

the

sector.

financial

ecorlo,ny,

oriented

of

by

rates

to

banks

hold

attached

of

the

their

the

of

were Central

marketable

government

was

securities

government to

thegn,

to

economy.

ratios

absence

that

used

(Tan

securities like

reserve

selective

credit

eligibility.

The policy. credit

Central It

to

favored

Bank created sectors

vigorously

pursued

specialized can

167

be

channeled.

its banks

through Because

of

which the

urban


Table

THE

PHILIPPINE

The

I,

Broad Policy Objectives

1949

IV. 3

CENTRAL

BANK

CB

The

I.

Maintain stability.

monetary

_.

Preserve internanational value of the peso _.nto other freely convertible currencies.

3.

Pror_ote rising level of production, employment, and real income

1972

CB

I.

~

the

same

-

_.

-

the

sa_e

-

3.

To foster monetary, credit and exchange conditions conducive to a balance and sustainable growth of economy.

II.

Traditional Functions

i.

_.

Sole responsibility of _urrency issue. Holds and manages â&#x20AC;˘the reserves of the

3.

banking

Discharges services

system banking for the

governments and the commercial banks. 4.

I.

Manages the country's international reserves.

168

for

the

- basically the same

-


Table

IV.3

(cont'd)

The

III.

Organizational Structure

Seven

1949

CB

members:

i - Governor

1 1 -

(appointed by the president) Secretary of Finance DBP Governor

[ - PNB Preยงident 3 - Private Sector representatives (appointed) IV.

V.

Scope of Control

Policy

Tools

The

Seven

1972

CB

members

i - Governor (appointed ) 1 - Ministry of of Finance 1 - NEDA i - BOI 3 -

Private Sector Representatives (appointed)

The Monetary Board controls not only co_mnercial banks, but all banking institutions, with the exception of insurance companies. It has both

The Central Bank has been given a wider scope of authority to oversee not only the monetary and banking system but also the

supervisory and policy powers,

entire financial and credit system.

i.

- Basically the same

Quantitative Controls: All monetary & credit climate of the country by tightening or easing the availability of credit (a)

Open market operations

(b)

Rediscount rate changes

(c)

Varying reserve ratios

169

-


Table

IV.3

(cont'd)

The

_.

1949

CB

Selective Controls: deliberate allocative effect (a)

The

Have

differential rediscount

rates

for special projects of government to promote development. (b)

differential deposit rates and reserve ratio banks.

(c)

among

creation

of

specialized banks thru which credit to key can be

170

sectors channeled.

197_

CB

Basically the same

-


bias

of

private

banks,

period,

the

be

by

colonial were

to

owned

rate

ceilings

that

attractive

investlnent to

banks

get

as

retained

more

tax

Central

Bank

annum.

lower

for

rural

added

competitive

banks

which

made

rural To

the

This

exists

government

for

small

by

to

has

colm_lercial rural

economies

of

today,

banks The

rural which

banks earned

been

phased

liabilities

banks.

banks

over

scale

due

although

are

ones.

recently

deposit

given

rural

of

shares

the

which

bigger

owners

less

were

privileges

than

subsidy

a

provided

They

preferred

applied

to

exploit

in

inherent

potential

smaller

privileges up

the

encohrage

and

interest

banks

subsidies.

exer%ptions

than

edge

rediscounting

its

bias

were

charged

flow

loans

the

They

it

This the to

were is

commercial their

is be_ng

an

size.

gradually

out.

The

was

banks

still

account

placed

ratios

can

into

the

banks.

However,

take

pesoâ&#x20AC;˘put

during

rural

Interestingly,

every

per

reserve

phased

tax

and

were

The

sector.

banking,

today.

These

out.

policy

of

i.nculcated

established

government

exemptions

_. percent

This

rural

matched

equity.

only

into

number

being

not

was

alternative.

substantial

extraordinary still

Bank

agricultural

go

that

private

did

of

ruralâ&#x20AC;˘

Central the

riskiness

investors

a habi%

towa sds

of

included

tO

funds

Major

priority

lower

intended

to

policy

develop the

overhaul

the

sectors.

rediscount

f%nancia] the

of

the

Bank

also

Specifically,

rates rural

Central

than banking

rural

comMerc%al system

reflected banks

banks. and

This

increase

the

rura_]_ areas.

refor_s of

the

171

were

effected

Central

Bank

_n (see

197_. Table

The IV.3).

refo_:ns The


stabilization role is

of

role

the

the

Central

main

not

that

the

Central

the

It

was

of

Central

Bank

has

banking

prominence

been

recognized

the

but

economic

function

include

the

growth

agencies,

supervisory

to

also

developmental

government

The

broadened

the that

regular

alone.

syst_m

over

not

entire

of

only

the

financial

and

_ystem.

Strong

coordination

executive

branch

the

Governor

DBP

Director Board

avoid

the

regulated

of

the

This

the

Central

Bank

past and

Despite Bank,

lender

of

various

BOI

Chairman of

Today,

that

last

of

further

the

resort

its than

the

Central This

policy

proportion

a_d when

agencies

the

regulator

the

made

to

the

make

experience to

(PIDS

the

objectives

a

policy

lender Bank

to

of

practice. Central

a number

of

in the

of

the

itself

first

resort

continued

glaring

the

[1986_).

make

still

one

the

a member

subservient

policy

and

coordination.

sectors far,

NEDA

Monetary

made

leadership

actual

launched

17_

between

So

is

both

the

the

avowed

rather

control.

government

in

by

is

the

However,

of

various

was

political

in

197_,

between of

Bank

and

members

Minister

one.

change

replaced

strengthen

from

Central

radical

credit

Budget

independent the

as

Bank

maintained.

were

interest

clamor

Central

is being

the

to

despite

before

out

President

specifically

inconsistency blown

PNB

Board

the

Central

selective

and

conflict

caprices

happened

government

a truly

was

the

the

one.

done

between

and

Monetary

was

whims

of

General

to

the

Bank.

Bank

and

credit

given

responsibility

of

monetary

was

a as its

example

of

This

was

even

Bank

and

the

special

credit


programs.

Table

agricultural rates

credit

for

these

substantially allowed

programs

rediscounting

credit

the

(see

offering

illustration).

cost

in

terms

funds.

In

of

mobilizing

the

The â&#x20AC;˘

70s

of

programs

by

government

Lamberte

entities

blurred

the

of

them

the

70s.

of

of

ADB,

credit

â&#x20AC;˘various

involved

in

rural

financial

rural

financial their

Table

cost

of

IV._

for

an

dependent rur_l

credit

the

development

the

better

_nd

of

rural

on

these

banking

before

the

system 70s

than

[198_]).

credit

various

in

(see

overly

was

were

and

between

became

government were

spread

as

savings

Bank

tosupport

the

performance

17

Bank

number

prodded

hindered

fact,

World

using

rate

in

directly

literally

agricultural

implemented number

(see

were

attractive

they

to

vogue

Central

banks,

lending

institutions

low

indeed

maximum

in

the

the

rural

lending

number

substannial

They

them

This

a

programs

the

good

be

like,

Both

3

of

Bank.

to

agencies

conduits.

the

Central

list

maximum

between A

seemed

IV.4).

endless

prescribed

rates.

agencies

as

by

seemingly

ranged

supporting

especially

and

after

the

credit

institutions,

financial

with

special

institutions

funds

market

government

managing

programs

the

by

Table

non-financial

which

funding

bandwagon

programs

a The

programs

international

joined

presents

programs.

below

Special Even

IV.4

programs

government agencies main

were

directly

173

originated

agencies.

involved

the

distinction

were

shows

The that

uncoordinated. involved

between

loans

from

in

impressive

these

Even

credit

non-banking

lending. and

and

outright

This

has

fiscaÂą


Table

r_T.4

SU_.,,_{YLIST OF AGRICULTURAL CREDIT PROSRAMS, OF. FUND CATBGORY

PROGRAM

I,

BY SOURCE

YEAR YEAR NO, OF IMPLEMENTING LENDING LOANS GRANTED REPAYMENT IMPLEMENTED PROJ. YEARS IN AGENCY CHANNEL(S) AMOUNT ISHARE RATE(X) AGMT OPERATION (PR) TERMINATED

Gover_en_ ;unded_ith CBRediscounting(GFR) t. 2.

M-99 Cotton F=nancingProgram

3.

CB-MECS Supervised. ExperiencedEducation

Program 4. Gulayansa Kalusugan 5, DakahangBarangay a. Fattening b. Coy/Calf 6, Biyayan90agat 7. SupervisedCredit for 8. 9.

OrchardCrops Maisagana Pukyutan 0 8arangay

10. kaIabav n9 Barangay 11, GFSME

1973 1974

12 11

RAFINFAC PCC,CB-GES III

PNB,RBs,LBP 5807.6 48,11 RB%TRB,LB_ 88.0 0.73 Thrift Banks(TBs)

t974 1975

11 10

MECS,CB-SE8 ]IZ NFAC

RBs

1978 1981 1979

7 4 6

BAI,CB-SESIII BA[,CB-SES III BFAR

RBs RBs RBs,DBP, PNB

1982 1982 1982

3 _ 3

1983 1984

2 1

82.3 77.7

3,3 62.0 972,2

0.03 0.51 8,05

98.2 80.4 n.a.

101.7

0.84

25,0

C_-SESIII HAF/NFAC CB-SE8111

RBs 3E.1 PNB,RBs,LBP 192.3 RBs

0.30 1.59

n.a. E2,1

BAI,CD-SE8III KKK-PCA, CB, Accredited Banks

RBs,TBs 3.7 0.03 Accredited 149.5 1.24 Financia] Institutions 7416.4 61.44

SOS-TOTAL

174

n.a.


P_OGRAM

YEAR YEAR NO.OF IMPLEMENT!MS LENDING L_ANS GRANTEDREPAYMENT IMPLEMENTED PROJ YEARS IN AGENCY CHANNEL(Si AMOUNT %SHARERATE(%) AGMT OPERATION (PM) TERMINATED

II. Government Funded, No Rediscounting but Administered byCB (6FNR) A. Domestic I. IAFVirginia/Burley Tobacco Financing Program 2. SARF 3. KASAKA 4. IRF" 5. IRPP

1976 1978 1982 1983 1984

9 7 3 2 I

G. ECPAP

1984

1

7. KKK SUB-TOTAL

1982

1. MARSecond Rural Oev't. LandResettlement Project 1978

PVTA,CB-SES Ill MAF CB,MAF/NFAC CS,HAF/NFAC MAF/NFAC

87.4 6G.6 n.a. 97.4 32.2

3

HHS

RBs,SLAs 112.6 0.93 RB%PNB, LBP 106.6 0.88 RBs G.O 0.05 RBs 5.5 0.04 NFA, Input 336.4 2.79 Suppliers (Cyanamid) PND,RB%LBP 193.0 1.60 PPI,Cyanamid PNB, DBP,LBP 833.7 E.90 1593.8 13.20

7

n.a.

G

MAF,MAF, MLGCD RBs,CRDs,SLA_ 24.3 0.20 HPH,MPN.NOH_ CS, NFAtNIA BCOD RBs 42.9 0.36

G

CB

RBs

681.1 5.64

n.a.

1

CD, MAF,BFAR

RBs

8.2 0.07 756.5 6.27

n.a.

• MAFINFAC

GO.3 n.a.

B. FOREIGN SOURCE8

2. CMP 1979 3. FourthCD-18RD Rural Credit Project 1979 4. Aquaculture Development Project 1984 _"D-TOTAL

1990

175

n.a.


PRO6RAM

III,

YEAR YEAR NO,OF IMPLEHENTIN6 LENDIN6 LOANSGRANTED REPAYIIENT IMPLEMENTED PRO3 YEARSIN ABENCY CHANNEL(S) AMOUNT%SHARE RATE(%) AGMT OPERATION (PM) TERMINATED

Government Funded but Administered and/or Channeled through OtherBanks(GFOD) A. Domestic Sources 1. PagkainngBayan

1973

12

2. KKK-LocaI Bovernment1982 SpecialFundProgra_ SUB-TOTAL

3

Exec.Committee,PN8 NationalAdvisory CounciIwMinistry of Finance,NFA, NAF,NAR,BEDt BAEconpProv'I. andCity Gov'ts, Ministryof Loc. PN8 Eov'ts.,HHS

2h7

0.18

41.4

1E4.3 1,35

27.0

186.0 1.54

B, ForeignSources h AgrarianReformIEDP 1978 2. DBP'IBRD Snal|hoIders TreeFarming 1978 3. SmallF_rserDev't. Field ActionProject (BAO-FAO-ASSAR@)1979 4. SNSP 1979 5. ThirdLivestockand FisheryOev't. Proj. 1990 G, Laguna deBayFishpen Development Project 1979 SUB-TOTAL

7

1984

LBP,NAR, ML6CD, LBP,DBP NAF,D_ DBP

DBP

E G

LBPIHAR BCOD

LBP CRBslPN8

5

DBP DBP Laguna Lake Oev'tAuthority BBP

G

179.3 1.48

40.E 0.34

2.9 0.02 5.8 0.05 547.0 4.53 67.1 0.55 1614.7,13.38,

*Includesthe DBP-IBRD LivestockDev't. Project, the DBP-IBRD Fishpond andMarineProJect,andthe Rehabititation Program of Fishing Industry inthePkilippines,

176

39.3


PROGRAM_

YEAR YEAR NO.OF IMPLENENTIN6 LENDIN6 LOANS6RANTEO R_AYRIZNT IMPLEMENTED PROJ YEARSIN AGENCY CHANNEL(S) AMOUNTX_ARE RATE(X) ,A8HT OPERATION (_) TERNINATED

IV.._overnment Funded butAdministered and/or Channeled through Non-bank Institutions (BFNB) A. DomesticSources i. PTASupervisedFarm Credit Assistance 1975 2, Sugar WOrker'sFund 1982 3, BRW-RPB Livelihood Prg. for SugarWorkers1983 4, CBLF 1973 5, HARLoanAssistance Program SUB-TOTAL

10 3

PTA HOLE

PTA BRN

10.3 0.08 1.7 0.01

2 12

HOLEjRPB COLFIHAF

BRN CBLFIMAF

1,3 0.11 147,0 1.22

NAR

NAR

0,4 (0.00_ 160,7 1,33

10

FSDC

FSDC

_8,8

5 2

FSDC TRC

FSDC TRC

EO,7

1E,4

B. ForeignSources 1, ,FSDCIrrigation System/ Infrastructure Dev't.1975 2, FSOC KAISAEnterprise Development 1980 3. AITTP 1983 SUB-TOTAL 6_ANB TOTAL

0,49

24B,2 2,0S 36,4 0.30 343,4 2,SO 12071.5tO0,O0

Source:NationalEconomic Development Authority(198G),

177

39,9

100,0


';ab!e Y.'o5

GROSS

SPREADS BETWEEN COST OF FUND AND LENDING RATES, AGRICULTURAL PROGRAMS IN THE PB/L_PPINES, AS OF JUNE 30, 1986 (In Percent Per Annum)

Pure Name

of Program

Cost

A.

Crops 15 15 15 15 15

12 12. (9) 12 12 12

3

15

12

15 15 12

12 (9) 12 9

3 3 (6_ /

6-9 15

3-6 12 (9)

3

15

12

3 3

15 15

12 12

/

Livestock

Fisheries Biyayang FSDC:

3

Dagat _

CARE

Taal Lake Development Program Laguna Lake Coopemative ÂŁ.

3 3 (6 _/ 3 3 (6 _/ 3

3 (6_ 6 3

Kalabaw n E Baranga_ Bakahang Bamangay (Fattening/ Cow/Calf) * Kambingang Bamangay _ C.

Margin to Bank

Funded

M-99 _'/ IRPP Malsagana ECP GSK * Supervised Credit for Omchamd Cmops National Soybeans Pmoduction P1_gram Cotton Financing ProEmam _. IAF Tobacco Financing PTA Supervised Farm Cmedit Assistance National Roo_c_ops ProductiQn B.

Lending Rate

Gross

STD funded programs not rediscountable since November 1985 )

" Purely-Locally

Prescribed

of Fund a/ to Channel-'

(Note:

CKEIDT

coopera_.ive

direct

lend/n_

direct direct

lend/m E lending

12 C15% for approval) I I0 (capital outlay) 4 (working 16 14

9 -

capital) -

Development

CDLF -d-/

i0 (thru

178

CRBs)

15

5


:_

,-,

.

E.

,

.

Others KKK CB-MECs Sup. Exp. Educ'l. Program Pagkain ng Bayan KASAKA IRF

direct

lending e--/

Quedan GFSME

12,75, Variable_g/

3 direct le_Dding none _! 3

Financing

12

-

12 10-16 12 12 16

9 9

(emergency Variable 17

loans )

-

FSDC's Programs I_igation Sysxem/ Infrastructure Development

°Adaptive

Farm Technology

OGasifier/Woodlot Project OKAISA-Agro Industries Projects

6 (PIP/$WIP) Interest-free (CiP)

lending

direct

lending

g (.farm animal) 12 (farm mechanization)

direct direct

lending lending

12 12 (fixed assets, trading capital) 6 (opemating

II.

With

External

• h/ none--

CMP

3 (fa_m/bodega/office equipment ) 8 (marketing 9 (shoz_t-_er_)

_ (short-ter_) 5 (long-term IAD Project

7 3 . Varia51 i/

First Aquaculture Development -Pro_j e cT Northern

Palawan

-

loan) 5

8 (long-term) 14 8.75 market rates

3

17 (including 3% service charge)

6 o5

i0.5

7 5.75

Fisheries

Development Project Laguna de Bay Fishpen Development Project

:

capital)

Assistance

SNSP

Palawan AITTF ALF

-

direct

.•

i

direct

landing

7, 7

L

179

,

,

J

,,

,,

nL

12

-

15-21,

7.3-13 o3

_

.

.--


*STD funded programs eligible for rediscounting (CB Circular 1986)o However, banks can rediscount _se their own funds as s_arter_ funds.

a-/This programs bank to

represents

STD

char_neled thru fund source.

rates

other

for

banks,

up to November 29, 1985 loans under these pmograms

CB-adminis_ered this

r_-fers

programs, to

the

while

in_e__esz

b/Cost of fund under direJct agency assistance scheme/direct 3 percent, while under a rrader-miller/end-o_se.-/inDut supplier _ar.d is 8 oercent inclusive of service charges of agent bank. c/ -- FSDC taps KAISAs to !end to small fishe_-man-farmers and

only if they

--'orforeign-funded

rate

paid

by

imolementin_

bank Zending scheme is assistance scheme, cost of

_ll!

rime

small

fishermen.

Az

_ CDLF loans if _anted direct to bor__owers costs 15 percent channeled _hru C-_Bs, l0 percent per annum. =/ _" G0vernmenzal banks are utilized as disbursing agents only _/._Bs

get

commissions

per

fo_

annum,

a

but

if

fee.

instead.

:/ =

3anks

Lend

h--/C._Bsare i--/Ra_e is Sources:

their

used !2.3

as

own

disbursin_

oe__cent

CB-SES [II_ BCOD, GFEME,

funds_

per

interest a_ents

annum

?SDC, LLDA, TRC..

BFAR,

subsidy at

no

effective CDLF,

180

provided

to banks

by

GFSME.

cost. July

I,

MAF,_lanning

1986. Services,

MFAC,

CS-fLC_

_AF-LDA


subsidy/transfers. are,

have

not

be

rates

to be

been

rate,

It

almost dismal

it

can

crashing

which

been

dowD.

The given

output

less

is

really

not

IV.4).

that

And

a

heavily

and

of

the

overriding

agricultural

in

last

two

years

agricultural

equity

impact

unsettling. borrowers of

loans

loans

of Neri

who were

and

given

granted,

accounting availed subsidized "financial

for

loans

granted.

system

farmers

whoqualify

to

thereal

pay

are

in

as

68

studies

whether

sectors.

Credit

as

73

of

total

total of

been loans

financialresources.

181

credit In

growth

rate

that

hurt

However, is

of

amount

the

even

low-income

percent

more farmer-

total of

number

subsidized

farmer-borrowers

number

of

the

ÂŁotal

they

is

product.

squeeze

high-income

Thus,

subsidized

that

of

It

formal

programs

found

case

below.

a positive

other

percent

the

agricultural

credit

the

for of

detail

severe

much

apparently

in

greater

posted

percent

of

except

in

(-1985)

has

cost

financial

programs

the

of

a

credit

Llanto

themselves

rural

met

these

subsidized

percent

have

of

whereas 27

programs

repayment

impacts

sector

32

of

have

than

only

programs

terms

of

researchers,

for

credit

programs

more

accounted

repayment

credit

the

these

the

these

despite

sector

in

credit

bottleneck

the

the

Thus,

existing

only

that

need

on

discussed

results

subsidies/transfers

agricultural

these

interestrates

depended

by

from

their

greatmajority

equity

is

low

surprising

Table

fact, the

then

(see

said

how

fiscal

special

which

clear

is

attention

Ma@agana-99 not

whereas

these

be

institutions

matter

all

failure.

dragged

no

repaid,

repaid. Of

have

Loans,

loans

amount

concluded

subsidizing although

of

that large

they In

granted

the scale

canafford

effect,

there


was

a

real

income

income

farmers..."

view"

of

farm

The

the

impinge

on

these

Bank

special

of only

credit

to

the

claim

that

liquidity

to

farmers

refute

from

the

small

"traditional

the

the

period

during

the

rate

and/or

of

From

1949

inflation

e

when

up

13

increased result

control

to

1972,

liquidity averaged

special

of

to

to

course,

rate

ratio

went

this

credit

domestic

1973-82,

likewise

windows

policy,

to

annual

averag

Indeed,

selective

This

liquidity

period.

red iscounting

variables.

while

inflation

same

many

rediscounts

domestic

annual

during

seem

macroeconomic

proliferated,

average

income

programs.

outstanding

But

rediscounts

high

opened

9 percent

percent.

programs

to

credit.

certain

ratio

averaged 6

All

Central

support

the

transfer

credit

outstanding percent.

to

The

14

challenges

has nothing

percent those

to

who

do

with

inflation. .%

As credit tile

for

Masagana-99

program land

that

reform

program

covered

programs

listed

the

government

of

_1.2

billion

[1981]).

The

_1.7

billion

was

around

and 48

Table has

benefits (Herdt

percent

and

reaped

[1981 ] ).

182

far

the

seventies

to

of

be

been

total

A

together

with The

_4.7

of

the

subsidy

borne

between

a

(Herdt

estimated

[198i])and

abitious

financing

anywhere

billion

most

technology.

total

amount

_2.1

have

Gonzal_s

the

of the

The

to

so

Revolution

estimated

[1981])

is

in

Green

IV.4.

been

(TBAC

it

introduced

package

in

by

(M-99),

to

low

and

Gonzales

be

between

billion

(TBAC


The rice

extent

to

the

adoption

and

debatea

for

technology

which

even

assessment

of

sometime

to

started

prevalent

M-99

in

be

a more

the

some

of

subsidy

will

is

whether

credit

the

goal

of

to

suggest

input-dependent

subsidies,

Herdt

and

breakdown

of some

and

losses

the

subsidy

asked rise

due

close

to

sufficiency

But

the Was

the

to

the if

it

initial in

there

rice,

such

estimates

both

worth

of

perhaps

definitely,

of

main its

(1985)

to seem

fertilizer

market

of

(1981) in

subsidy one

be

concrete

credit

of

around way

the

it

and

will

of

never

be

to

did

towards

the major

question

whether

problem

subsidy

the

is

the This

price

estimate

technology

more

share

1973-1979.

program, on

question

subsidies.

Esguerra

credit

the

the

would

accepted

estimates

The

Based

the

realistic

al.

for the

become

widely

substantially

the

it?

adoption

as

of

differ

subsidy

et

their

loans.

Since

total

with

the

capital-

The

credit

program

defaulted

be_

Sacay

of

highly

contributed

than

up

the

more

is

to

be

have

particularly

impact

of

to

had

rice.

came

derived.

of is :

better

even

were

component

given.

subsidy

Gonzales

million

figures

be

"hidden"subsidies

is

_946.6

it

subsidies,

subsidies

includes

for

in

direct

mighthave

and

a

in

will

adoption

would

But

technology

to

that

and

new

have

self-sufficiency that

sixties

self-sufficiency technology

clai_a

program.

the

and

therefore

late

that

intensive form

Some

the

to

productive

come.

without

would

contributed

be

give

.... self-

resolved.

answers

to

the

d"

following s%rbsidy

tWO program

questions. a viable

These one

that

i

183

questions can

be

are: sustained

i)

Is over

the the

credit long-


run

without

program small

depleting

the

successful

in

Treasury?

and

redistcibuting

Is

income

the

credit

and/or

subsidy

wealth

to

the

farmer?

There Looking

IV.6

has

been

the

way

at

long-run shows

the

in

the its

farmers

ana

47.2

the

actual

rice

farslers

The

and

ineligiDle have

over

program

oÂŁ

has

4.8

fallen

farmers

also

the

3.7

from

high

default

loans

from

the

expressed

costs

(paperwork,

delay

restriction

to

uses

funds,

credit

which

loans.

Thus,

credit shift

from back

seventies. are

Offsets there the

to

biased

formal

must

be

credit

by

the

system

agricultural

loan

partly a

fifties

towards most

entire

is

informal

It

affected

of

the

shift and

sixties

sources

starting

noted,

however,

rice-producing M-99 in

rates

program. the

seventies

sector.

184

that

at

areas The may

1980,

total

small

have

made

rigid

of

of

such

formal

most

second of

whichwas shift be

high funds,

types

of

of

the

sources

mid-seventies, the

Many

and

features to

them

system.

the

etc.)

that

rice

By

disbursement

in

the

institutional

credit

the

by

small

the

subsidized

informal to

farmers

farmers.

low-interest

from

small

the

of

the

Table

farmers.

peccent

in

that

covered

of rice

reservations

question.

seems

of

farmers

formal

transaction

the

it

potential

trom

first

questionable.

percent

the

away

the

number

potential to

o_

is

total

36.4

the

percent

most

of

The

percent

on

implemented,

time

covered

mainly for

M-99

peak

of

derives

the

literature was

program.

coverage

move

farmers

of

depletion

at

ot

program

the

program

creait

a dearth

viability

borrowing

the

2)

of

and half

these the

therefore overestimated

a

of the studies sector to

the for


Table NUMBER

Crop

OF BORROWERS OF M-99, 1973/74-1982/83

Year

BY CROP YEAR

Wet Season

....

Dr/ Season

i

1973/74

400,342

234_965

1974/75

528,747

355.716

1975/76

303_5£0

154_215

19.76/77

142_696

89,198

1977/78

139_600

91_120

1978/79

120,404

88,188

1979./80

117,986

70,11£

19.80/81

82,586

72,053

6£,402

46_596

68,822

39,600

i981/82

'

1982/83

So_ce:

_.6

TBAC Files. w,

185


Table

LO_S

IV. 7

FOR RICE PRODUCTION, PNB AND RBs As of December 31, 1982 (_M)

1974-76

Rural

3-year Period 1977-79

1980-82

Banks

M-99

1,2629.2

Regular Total Philippine

National

631.4

458.9

1,031.5

1,699.9

1,956.8

2,300.7

2,33i.3

2,415.7

1,347.0

562.7

44_.8

508.6

57.7

244.1

1,850.6

620.4

688.9

Bank

M-99 Regular Total Total M-99

2,616.2

1,194..1

Regular

1,535.1

1,757.6

2,200.9

Total

q,151.3

2,951.7

3,104.6

Source:

Sacay, Agabin

and Tanchoco.

186

Small Farmer

903.7

Credit Dilemma,

1985.


The credit

gover_iment subsidy

production

rural

in

loans.

the

rate

volume

loans

have

Since

an

estimated

of

the

dropped

due

loans

early

of

fJast

have

from

is

and

percent.

difficult

Table

This

seventies due

M-99.

shifted

repayment

fall[

it

IV.7

the is

to

sustain

the

that

rice

s!1ows

M-99

crr_dit

particularly

loans

to

in

the

true

banks.

Although the

found

of

have

agricultural

of

also

program

loans

regular case

'has

out is

a

loans

eighties made

still in

and the

t_le

past

82

difficulty a

very

90

percent

of

all

cost

losses

to

of

the

of in

ratio

the

percent,

pa_t

due

to

program,

at

latter

farmers'

70

substantial

respectable

the

paying high

84

borrowers

much

of

the

govern_nent

past

and

to

taxpayers.

The

single

most

viability

of

therefore

â&#x20AC;˘important

to of

see

how

the

attent

policy

studies

ion

various Except

the

Sacay

concentrated

on

cite-producing

explanatory

the

the

issue

on

credit

for

this

point.

the

(1966) (or

improved

various and

have where

Stu_lies

variables.

a

to the

the

found Karim

187

loan

for tackle

the

â&#x20AC;˘entire

defaults.

this

It

are

problem.

Most

program

devote

Table

IV.8

summarizes

(1982), of is

most

ÂŁheir

of of

the

respondents

their the

default. studies from)

strongest.

multicollinearity (1976)

reasons

is

discussed

M-99

part M-99

in

defaults

significant

Quinones large

thatputs of

reasons

be

and

the

issue

can

areas

of

is

that

on

studies

Many

p_ogra,n

mainly

for

important

shows

problems that

the

in

the

Pearson


Table SUMMARY

OF FACTORS

IV. 8

AFFECTING

LO_2_ DELINQUENCY

Factors

FARMER-RELATED

Studies

where

Cited a/

FACTORS

i.

low income/poverty/poor

:

Sacay, Baecon SSD-DA (1977),

2.

low volume

:

TBAC (1976), Octavio, Matienzo, R. (i977).

3.

level of indebtedness

:

Sacay, O.J. (1961), PCARR-Baecon TBAC (1976.), Best, B.A. (1977).

4.

misapplication proceeds/sales

:

Sacay, O.J. (1961), NFAC-SGV (1975), PCARRBaecon (1975), TBAC (1975), TBAC (1976), SSD-DA (1977), Octavio, G.G. (1975), TBAC (1982).

5.

negative attitude toward credit/dole-out mentality

:

Sacay, O.J. (1961), NFAC-SGV (1975), PCARRBaecon (1975), TBAC (1975), Octavio, G.G. (1975), Karim A. (1976), Best, B.A. (1977).

6.

unfavorable

:

PCARR-Baecon (1975), Octavio, G.G. Best, B.A. (1977), TBAC (1982).

7.

low educational

:

Karim, A.

8.

tenurial

status

:

Sacay,

9.

household

size

:

Oetavio,

G.G.

(!975)

G.G.

(1975),

BANK-RELATED i.

of nroduce

sold

of loan proceeds

attitude

toward

attainment

O.J. (1961, NFAC-SGV (1975), PCARR(1975), TBAC (1975), TBAC (1976), (1977)_ Karim, A. (1976), Best, B.A. Matienzo, K. (1977), TBAC (1982). G.G.

(1975),

(1975),

(1975),

(1976)

O.J.

(!961)

FACTORS

bank experience management

and

:

Octavio,

2.

inaccurate

loan

information

:

Sacay,

3.

inadequate

collection

4.

delayed

5. 6.

B.A.

(1977)

(1961)

Sacay, O.J. PCARR-Baecon

(1961), NFAC-SGV (]975), (1975), Octavio, G.G. (1975)

:

Sacay,

O.J.

(.1961)

lack of supervision

:

Sacay, O.J.

(1961)_

double

:

NFAC-SGV

release

fSn_ncing

policies:

O.J.

Best,

of loans

of borrowers

188

(1975)

Karim,

A.

(1976)


Table

IV.8

(Cont'd.)

Factors

PROGRAM

Studies

Cited a/

IMPLEMENTQRS

i.

inefficient

2.

lack of incentives

3.

"selda"

4.

unfavomable

5.

unavailability water

OUTSIDE

where

technicians

to pay

system policy

THE CONTROL

:

NFAC-SGV (1975), Octavio, Best, B.A, (1977).

:

Best,

:

TBAC

(1976),

TBAC

(1975)

environment:

B.A.

G.G.

(1975),

(1977) SSD-DA

(1977), Octavio,

G.G.

of ir_igat ion : OF PROGRAM

Octavio,

G.G.

(1975)

PARTICIPANTS

i.

calamities

:

NFAC-SGV (1975)_ PCARR-Baecon (1975), TBAC (1975), TBAC (1978), SSD-DA (1977), Octavio, G.G, (1975), TBAC (1982).

2.

farm size

:

Sacay, O.J. (1961), Best, Matienzo, R. (1977)

3.

high p_ices

:

Matienzo,

4.

low market

:

SSD-DA

and Tanchoco.

Small

a/see Source:

of inputs prices

of pmoduce

R.

B.A.

(1977),

(1977)

(1977),

Octavio,

G.G.

(1975)

references.

Sacay,

Agabin

Farmer

189

Credit

Dilemma,

1985.

(1975i


coefficients

among

general,

one

related

variables

size).

(such

other

out

mentalitymay

Bank

experience as

therefore

well

and

it

important

target is

is

clear

incentives

pragmatism

may

program.

Bruce

and

shows

that

a

off

than

one

who

be

a" farmer

he

can

can

work

avail

default.

disbursement

back

be

of

household The

dole-

and

collection

much

better

so

the

on.

true

pays a Bank

his

large

viability

simulates not

in

it

is

causes

of

recovered the loan

in

amount"

and

190

of

the

higher

factor farmer

and

After

simple

collection

credit

be

better

that

production best

until_ he the

to

situation

will

The

experience,

adequate

the

(assuming

beginning

loan.

to

loan

periods).

their

important

a hypothetical

loan

and

that

a subsidized

his

most

subsidized

sure

given

of

through

next

single

mentality

pay

his

the

Any

make

are

the

managementand loans

that

pays

is

Another

dole-out

regularly

into

to

loan.

does

pay

default.

The

who

is

to

ha_e

the

(1977)

farmer

over"

of

loan

against

loan

of

level

substantially.

and

out

capacity

motivation

Best

who

separate

will

properly.

"rolled

is

pay

and

loan

can

the

explaining

can

original

may

areas

and

income.

information

income

income

and

more

supervision

program

his

unpaid

to

In

produce,

status

areas

loan

to

of

related

depressed

higher

that

in

borrowers

volume

is

high.

magnitudes.

credit

the

pay

their

be

are

repayment

tenurial

may

difficult

factor

supervised

and

technical

and

of

size,

management,

as

quite

But

farm

affect

progressive

defaults

as

variables

and

variables

indicator

educational

Even

policies

explanatory

consistent

indebtedness,

more

the

and

position

such

gets

the

time

as

this,

he

efficiency

in

and

technical


supervision The

policies

repayment

borrowe_:_ credit

rate

and

heavily

or

with

the

on

eventually

it

still

Furthermore,

credit

unprofitable

activities,

whichever

the to

intent

the

small

of

the

that

second

by

subsidy.

subsidy

will

defeating

viable

farmers,

it

will

be

is

or

to

be

small spent

complete

the

to

a

put

to

s_ending,

-

of

arises

will

other

antithesis

in

siphon

situation

items

more line.

be

found

farmers on

scnooÂŁ, because

consumption

Thus,

that

credit

forced

will

view new

self

means

the

new

lose

than

the

for

original

goes

back

improve

to

the

equity

question

by

raised

providing

earlier.

subsidies

to

farmer?

is

credit

-

).

the

theic

ordinary

credit.

actually

Perhaps area

If

utility.

the

the

credit

to

[1985]

To

_etain

ventures

funds

perception M-99

more

and

borrowers

and

subsidized

This the

target

the

ways

higher

alo

appcoach.

fungible.

production,

of

Did

a

credit,

agricultural

is

supervised

support

is

variables.

compared

et

above

will

profitable

yields

wherein access

more

be

important for

(Sacay

subsidy

that

of

collateral

given

credit

enterprises

to

worse

traditional

heavily

off

be

collateral

depen<_ing

funds

set

without

the

â&#x20AC;˘will

next

to

arguments

criticizes

viable

the

seems

Dorrower_

borrowers

All

are

pay

the a

most

extensive

Esguerra One

is

(1981). the

government"

unintended

that He

intended

provides

lower,than-market

is â&#x20AC;˘the

study

cites

subsidy so

that

interest subsidy,

191

has

which

two

is

for

done

main

that the

rate

been

is,

_armer his

actually

on types

the

this of

amount

borrower loan. losses

The in


unpaid a

loans

subsicjy

which

to

service Fund

inten(]e(1

subsidy

and

transaction

return

for is

more

detaulted

loans?

Table

farmers strongly) formal

percent

of

that

go

to

to

to

becomes

the

of

form

of

defaulted

into

the

total

the

than

be

and

a

times

half

Even of

bigger

192

incurring higher

of

of of

big

in

order

as of

default

farmers, for

M-99

the

the the

of

small

the

program

in

went

ÂŁo

(quite

features M-99

rate it

to The

Assuming

most

the

most

credit

land.

that

the

the

given

loans.

of

formal

pattern

if

subsidy

availed

height

same

concludes

that

who

volume

followed

farmers.

that since

incur

the

at

and

claims

(thus

also

credit

M-99

higher

they

rate

farmers

loan

of

5 hectares

was

a

form

than

small

smaller

Barrio whatever

interest he

that

experience.

more

Esguerra

market

secure

the

offset

main

in

that

will

for f

and

lack

the

farmers two

so

claims

for

Furthermore higher

often

fees

the

given.

branches

shows

credits, not

and

Esguefra

Fund

between

subsidy

IV.9

with

Guarantee

costs) due

the

therefore

72

payback

compulsory

usually

Esguerra,

question

did

was

are

charges

farmer

1974,

never

subsidy,

the

Barrl0

transportation

Thus, the

the

rate)

to

unwarranted

will

intended

and

costs

have

higher

the

(difference

subsidized

they

to

charges

,Savings

the

farmer

him.

_v_it_]respect tl%e

the

credit

of

will

of

small have

farmer

to to


Table

DISTRIBUTION

Farm Size (In hectares)

IV. 9

OF FORMAL CREDIT BY PHILIPPINES, 1974

Percent to Total

Share _/

FARM

SIZE,

Percent Total

Farms Formal

Share Volume

of _/ Credit--

< 1

14

0

1 -

3

47

19

3 -

_

24

8

>

5

i5

7_.

Source:

Esguerra

(1981)

193

to


equal

the

farmer

subsidy

(since

(tJlrough

the

latter

got

loans).

ÂŁ]sguerra

does

not

farmers

Ks

much

bigger

this

conclusion David

is

(1983)

rice

farms

Panganiban have

big

farmecs

also

adds

that in

(1979)

and

Ca_ete

nonparticipants. supporters the

that

and

yields

incomes

further

claims

particularly cred it

that

program,

may

farmers

projects

revenue

is

have

used

and highly

regressive

on

areas,

the

program

of

generate income

equity

funds groups

"inflationary

for may

banks'

the

low

income

may

indeed

distribution. the bear

uncovered

194

than

problem:

M-99

program

subsidized

evidence

show

a

money

to

finance

heavily

profits. on

subsidized mainly

Given

indirect both

urban

have

been

a

regressive

budget

increases deficit, share

of

big

that

taxation)

in

money

that

granted.

groups

If

that

Esguerra

the

is

(based

by

institutions,

Which

hidden

irrigated

yields

the

from

loans

his

subsidy.

increased.

of

an" unproportional

taxation".

of

small

participants

financial

exceeded

taxpayers'

rural

heavily

terms

had

of

Studies

M-99

and

because

pieces

of

favors

that

benefited

therefore,

falls

M-99

have

vo[ume

Thus,

farmS.

have

big

credit

chicken-or-egg

formal

since

program,

show

participants

banks,

availments

a

the

the

rate

the

program

precisely

the

particularly

Tile M-99

in

is

of

rural

rediscounting

tax

it

of

i'ncomes

is

of

farmers.

richer

(1981)

this

big

more

the

to

the.default

the

M-99

higher

But

claim

the

given

percent

tha_

got

general

ica_itly

80

titan

that

are

loans)

almost

believe

which

signif

deÂŁaulted

and

the and

rural program

were

used

the

low

the

burden

to

fixed of


In

a

more

introduce them

the

Ferret

increased

Green

yield

there

is

no

increased

.

food

agriculture, to

point

necessity could The

supposed about

of to

of

loans

percent

and

not

credit

with

many

the

"selda

tractor

Jaen, cash The to

has

so

that

of

the

lessees

M-99

the

capital

and

benefit

of

from

and,

biased

more against

income

from

just to

Nueva 55

else's that

complaints Ecija)

percent

managerial

debt

maintalneG

that

pay

other

production

costs,

for

irrigation

195

farm

fees).

the

The

â&#x20AC;˘them.

The

the

that

be

rigid were

on

nature

of

disbursed

45

percent costs

lack

of

the

gotten.

fertilizers, 45

was

complaints

brought

can

seedlings,

farmers

have

adjustment.

into

and

loans

may

a plan

loans

Feder

supervision in

farmers

about

wherein in

upon

transformed among

so

farmers

difficulties

has

somebody

notably

"forced"

andâ&#x20AC;˘

support

authors small

been

some

system"

shoulder

some

technical

group

points

enough

the

redistributing

ti_at

a farmer

also

in

fact

welfare

policies

equity,

program

seldas

pesticides. is

the

to

(in

economic

subsidy

of

the

farmer

consumers

credit

price

small

to

(among

higher

ones,

urban

"trauma"

"fake"

Panganiban the

after

cultivate

having

rise

the

given

policy

the

to

by

the

smaller

as the

from

to

of have

in

mechanisms

apart

experienced

for

used

studies

)point

offset

was

areas.

Finally, (1983)

Inasmuch

provide urban

is

the

many

[1979]

improvement

industrial

subsi(Jy

technology,

requir_.ments

production,

importantly,

rural

input

credit

Panganiban

(particularly

tenants)

if

production

general

farmers

share

and

in

and

level,

Revolution

[1986]

.investments

L_oor

general

cash

(e.g.

andâ&#x20AC;˘ loan labor

flexibility


that

the

farmer

perhaps the

in

55

higher

percent

study

only

A

TBAC

willing banks.

the

make

negatively

to

the

(Why

farm

but

for

to

cigid,

felt

no

s

work

to

also"

found

of

ang

resulted

selling

one

part

farmer

bukid

in

ngun_.t

gove$:_ment

that

g ive

many

were

that

not

the

of the and

credit

Could regret

it

when

farmers

allowed

farmers

impersonal

credit-. tinge

As

has

tillers?)

but

formal

of

cash.

the

fact

fund

practice

none

the

loan

pautang

repayment

point the

ng does

(1976)

the

i.n the

loan

?

institutional

farmers

and

partiai

these

allocating

binib_.gyan

study

All

dominate

of

wala" to

to

in

defaults

"Bakit

aho,

support

given

share

said:

nag tratrab

many

is

were

by

rucal

have

reacted

transactions

that

be

a wonder

then

they

dropped

out

that of

M-

99?

Esguerra' markets

have

Subsidized may

light

credit,

not

be

shed

be

used

classified

the

into

the

on

for

reasonably

profitable

commercial

credit,

profitable

commercial

school

assessment

on if

the

of

cheap

categories,

of of

a massive

long

conduit

four

new

the

especially

sustained

as

and

the

scale

formal

commercial

financial

M-99 as

already

enterprises

of

M-99,

system

Farmers

those

program.

that

credit

funds. (i)

rural

would

have

been-

operating

with

as

access

to e

and

markets

at

potential

to

incentives those

with

-

fair become

subsidies such

poor

(2)

those

with

the

enterprises

if

prices

possible,

were

commercially -.during

potential

access

to

unspecified

resources

that

improved

become

technology,

(3)

viable

to

those

with

but

need

periods

of

access

inputs

to

the

special time,

(4).

existing

./

or

even

new

technology

would

196

not

provide

a

viable

farm

enterprise


capable

of

supporting

the

farming

unit

without

permanent

subs id y".

The

target

of

any

categories

(2)

and

Technology

has

beenwidely

belong

to

percent

of

and

50

reports under

the

under

class rural

which

all

(4)

best

or

stable

This

and

direct

to

one

very

of

farmers

still

that

_5,000

NEDA

peasant

class

Poverty

study

families

fell which

IV. II).

Another

13

B which

indicates

an

Only

potential

65

a year

categorization)

level.

the

Green

15.3

viable

percent

fell

customers

of

fact

that

to

would

be

those

C.

Only rural

of

when

the

the

credit

solve

the

that

will

majority

majority

(even

rural

of

credit

ensure

the

that

is

farms

become

without

in

subsidies)

dynamic.

of

initiatives

be

Table

well-being

will

that

private

the

policies

class

means

terms

to

and

enterprises

become

(see

the

shows of

in

system.

incomes

catego#y

of own

subsistence be

study

(their

category

would

points

the

increased

the

for

banking

dilemma,

in

A

C

of

The

those

when

income

percent

be

now

majority

dissavers.

71.7

class

even

threshold

deficit

under

enough

This

viable

of

seems

shoul_

TBAC-UPBRF

a

are

1985,

perennial

falls just

Delow

program

that

The

peasants

in

a

income

the

of

it

used,

fell

category

indicates

But

(4).

farmers

that,

percent

(3).

category

percent

subsidy

subsidies subsidies in

direct

to to

infrastructure method

197

of

the

rural

areas

production. building increasin_

should

be

given

Government (irrigation farm

yields)

and seems and

in


Table TYPES

IV.IO

AND NUMBER OF FAMILIES BY FINANCING CLASS CHARACTERISTICS

No. of Financing Class Characteristics

Type

of Families

Families (Thousands)

Financing Class A: p24,000, and over

15.3

- Families in NonAgriculture : with Entrepreneurial Drofits and salaries 329.7 .,_

Financing Class B: F12,000 - plT,000 subsistence

Distributton

170.4

- credit-worthy

- with

Percent

saving.$

-_ 25% probability of surplus - need rural development

!3.0

- Entrepreneurial plus subsistence plus salary: crops fishing, forestry

po!._cie_ ,_m induce additional farm investments, improv e farming profitability Financing Class C: Less than P!.2_O00 - income deficit lo

p6,000

- Pll,O00

= 10% chance of income surpl_s , - need rural developm en_ _policies to

i.

'

increase employment of family members./ increase incomes

Entrepreneurial with family subsistence : crops, fishing, forestry - purely salary: non-agriculture

1,473.6,

_

56..6

- purely entrepreneurial liveitock and poultry

2.

Below _6P__O000 " W-e[fare; ClienZele '

2.. Those withouz economic activity, strictly family subsistence activities,, purely entrepreneuri_l with- â&#x20AC;˘ out subsiszence activities in crops, fishing

- 38.7

and forestry 2,360.2

;_umce:

Chapter

4, NEDA Poverty

Study,

1986

198

15,!

i00.0


research

and

continued

and

not

development expanded;

discriminate

more

for

the

of

pricing

painful

Esguerra

viability

of

the palay

market the

that

a

comprehensive to

should

not

major of

workings

the

make

be

that

do

implemented

e/aployment income

in

and

traders

by

input

discusses the

of

and reduce

the

sources

the

RFMs.

of

the

later) leads

in

be

in

the

underof

(oftentimes

in

also

the

a

big

Conclusion

should

may

be

planned

and

reduce

painful

but

one

recommendations.

RFMs

ROdriguez's of

drain

overpricing

viable

policy

be

the

are

to

farmers

_aplications

RFMs

that

dealers

to

big

to

difference

program

of

have

one

add

and

reforms

list

a

can

this

Related

the

that

discussed

reform

will

make We

All

the

fact

the

Directly

affecting

of

certain

(1986)

selected

Asian

policies

compendium countries

of is

information.

liberalization

government.

the

Structural

them

of

best

by

changes

could

a majority

policies

Financial by

higher

rent.

agrarian

Policies

section

land

income.

risks.

ignore

Specific

This

one

farmer's

executed

to

transactions

in

the

spur

which

pesticides

drain

default

is

prices

interlinked

their

(and

farm)

and

on

be

off-farm

structural

points

farmer

fertilizers

C.

policies

should

of

will

price

should

default.

implemented.

and

agriculture

arrangements

Perhaps

income

production

and

The _ encouragement

multicropping of

agricultural

agricultural

against

immediately.

risks

for

is

Interest

199

the

rates

general on

policy

deposits

and

being

pursued

loans

of

all


maturities

have

government slowly Bank

rate on

has

i.

phased been

a

on

in

is

no

and

thing

this

policy

banks,

branching

The

to

_500,000.

certain

areas,

5-year

government

depends

on

they

the For

If

C)

reforms

go

to

Area

area

where

banks,

the

Service

III

2OO

banks,

areas.)

further like current

thrift

banks

while

for

rural

up

branches branch

amount

branch

schedule

been

for

is

is as

_20

of

follows:

M

2_

M

i0

M

in

special

going

,

II areas)

branched

unit

each

mitt%mum

the

only

has has

open

for

areas)

is

is

way.

_i0 M to

I

overbranched

Area

is

RFMs.

literature

1980

capital

the

to

there

Bank

other

purchase

securities,

of

focus

However,

the

wish

will

' There

in

Central

rediscount

related

allowing

paid-in

Service Area (Overbranched

(Ideally

Central

are

already

Philippines,

the

Manila

have

thrift

Service

to

they

service

(Heavily b)

seem

Metro

below

branches.

minimum

outside

the

banking.

by

acquire

prescribed

banks,

a)

forward

one

a dearth

into

The

regulations

opera%ing

located.

1972,

branching.

is

the

control

only

prime

CB bills of

directly

In

entry

is

discussion

There

free

while

credit

policies

the

policy

there

The

Since

enc0uragir_g

rural

Today,

branching.

as

exit.

auctioned

Selective

past.

and

bills,

rediscounting

Branchin@.

entry

pushed

The

controversial

such

free

being

market-oriented.

Entry

bank

now

Out.

the

remaining

Bank

are

Treasury

restructured.

thing

which the

floated.

securities,

being

became

been

which to

be


d)

Service (Under

e)

Service Area (Encouraged)

Rural

banks

government In

These rural

branch

as

banks

big

can

securities

as

annum+..

This

or

fee is

one

of

government form

of

with

the

IV

then

lower the

interest

the

opened.

branches

in

especially

to

on

securities barrier

raise

to

open

_500,000

will

in

the

than

have

to

to-be

only

at

few rural

+special

the.

license

fee.

that

why

banks

are

of

reaches bank

each

license

interest

Most

a rural for

government rate

on

can

be

differential

differential

annually

reasons

requirement

branch

wanting

Definitely,

exhorbitant

branches

to

rate

rate

_0,000

main

bank

have

interest

means

an

put+ up

rural

will

rate

additional

of

branch

it.

usually

This

entry

A

interest

indeed

acquire

The

the

an

the

iicense

onerous

officeL

treated

per

indeed

main

loans,

however,

are

five-year

II.

that

secured

each

to

means

is

for

allowed

This

the

M

special

not

Area

as

purchase

_500,000

Service

comply

Since

to

institutions.

with.

least

are

regulations

in

5

required worth

I and

financial

start

are

they

Areas

areas)

V

securities

addition,

Service

a

Area IV branched

the i0

has

fee.

percent

to

branch

it

pay

a

operatesL

This

reluctant

time,

could

be

open

up

to

rural-areas.

to

purcase for

that

each in

a minimum branch effect

amount

opened

is

appropriates

of

special

indeed rents

a to


banks

or

branches

of

locality.

Moreover,

a

locality

is

to

favor

(i)

the

density

of

the

last

three

of

consecutive If

will

and

If.

depends

on

sector

in

It

according units

years

depos'its be

of

overbranched

following end

of

the

area

is

classified

locality.

One

into

criteria: year,

during the

low,

the

date then

Service

growth

is growth is

seem

calendar

under that

Another

whether

classified

preceding

however,

certain

or

growth

factors.

a

determine

are

of

calendar

is known,

the

as

in

to

the

within

likely

a number

to

deposits

the

most

used

Localities

banking

trend

application. locality

V

operating

underbranched

banks.

I to

(_.)

alreddy criteria

cons_,dered

Areas

and

I

the

inefficient

Service

banks

of of

the

of the

Areas deposits

the

real

efficiency

of

j

financial

institutions

served

by

inefficient

experiencing

low

growing

fast.

_pr_ve

savings

easy

for

of

special

or

growth

savings.

branches even

banks

mobilization

would

the

have

it

A

would

if

will

since

the

and They is

certainly

Perhaps,

Kern point

the

an

locality surely

be

sector

is

real no

would

incentive

just

change

ordinary

requirement

government

Patten

branching

deposit

situation

replace

regard.

banks

Inefficient

liberal.

could

mobilizing

to

make

entry

others.

The more

in

to

for

(1986)

even

out same

are

that as

the

sayinq

uniform

purchase

securities

if bank

entry

license

a minimum

each

more

branch

that

that

there

fee amount

opened.

emphatic

idea

is

there is

in is too

this Overmuch

_


competition, areas.

which They

also

to

banking

approach examined,

lest

only

big

bank

complete

not

be

week

and

frequent

as

seasonal.

chair. a day urban

kind

of

costs

(PCIB)

of with

a

needed

They

may

since

and

open

offer

banking

money

shop

3

less

they

and

are

banks

to

services

areas. and

,

5 days

are

allow

Commercial

2

for

mostly

rural

may

be

would

the

branch

personnel

would not

re-

serving

full-sized

flexibility

in

be

transactions

thereby

rural

banks

and

be

areas,

Philippine their

wit_

areas,,

may

the

up

should

facilities

depositors/borrowers

experience

Bank

a

hours

transaction

small

the

in This

reduce to

eight

rural

What and

end

in

"economies-of-scale"

countryside

banking

necessary.

especially

the

areas

the

all

case

that

the

rural In

wS_th

the

out

in

the

a desk,

not

point

clients.

persons, a

is

Perhaps,

International

operations

is

worthwhile

studying.

_.

Loan

Quota

schemes

in

scheme

or

schemes. the the

geographic scheme.

are

Philippines.

loan

quota

far,

actually

One

agricultural

loan So

There

is

scheme

scheme

much

the

or

attention

two

sectoral

and the

has

credit

the

loan

other

deposit been

quota quota is

the

retention

devoted

to

the

former. (a)

The

des igned

Agricultural

Loan

to

funds

mandating

all

of

net

their

lending,

i0

augment banking

Scheme.

for

institutions

incremental percent

Quota

of

2O3

which

agricultural to

loanable is

This

set

funds to be

aside for lent

scheme

was

lending _.5

by

percent

agricultural to

agrarias


reform

beneficiaries

lending.

As

and

pointed

(1985)

and

Lamberte

scheme

had

very

agricultural have

out and

with

the

by

for

several

impact Most

capability

complied

percent

Bautista

little

sector.

the

15

to

general

studies,

(1986)

on

the

among

flow

urban-based

lend

requirement

agricultural

to

the

by

buying

namely

TBAC

others,

this

of

credit

to

the

banks

Which

do

not

agricultural

sector

eligible

government

securities.

T_he scheme

current are

focuses

going

on

appropriate

The

argues in

the

that

policies

proposed

More

This

loan

analysis

rigorous

the

all

is

quota

on

studies

the

side

which

can

the

are

policy

is

The

other

is defective

and

only

with

the

to

improve is

borrowers. with

the

current

of

making

direction

The

despite

One

defective.

overall

credit

quota

quota,

that

inconsistent

expected

sector

bank

non-agricultural

sectors.

more

is

loan

effective.

agricultural

itself

away

is

more a lead

here

be

and

Thus,

agricultural

The

then

made

having

for

does

agriculture.

agricultural

like

penalizing

to

agricultural directions.

be

policy

efforts

agriculture.

the

the

neutral

being

could

contention

would

liberalization

the

implementation

unduly

continuation

on opposite

eligible

but

results

of

it

proposed.

side

two

innovations,

securities

being

Its

in

how

Institutional issue

discussions

policy biases the

expected the

environment against

profitability to

removal

flow

into

of

the

scheme.

this

issue

looking

204

has at

the

so far micro-

been and

descriptive. macro-

level


implications

of

the

therefore

necessary

different

arguments.

scheme

on

bank

examined. â&#x20AC;˘

be

and

thrift least

75

area'. of it

from

implicitly

more

were

the

of

rural

above

thatthe

able

the

of

the

should on

a

regulation of

of

total

this to

accepts than

still

are

to

impact

impact

Here,

be

economio full-blown

for scheme

that

to

areas.

rural

scheme

to

divert

funds

the

scheme

has

to

allot

the the

Curiously in

urban

same flow

areas was

ineffective,

a

enough,

urban It

at in

in

prevent

areas. was

and

generated

investments

in

to

investment is

all

banks

Manila

deposits

urban

requires

commercial

Metro

servicearea

attractive

mentioned

the

â&#x20AC;˘ pricing

its

This

outside

intention

resources

loan

scheme

support

level,

and

offices

of or

quota

is _required.

operating

region The

micro

Sche_m_e.

percent

particular

the

level,

extension

banks

quantitative

studied.

model

Retention.

loan

put

macro

should

Deposit

branches

At

the

macroeconometric

b)

to

profitability

At

activity

agricultural

are

already

i.e.,

areas.

banks

But

much

[

more

than

this,

._

Plainly,

the

regulation

repression

that

Under

environment,

this

potentials

Consider, region.

penalizes

despite

for

Farmers'

some

the

is

banks, the

example, demand

205

a

will

never

reforms

credit

and

of

and

financial

savers

attain

already

a predominantly for

effects.

form

borrowers

RFMs

financial

undesirable

alike. its

full

initiated.

rice-p_roducing supply

of

deposit


funds

are

seasonal.

cashwell

in

period.

Of

regard lend

to their

are

During

excess

of

course,

what

to

do

surplus

at•tractive

seas•on,

the

of

required

to

locality

even to

They

may

even

to

fulfill

the

on

these

there

offer

resort

deposit

are

will

few

during

unproductive

physical

as

banks

for

is of

be

for

deposits

rates less

on

Potential

But One

constrained

hedge to

to

mobilize

Duri,g But

banks

they

can

with

excess

competitive funds

more

planting will

have

transfer funds.

demand.

yields

terms

of

:respond

cash

by

areas,

which The

to

just

the'rural

is

less

o_her

is

inflation.

savers

- ..

instrumentsw!th

will

in

against

offer

they

savers

period.

•, a

same

ef'fective

is

are

the

low

in

while

projects

depositors

outlets.

During

stimulate worthy

to

them

banks

low,

to

rates

low

to

is

to

is

simple.

since

credit

with

offer

usually

high.

inflationary

are

very is

total

passed

assets

cannot

is

credit

alternatives.

attractive

long

reason

Naturally,

alternative

only

banks

financing

•rates.

for

deposit

requirement.

•assets

choices

the

bargain

to

immediate

banks•provided

demand

at

the

One

percent

loans

for

receive

funds.

funds

the

farme[s

surplus

The

demand

75 if

their to

deposit

lend

have

•looking

will • haveseveral

However,

harvest

lower

they

enough. rates.

Supply

requirements

funds

deposit

season,

their

with

higher

the

harvest

AS

financial

.!,

rates,

they•

will

never ,L

be

able

effectivelY.

'season,

demand

difficulty

in

only The

206

a

limited,

excess

for

meeting amount

demand

for

credit the from funds

Increases. demand

other exert

since branches apward


pressure to

on

lending

content

th_nselves

Indeed, borrower

one

in

The

rates. with

who

another

situation

different

localities

the

demand

for

increase

case,

in

banks

units

and

a net

be

in

deposit

can

can

lending

rates

same

conclusion

have

period

and

a net

penalized.

if

there

position

is

no

thei_

that

the can

another

attractive

lower

one

locality

in

will

cost.

doubly

such

one

funds

offer

in

different

regions

credit

borrowers

•interest

be

Banks or

end,

saver

will

would

regulation.

the

As

the

higher

period

retention

in

In

branches

increase

be

rates

in risk

supported

locality.

deposit

deposit

by

In to

this

Surplus

to borrowers.•

m

The extended

to

perennial

surplus

unit.

If

much

•more

necessary

the

flow

become and

from

real other

the if

already

can

mobilize

mentioned

expressed

deposit rural

areas

if

that

other financia

above,

_07

I

the

is

allocate

retention

scheme,

are

government

is

that

would

make

repression

it

funds

areas

activities

funds is

regular.ion.

authorities

unprofitable

a

deficit

the•RFMs,

urban

is

region

and

artifically

urban

analysis

a prennial

develop

by

to

the or

is

retention

activities

and and

to

•the deposit

policies•

rural

manufacturing • profitable

banks Thus,

if

locality other

_

the

one the

often

of

derived

while

re-examine

concern

be

where

unit

efficiently.

abolition

just

case

unhampered,

to

The

the

can

'with would indeed

•agriculture whi_e

making

artificially eontinued. committed

As towards


undoing

those

scheme

will

policy be

rendered

Again, content the

to

impact

savings

3.

biases.

of

banks

in

Interlinkin@

of

Markets

new

school

CrecJit

views

the

on

and

commercial

cciticizing

required

scheme

t,obilization

The

are

diEferent this

on

deposit

bank

particular

of

can

to this

retention

issue.

rural side"

be

in of

general

and

branches

of

correct

in

examined.

finance

is

approach

to

the

policy

be

empirical

Specifically,

activities

should

never

provide

competition

lending

"supply

subsidies

the

superfluous.

stud ies the

Hence,

main

rural

finance.

in

creating

Ij

rural

growth

package

including

(among

them

which

will

. ensure _

and

_o_mal

macro

the

prope r

ensure

that

the

most

credit

dynamism.

policies

vitality

system

would

structural

reforms

time

to

accomplish

or

time

lag.

What

The have

fared

small developed to

the

previous much

farmers. and informal

a

program

structural

policies

and

of

the

be

bankable.

and

the

rural

be

better

done

reforms

institutions)

areas

and

would

Only

then

will

may

take

some

a

long

in

the

the by It

that

have

inforntal

financial

informal

consciously seems

may

meantime?

shown

delivering

Should

208

policies effects

have

in

lender?

macro

positive

chapters

expanded

be

thrive.

But

to

should and

financial

farmers

is

There

that

sector allocating informal

credit therefore

loans to

the be

more

funds

lenders

seem


tO

be

embarking

on

profitable

ventures

which

the

formal

!

system

can

allowed

to

trading, with

share. branch

The

ink i.ng

financial

informal

lending

the

already

the this.

should

by

be

questions

be

go

to

into

compete

in

will

of

as to

many

banks"

contributing small

productivity

not

allow input

of

informal legitimize

informal

lenders

from

being

etc.

formal

merging

credit

of

formal

activities

will

markets.

If

to

to and.

enhance

one

views

efficiency

and

to

this

will

lead

to

the

policies

farmers, and

fact

lend ing

do

aside

chanelling

interlinked

the

make

likely

banks,

.the

the

creditwith

most

millers,

allowing

tO

mimicking

fact,

rural

of

to

interlink

actual to

due

output,

and

adopted.

_the

_Burplus

concerning

interlinked in

to

regulations

the

sector

expanding

situation

rural

But

help

or

credit,

seem

to

traders,

phenomenon

suggested

banking

policies

lenders

chanelling

of

formal

lenders

improving

instead

activities

markets

connected

present

been

However,

since

twin

informal

has

current

creditors,

informal

sector

activities

distribution

of

markets.

by

The

formal

banking

institutions

lenders

informal

the

pure

policy

The

output

are

of and

latter

profitable.

and

should

lenders.

interl

formal

out

marketing

informal

that

Or

the

markets

school equity

in

and

the

discussion.

209

has

come

the

rural

transaction

up

with

areas. cost

'legitimate The schoois

theory can


Precisely, into

credit

means

of

delivery

coping

The high

because

with

entire

lenders

trading

of

production lack

of

the

due

crop

traders'

Thus,

the

of

is used

as

in

trading

markets.

the

in

farmers

some

sure

more

profits

to

to

boot

system, near

ana

the

uncertainty

credit

these

two

to

the

•-imperfections

markets

the

will

traders

agricultural the

the

and

much

financial

the

from

require

conditions

answer

cheap

areas

crops.

adequate

credit of

go

provides

facilities

imposes

Linking

supply

to

credit

rural

production

a mechanism

getting

relatively

of

profitable

transportation

agricultural

absence

farmer

bad

schemes

supply

the

milling

Unstable

insurance

in

to

and

areas.•

it

markets.

process

warehouses

find

interlinked

ilsperfect

t_ansactioni_dosts

lack

on

informal

result

getting output

interest

and

a (and

prlclng

of

products).

So

far

examines

the

the

inequities

picture

relationships

that

have

information

not

have.

may

arise. about

More

paper.

power. It

can

transportation, outlets

as

well

good. one

First.of

all,

prices

impQrtantly, assets Figure be

seen

is

as

funds

210

would

discern

some

usually

the• farmers

from

have

their

Floro's

with

wholesale

do

possess

strengthen

traders

storage,

however,

traders

lifted

that

may

which

which

IV.I

one,

traders

the

milling, credit

If

closer,

market

transaction-specific bargaining

loo'ks

(1986)

access •and

much

to

retail stronger


<:i(_:,'_r_.. F". 1

MARKETING

STRUCTURE

OF AGRICULTURAL

ECONOMIC AGENTS I_VOLVED

OUTPUT

ECONOtvflC ACTIVITY

(F_'mer) Direct Producer

I Production

1

V [ Merchants/Irade's ..

[ Assem bly/Transp°rtati°n |

Merchan,'.s/Millers

MerehantsAVarehousemen

]

I B

I

. Processing (Dryi,ng, milling, I

I

& grading if required)

L

[ Mer=h'°''_h°'e'a'e"

,J

T Storage

[ _'h°'°'''ng

1

[

The mark¢_g opcradom may aft be pcffonr_d by ",hesame mcrchams (IArough forward linkages) of may bc pert'on'ned by dfffdrem groups, d_pendLng upon chc spcc_a6on of l_bor and the cx(cm of backward or forw_d linkages. For _xampl=, in dee marketing, mtUers may also be engaged Lnwa_pontng, sLoring, wholesaling, ¢vcn rctaiJLng. In _dd;don, th.cFinal m._ke( destination may be foreign _ndior domestic, depending on tbc Iyp_ of agficuIIuu-a/crop.

Source:

Floro(198_6.).

211


bargaining been

strength

noted

• that

administrative of as

charge The

a

costs

access

and

o_

The

underpricing be

since

due

vertical institutions

to

there

many

are

warehouse

are • one

and

over

legitimize

this,

uncterpricing

of

same

is

it

and partly

than

payment

default

rates).

rationale

and

of

encourage Thus, traders,

even

landlords

government

a

blind

overpricing

what

risk

activities.

the

turn

the

information

creditors,

If

can

overpricing

the

storebwners

of

makes

is

assets.

imperfections

wherein

would

and

low

economic

The

areas

specific

rather

explain

people.

output

this

many

owners,

the

sector.

asymmetric

market

instances

millers,

surely,

can

an

assets

output

have

has

and

rural

•these

to

loans

wherein

take

It

risk

formal

the

of

more

school

integration

in

ownership

cost

a lower the

palay

informal

transaction

of

ownership

specific-asset

(especially

that

farmer.

transaction-specific

the

would

small

have

profits

with

for

the

loans to

"extra"

return

input

close

agents

practice

to

informal

cost

possibility enhanced

compared

is

eye

to

inputs?

informal

to the For

lending

profitable.

The The

lending

imperfection

richer

or

lend

to

out the

with to

sorting

to

in

farmers

•interlinkage

by

farmer-lenders the

access

gain

screeing the

land

and

to

access

of

farmer-lenders.

to

not

that

markets funds

land

to

and cheap

wherein

farmers Since

212

labor

credit

phenomena

poorest

are

nobody

again land

and

create labor

different.

may go

encourage

into

market

labor. would an

The

want

to

advantage

markets

are


imperfect, credit

land

interlinkage

This

aversion

explicit

simply

is

they

due

to

self-selection

It

is

of

perhaps many

Taiwan,

do

this

explicitly

But

farmers.

farmers'

attention

not

wish

to

previous

to

credit. borrow

accomodate

Philippines (such

them

loans

snce. the

to as

credit

Today

and

credit

interlinkages

unlike

the

informal due

is

the

the

- a

follow

Japan, and

most.

development

the Korea,

marketing

opportune

proposed

to

unions,

time

Constitution

of

just lending

once

like

cooperatives

system,

asymmetric

own They

and

control

therefore

increases

gain

their

213

the

successful,

the

there

is

access bargaining

to

credit

no

The

unions

and and

strength-

go

lenders.

access

assets. credit

can

informal

information

of • _transaction-specific

themselves

which

the

the • country.

relationship

arms.

the

_eveloping

especially

market

ownership

phenomenon

informal

would of

countries

in

Cooperatives into

nobody

and

the

process.

encourages

throughout

that

d

call

did

non-repayment

succesful

for

(and

formal farmers

through

explains

Widesprea

should

that.

time•for

France)

cooperatives

towards

know

their

of

path

perhaps

earlier )

attained

clearance.

The

to•borrow"

feel

be

market

relationship

possible

because

anylnore

to

they

it

any

may

to •borrowing.

"not

"trauma'"

labor

discusseG

wish

Although,

case

witl]out

non-borrowing

the

•cheap

"inequitable•"

farmers' of

and

unequal _

and

farmers marketing marketing Vis-a-vis


landlords,

traders

Shoddy should

and

experience

not

with

discourage

associations

and

reliance.

has

Of

government institutional

and

network

assistance

and

Indeed,

it

for

is

market

with

and

output

markets.

the

study

should

where

a

Here,

the

may

be

few

are mechanisms

different

advantageous analysis

can

made

between

other

financial

commercial

The

would

be

the

rural

perceived

to

of

enter

secondary

by

214

integrate from

rural

areas.

thedecision

and

may

be

members.

banks,

The will

rural

be

banks

and

branches

of

areas•

is

Once

to

allow

more

interlinking

as

profitable,

The

form to

issues

benefits

a comparison

approach

many

of

bank

rural

at

cooperative.

sharing

if

the

looking

the

ordinary

of

lending

equity

cooperative

the• market. to

as

right•

experience

rural

(e.g.,

complementary

in

and

to

in

for

technical

control

enriched•

operating

calls

well

examine

ordinary

performance

many

the

studythe

also to

institutions

other

is

expected

the

banks)

competition markets

further

of

providing

Apart

disadvantageous

be

self-

outlets.

control

an

also

Currently

able

for

from

or

which

still

of

into

towards

experience

as

to

rural

efficiency,

terms

control

cooperative input

them

strategy

worthwhile banks

themselves

successful

in

and

support

lead

this

support

cooperatives

organize

will

the

course,

help

to

that

been

farmers.

government-imposed

farmers

unions

This

countries.

rich•

of

enter

many

of are

organization the

market.


This

is

I iberal

4.

wl]er_-eel,try

ba1$_;ie.rs oc

erltry

dis_lal

The has

public.

rural,

About

that

huge

received

80

bind the

[)ercent (£BA_' c

RBS

in

introduce

erroneous

ratio

special rules,

and

But

economic

compounded

their

in

centers',

spared

Of

the

Several RBS

and

.(1986)i (1986)

-

piled

up

the

in

[:irst

to

banks.

tilat

rediscour_ting past

supervision, many

1983

problem.

rural Bank

liberal

of

The

agreement

'bank

in

the

many

rural

cheap

health

especially

by

Central

for

as

not

ac<_. in

difl_iculties.

programs,

the

present

also

Among

and

such

_co_rl the

banks

_s

general

crisis

studies

TBAC

a

system

Even small

have

rural has

due

banks. certainly

banks

ones,

located were

not

crisis.

have

schemes.

be

laxity

undermined

urban

This

financial

credit

unwittingly the

rural

877

measures

to

policies,

policies,

the

prompted

rehabilitation

banking attention

[1986])'.

had

seems

rural

: anks

greater

arr.earages

1980

There

suffered

rediscounting

banks

,,_£ the

pli£11"It

currently

a financial time

neecl

ized.

ehatttt_ tat_i.o,

(RBS)

/egulations

and

examined

proposed

Others

(1986), Patten

have

are

Lamberte Kern

215

the

plight

certain Lamberte and

(19_86).

the

rehabilitation (1985),

Bautista There

Bajada

(1986), is

RBAP

agreement

to

be


o,l

the

need1

to

rel_abilitate

[_tr-astc,jctures with

them

wout<l

deL)ilitating tile

are

banking

managed

rural

close_l

on

to

necessacily

banks

wi I t

allowed

be

s ized

bank

to

to

do

away

to

mention

its

rural

people's

the

a

or

locality

a

may

be

does

rural

areas,

to

is

With new

where

profitably,

opened

not

bank

bank.

scheme,

In

in

selective

This

whose

by

operate

confidence

unprofessionally

system.

serv_-d

system.

favor

badly

operate.

oÂŁfice

and

deregulation

cannot

exte,_sion

place not

out

from

proposed

_Lay be

in

Majority

that

not

banking

costly,

the

weed

mean

acco;npanyi,_g

snore

syste,n.

rehabilitation

rural

already

be

effect

the

the

entrants a

full-

perhaps

serve

the

an

community

E

2-3

days

a week

So;he

proposals

rural

banks.

banks

to

with

rural

time

the

gained

as

One have

are

banks

a

is

sufficient

is

system

and

to

to

encourage

or

management

limited

period

completely

adopt

Patten

advanced

strengthen commercial contracts

or

skill.

a mod if led employed

Kern.

until

rehabilitated

management

to

responsibility

also

tie-ups

for

bank

is

by

proposal

formal

rural

proposal

suggested

in

and

Still form

India

has

another

of to

such

area

improve

of the J

rural men area,

financial be

markets.

given say

Implicitly, responsibility

sole a

That

franchise

province,

rural of

banks

to for

will

a commercial

216

is,

be

a commercial

operate a

specific

directly

bank.

in

a

banks certain period.

under

the


The

views

regarding

adQpted

to

rehabilitate

indeed

diverse.

It

Needed

to

at

arrive

Perhaps,

agree,nent

cegarding

the

should

be

costs

and

it

borrower

should

quality tell

and of

its

to

and

the

convince

authorities.

programs

managed

managed

by

consolidated another

it

should

and

agency.

217

on

to

manage

as

an

by

the

it

not

has and

at

the

on

bank

improve

the

should

not

should

certain

be

also credit is

The

the

Bank

govenment

to

any

Patten

institution

should of

in But

It

program

under

play

and

lend.

ALF

placed

years

figures

concentrate

banks,

Central

ten

level,

responsibility.

non-banking

to

bank

this

the

assumptions

neĂ&#x2014;ÂŁ

program

to

are

scheme.

adopted.

the

Funds

by

role

at

Bank

the

suggested

rural

where

are

needed.

training

Central

assume

with

As

of

banks

indicative

be

cesponsibility

The

designed problem

provide

whom

programs.

may

be

discussions

and

for

a big

is,

management

banks

relinquish

has

to

rehabilitation

be

energy.

That

rural

more

Some

also

that

measures

p_inciples

ficst.

intervene

level.

supervision

best

basic

Bank

its

that

environme,lt

scheine

redirect

Kern,

on

will

Central

rehabilitation to

the

specific

strengthen

means

at

benefits

The

and

policy

arrived

the

not

current

enough

to

various

credit

including

those

entities responsibility

may

be of


Chapter POLICY

This

last

section

Recommendations

There

is

sector.

the

the

notable the

documents:

for

Refor,ls" Rural

on

Others

were

commentary

is

Government:

in

Ranis

Policy

the

or

first

on

for

second

the

future

section.

policy

of

the

comprehensive

rural

agenda

Recovery

PIDS[1986])

two

of

agenda

"Economic

and

may

and

"Agenda

documents in

appeared

entitled:

Agenda,

leading

form.

"The

Actions

Some in

mimeograph

Long for

(PIDS-CPDS[1986]).

circulated

that

based

economy

Sector"

these

The

a comprehensive

entire

two

commentaries

Aquino

the

following

Philippine

in

present

interested

the

newspapers.

to

are

Agenda

_or

of

sections.

The

presented

here

AGENDA

recommendations

w_o

Growth:

two

above.

are

intent

RESEARCH

into

pol icy

improvement

Those

consult

ACtion

no

the

divided

finance

P0_Iic y

for

AND

reviewed

o11 rural

agenda

of

is

some

materials

research

Run

chapter

d iscusses

research

A.

RECOMMENDATIONS

V

One

Economics

and

of

Prospects"

(1986).

The very

objective

modest,

(RFMs). mobilizers

of

that

is,

to

_trengthening of

system

and

are in

the

some

strengthen

the

savings

recommendations delivery

recommending

RFMs

only

rural

218

the means

allocators

not

policies

of

rural

funds.

but

to they

this

paper

financial

making

intended

areas,

in

them Thus,

improve are

markets efficient the

the also

is

policy credit

aimed

at


improving

the

savings. is

not

truly

It an

end

in

making

the

peso

must

be

export

taxes

on

The

charge the

production fertilizer essential products. directly

cost and in In

of

all

RFMs

tl]e means

of

gains

of

on

by

of the

the rural

overvaluation than

the

derived

Just

sectors

the

other

of

sectors

overvaluation

from

be

the

re-examined.

percent

higher

of

removal

allowed

fertilizer. has

the

a

of

the

of

as

and

given

to

local

because vehicles. 219

other

it

farm

has

the

total of is

agricultural may

be

implements.

high

firms

tractors,

of

unnecessarily

The

border

importation

hand

producers

the

unfortunate in

producing

fertilizers

the

domestic is

the

such

cost

few

share

Liberalizing

1984,

the

This

biggest

implements,

In than

farmer-cooperatives

transport

of

impact

connection,

removed

the

needed.

more

estimate

farmers.

protection be

100

for

farm

to

regard,

restrictions

reducing this

tires _ must price

other

mobilizing

exports.

fertilizer of

import

manner,

the

was

prices

of

one

positive

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that

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five

going

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carry

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231

a

co_unercial

of

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has

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the

rural banks

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objectives.

and

Philippine

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[1986]

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details):

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PKBs

different

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extent

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t:he regulatory

(..from the

232

Central

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[CB])

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233

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[ 1986]

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to

level

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effects

of

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accounts

effects

234

banks?

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by

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[19863

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_36

each

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co,nplementary.

ff37

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the

entrants

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_.38

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8

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cost and cost

design of

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239

of

funds of

funds

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(19)

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finance. and

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Madhur

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(1983)

can

point.

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enriched

approach

_.41

by

with

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the

usual

approach.


(b)

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studies

banks.

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suggestion

non-allied

243

Interlink

studies areas

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however,

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that

of

of

borrowers

price

cost

the

cost

may

unit

the

his

should

and

study

interlinked It

marketing

a

undervalue is

estimates

lenders

is

On

using

markets?

by

There

marketing?

cost

providing

incurred

tends

borrowers.

lending

study

R44

Rates

that

Between

the

Urban

average

and

saving

Rural

rate

of


rural the

households same

income

normally,

higher

bracket.

the

marginal It

is

reverse

propensity

means

that

to

income

since

aggregate

savings

than

to

employed

this

examine

separately differential

also

if

of

urban

come

as

better

off

if

.rural

areas

e_aployed

factors

that

scarce increase

impact urban

indeed

households'

the

pattern?

to

in

is

if

a

greater

it

since

What same

were

for

surprise

he

have

rural

a

follows

implication, and

households

expected.

would

it

determine

saving

be the

it

urban

and

to be

in

policy

the

has

will

household

of

Thi_

save

society

is

view

that

is

resource

In

than

areas. important

saving can

on

rates

explain

the

rate_. /

(e) _--Financial

As

pointed

conflicting and

Saving

results

of

periods,

and

addition,

the

could

coverage

of

study

the

â&#x20AC;˘definite

answer

be and

problem

produce

review, the

dependent

adequately a

the

elasticity"

results

definition

Perhaps,

in

regarding

"institution

conflicting

with

out

of

by

be

conflicting whether

institution-elasticiy"

made

of

financial

due

to

to

_45

so

out that

"interest-rate

hypotheses

Philippines.

single

sort

saving.

The in

the time

institutions. has

a

elasticity"

variables,

financial

to

yielded

differences

independent

results the

shudies

"interest-rate

simultaneity

sticking

will

past

work

not

In

been

dealt

equation those we

model.

factors can

have

elasticity" here

in

that a and th_


The try

to

TBAC-OSU-PIDS

deal

with

banks.

We

suggest

system

since

could

have

the

farm

impact

We

saving

flow

patterns

find

institutions

farm

non-farm

examined

to

different impact

mobilization perhaps

(f)

be

Behavior

Studies

and

the

flow

deposit

performance examined

of

as

be

in

the

of

rural

not

been

to

record-

study

the The

different

cash

same

community

that

the

which

various

retention

farm

are

located to

as

households.

financial in

non-farm

the

utilized

be

concentrated

has

employing

there

of

areas

must

above,

behavior

non-farm

extent

patterns

have

important

are

rural

banking

households

are

operating

on

rural

out

for

the

the

pointed

_hether

households

entire

saving

study

households

determine

cash of

farm

opportunities

Financial and

a

the in

rural

saving

out

among

provide

areas

only

will

mobilization.

rural As

focus

for

banks

technique

of

to

on

that

gathering

is

of

their

potentials

objective

savings

mobilization

will

done

on

rural

suggest

it

other

only.

the

data

be

savings

of

studies

But

analyzed.

to

potentials

in

households.

on but

study

households

households

keeping

issue,

presence

Previous

the

can

a

saving

studied. on

this

greater

The

study

scheme financial

intermediation. area

where

sample

must

likewise

they

exploit

households. on

the

be the The

savings

instihutions

can

here.

Borrowers

dealing

with

R46

the

behavior

of

borrowers

and

loan


repayment the

rates

mainly

farmer-borrowers,

popular since

subjects many

of

programs,

_ddition, corn

farms. of

who

not

are

rates.

credit

tenor

addressed

of

the

kind

of

crop

cycle their

between and

corn?

and,

rice,

unlike

non-farm

Is

and

chili

Similarly, of rural

land their

from

market

yield

credit

a

repayment Are

those we

for

from

and

normally

expect

that

extent

the

whether

have

stored

credit

shorter

long.

What

formal

and

alsoprevalent

crops

other

anthropological some

for

lenders,

borrowing

other

demand

price

vegetables be

and

growers,

large

and

interlinked

(1985)

useful

than

study

of

information

rice the above

arrangements.

virtually non-farm

to

rice

their

Here,

cannot

of

the

including

borrowers

producers

to

In

enterprises?

different

Of

producers.

and

farm

credit

guarantee

vegetable

reform

example,

cost

Alexander's

commodity-specific

credit

by

For

l_nders?

Indonesian

for

used

evaluate

about

say

most

understandable

confined

known

influences

informal.

lenders

been

the

even

rice/corn

"or arrangements

effective

informal

is

commodity

is to

farmer-borrower%?

arrangements or

little

substantially

rice/c0rn

Eormal

far

finance

instruments

among

to

Among

were

programs,

producers,

they

credit

This

credit

of

farmers

designed

so

beneficiauies

used

credit

has

non-rice/corn

did

were

mainly

reform

corn

studies.

the

Indeed,

How

the

of

farmer'borrowers.

and

studies

most

land

credit

these

these

were

on

rice

on

and

schemes,

is

focused

nothing households

households

_.47

borrow

is

known

in

the

to

about rural

finance

the

demand

areas,

Do

consumption

or


production? credit

Are have

agricultural formal cost

and of

sector? informal

Some previous

credit

being

backward

they

financed

linkages

haverelatively

markets?

alternative

with easy

What

is

their

lenders?

through

What

the

access

to

effective is

their

rate?

to

policies

markets. therefore

or Do

from

Theanswers designing

enterprises

forward

borrowing

repayment

the

these

questions

aimed

at

Future take

of

these

studies

developing

researches

them

on

into

account.

studies

may

such

as

A).

248

those

areextremely

make

the rural

use

conducted

useful

rural

financial

finance

of by

data TBAC

for

should

coltected (see

by Annex


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ANNEX

THE

ROLE

B.I

OFFINANCIAL INSTITUTIONS IN-RURAL DHVELOPMENT q

Keynote Address Delivered By Mr. Antonio H. Ozaeta, President the.Philippine Commercial International On the Occasion of

of

The Workshop Research Held

on Rural Financial at the Central Bank On

Allow

me

workshop, the

first

namely,

Agribankers' bringing that

about discussions

markets

continue

sectoral

groups

extent inclined up

to

and

to the

have

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this

and,

consequently, .war yet

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rooms.

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this

Credit,

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with

workshop

perspective Financial

a most

creative

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Developemnt

a crucial

of

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subject

Board

.indeed as

unrelenting

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reassuring

rural vigor

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this.

undergone been

for

activity.

be. pursued

have

not

the-organizers

Quedan

such

present,

more

damaging

to

general

has

their

the

Market Building

1987

Board for

worthwhile about

timing the

Technical

and

this

6,

congratulate

Institute Club

.The

to the

Philippine

January

Bank,

should that

its

benefits

dynamic

financial

rewrite

their

The-

crisislhas

strengthening,

painful

l

in

to

excruciating

to

participants

institutions,

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without

condition

the

it

institutions strategic been yet

be

years

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has

plans

bloody replete"with

large

should

recent

catharsis. for

a

of

This

tests crisis

challenged to and yet

the

reexamine overhaul cleansing,

lessons.


I

have

been

asked

financial

institutions

especially

during

have

sounded

give

in

the

like

to

my

rural

lethargic

thoughts

on

development. pre-crisis

a hopelessly

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role

Years

period,

of ago,

this

would

uninteresting

and

irrelevant

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to be

addressed

that

any

about

involvement

/

subject.

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respect

to

rural

the

urban

it

rural

would

then

government

and

could

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interest

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operations

both

Lamberte

for our

of

agricultural

and

about

Joseph a

business

not

have put,

unexciting

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insights

on in

only and

flnance

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we

among

the

attracted

the

task

of

then.

thrift

that

portion

banks

shall

to

financial countryside

and

rural-based

be

so

of

rural

broad

as

activities.

you

today

by

non-agricultural

development

agricultural

2

banks,

non-agricultural

confirm

view

institutions.

presented

rural

shall

rural

development

and to be

significant

involvement

discussion,

banks

development

papers

our

encompassing

perspehtive

technica!

account

of

commercial

of

hopelessly

in

TERMS

purpose

institutions

was

simply

with

institutions.

therefore

andsupport,

seemed

purely

financial

of

the

inolude

most

development

OF

Our

to

the

rural

DEFINITION

branches

wasteful

from

that

development

For

have,

talk

seemed

priorities private

so

markets

appeared

Moreover,

actual

time,

development

standpoint,

most

that

incomes. draw

activities.

heavily

to The

Drs.

Mario

activities Nonetheless, from

our


HISTORICAL

ROLE

Hindsight of

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financial

therefore

the

activities

helpful

of

Of

demand

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referred

emerged

alternatives

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and

to

these

less

their

Thus,

flexibility of

their

unregulated monitoring merely usurers),

credit

their decisions allows

and

are

peripheral their

to

therefore

and

butter

is

for

their

being

for

side

of

the

sources

in

fact

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essentially to

lending to

lending the

be

local

more

credit quicker Secondly,

interim

their

(often

necessarily

subject

(except

the

efficient

access

their

not

Lastly,

private

on-the-spot.

lend

Thirdly,

activities bread

made

and

much-preferred

more

their

processing

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bureaucracies.

credit

sector.

have

sector

other

formal

are

borrowers.

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of

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constricted

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out

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the

credit

suppliers

necessary,

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sources

loan

or

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efficient

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informal

sector.)

these

operations,

credit

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role

markets.

financial

formal

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often

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indigenous

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their needs

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in

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rural

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historical constrained

processors,

the

also

observation simply

active

financing

to

easily

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in

the

It

understanding

development.

either

Sector.

traders,

moneylenders

retrace have

in

rural

institutions

Credit of

in

that

financial

existence

composed

tremendously

to

factors

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us

institutions

be

identify

aid

consumption operation_

are

reporting

and

operations

are

moneylenders trading

margins

and and


not

their

financing

agricultural lending

lending

volume)

contr011

ing

harvest

to:

en_ccing organization

must

processing

to

for

have

strong

not

by

a

(i .e. , storage

thin

to of

by

the

financing

Rural projects Searching

kept

overvalued

by the

from

and

forthis

substantial •that

severe

•trading financial

rural-based

from

low

rural

limitations has

lack

economies,

are been

compounded

of

local

poorly-

limitations.

shown

absence

inefficient

markets.

productivity,

infrastructural

the

reform,

bankable

away

that

There

are

now

prop

up-the•iF

fiat

to

is

immobilized own

retail

little

to

a

by hurt

an the

genuine

and

governments,

government,

individual

specialized

were-poorly i._plementation,

mostly

monitored and

had

and

doubt

were

either

and

.

administered,

4

objectives

many

bled

of by

concerns

agricu]_turai

crop-specific

aJnbi.guous

that

business

•:.

from

goods

maintaining

achieve

which

most,

Focus.

banks to

the

for

a

disincentives.

Business

owners

to

these exchange

land

of

sees.generally

and

sector

comprehensive

dearth

smallholders

foreign

policy

rural

organization

spread

institutions

one

macr0-1evel,

agricultural

forced

f].nancial

technology,

the

of

with.

,The

among

disseminated

rural

live

causes,

organization

On

to

Environment.

for

bulk-

in

....

have

•has

because

marketing)

•cost

accomodated

the

the

tracking

up

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easily

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accounts

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is

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,

field

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tl_e tneir

or

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f,ands

l)FogvamS

that

.

credi.t had

no form

consistency the-very

in start.


These

problems

were

aggravated

by

poor

management

and

weak

organizations.

RUral-based were

primarily

countryside • As

a

result,

zero,

even

if

with

as

as are

Rural

typical

much

same,

have

the

banks in

the

the

urban

areas.

had

strong

deposit

inadequate,

in

to

have

the

if

not

the

been

commerc%al/thrift

countryside able

to

confidence,

be

largely never

charter

provide

(current

deposits,

etc.)•

required

branches,

undertake

rural

determination

for

By Which

trade bank's

of

their

such

and

activity.

looked

sources

of

The

would

5

to

most of

the

long-term.

of

• even

as

nature This

were

loans.

A

predominantly

only of

past,

sources

short-term

expected

Unfortunately,

medium

be

the

banks

capital

deposits, be

as

commercial

funds

therefore

partake

upon

working

savings

In

functions,

them,

and

could

lending.

basic

finance

agriculture

essentially

been

created

accounts, and

agricultural really

short-term'portfolio.

finance,

out

not

normally

•commercial

requirements

in

regrettably

conviction,

is

short-term

a

deposits

often

expertise

moved

financing.

to

thrift

varied.

agricultural

expected

clientele

had

and

up

organizations

were

would

banks

in

their

lending

the

lending

commercial

• banks

to • scoop

but

the

just

commitment

defined

branch

offices

would,

lending

commercial

skills.

head

reasons

to

capabilities

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lending

their

lending

of

established

•for

generating

they

branches

to

_ne

time support

f£nanc£ng of

project

effectively


prevents

banks

from

massively

infusing

funds

into:

agricultural

projects.

Apart

from

agricultural handle

agricultural

the

default

assets

in banker

the

are

geared

order

to

must

have

project

and

order must

disposed.

Many

risks

supervise

expertly the

the

grounding

special

projects

understand

have

preserve

the

banks

the

workings

handle

capability

value

of

are

to

agricultural

sufficient

and

to

aggressive

technically

evaluate

and

monitor

in

for

ill-equipped

adequately

banker

project

they

to

must

work-outs,

until

the

order

Lastly,

the

also In

of

business.

postto

the

move

company's

sadly

lacking

in

capabilities.

Because

agriculture

elemenÂŁs

as

environmental been

the

traditionally Lacking

managing bankers

the have

something

financing traders

weather,

pests

the

poorer

credit

than

to and

risk

the

familiarity

peculiar often

vulnerable

such diseases

rating

of

commercial

and

withtheways

risks

in

conveniently

this

and the

other

sector

has

manufacturing

of

sector,

dismissed

unpredictable

handling

and

some

commercial

agricultural

projects

"speculative".

Because banks

is

problems,

sectors.

as

aspects

the

manage

are

a banker

Likewise

effectively,

these

banks projects.

technical

involved.

in,

institutionally

intelligently,

the

of

being

lending,

projects in

not

have

of

these

chosen is

and

to

concernedl

perceived stay A

in

common

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constraints, the

periphery

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Production

6

most as

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credits

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oftentimes


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TIMES

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SUMMARIZE:

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challenge,

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workshop.

Thank

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9

work

cut

out

for

you,

in

this


ANNEX COMMENTS

ON

THE

B.2

REVIEW

by Dr. International

First, in

let

integrating

rural

the

credit

As

Philippine

remain

body

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The

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equalize.

economy

any

the and

the

appropriatepolicy

"fragmentation."

to

simply

explain

Oneshould

the

that

Stiglitz

fragmentation

of

derive

markets,

referring

and

sufficiently

policy.

to

factors

Rozenwig

of

does

order

market.

and

explanation

output

fragmentation government

faced

by

is

not

the in

policies.

the only

very prices

is

population due

unequal and

to

betweendomestic The of

wide

poor

repressed

faced

farmers

of by

border

differences

financial

distribution yields

and

wealth

farmers.

and

in _he

policies and

to


I on

am

very

agriculture

many

of

the

welfare

I

the

am

related

of

the

financial

of

and

institution

among

farmers,

field

level,

the it

by

of

structure,

from

need

behavior

to

form

In

modelling

been

too

thus

of

review in

be

directed

or

traders,

a more

significant

little

behavior

of

explicit

the

the

interaction

level. on

and

savers

of

and

rural

the

nature

of

this

the

land

credit

and

theoretical

undersÂŁanding

the

moneylenders the

informal

borrowers,

paid

of

in

relations,

private

to

will

institutions

interlinked

towards

the

workings

much

behavior

segment

This

nature

out

at

the

and

extended

easily

bankers,

studies

the

of rural

is

encourage

pointed

formal

of

this

participants,

on

to

the

financing

about

has

from

rural

interlinked

nature. monetary

behavior

bank

on

treatment

knowledgeable

attention

3

in

lenders,

production

millers,

the

me

explaining

focused

Withchanging

of

presently

the

in and

However,

at

effects

stems

of

analytical

researchers

The

and

market.

efforts

that

interests

market

nature

and

Stressing

related

the

economists,

behavior

available.

tenancy land

by

lies

Let

farm

paper

working

been

adverse

issues

market.

incorporating

written

originated

the

have

fiscal,

specificaliy, the

us

macroeconomic

the

weakness

recognized.

fact

transaction

now

and

informal

the

market

agrarian

policies

econ0mists

had

trade, of

agricultural

aided

have

strength

and

at

of

are

to

The

is

general

many

population

the

i.e.,

informal

are

that

borrowers

once

be

policies

issues,

and

remedied

also

As

macroeconomic

microeconomic

more

issues.

institutions.

lenders

many

referring

Much of

see

rural

specifically

treatment

the

to

governmenÂŁ

policies.

of

happy

the

who market.

there fact

has that


borrowers

•and savers

production

and

need

to

focus

borrowing

literature

of

to

some

this

behavior •In

the

consumption on

markets.

in

terms the

•extent

on

undertake Thus,

integrating

the

presence

of

empirical

informal

Serrano,

areas

decisions.

and in

rural

effect

on

fragmented

or

literature

market,

in

theoretical

the

of

simultaneous

the

addition

saving

work

•to TBAC's

and

interlinked

and

recent

efforts

by

studies,

review

of

Floro

and

are

very•

valuable.

Aside review

from

did

not

understanding "surplus

too

brief

sufficiently

the

relative cover

informal

the

credit

to

its

importance,

neoclassical

market

as

the

approach

compared

to

to

the

needed

is

view."

Another on

being

area

the

•issue

of

failures

•but

we

successes

so

that

where

much

more

cooperatives. need we

can

to

better

promote

4

theoretical There

has

understand them.

work just the

is

been basis

too of

many the


ANNEX

COMMENTS

ON

THE

B. 3

REVIEW

by Mr. Leopoldo P. d'e Guzman President, Luzon Development Bank and Development Bankers Association of the Philippines

Overall

The of

authors

published

Financial

was

Markets

of

many

in rural

be â&#x20AC;˘useful

Major

Relevant

As

a

oortfolio Manila,

1.

me

tO

me

how

revie9

of

the

ihlportantly

in

their

on

Rural own

finance

and

development

models

can

be

econometric

However,

I feel

the

show

â&#x20AC;˘trends

or

issue

of

is

action

development

rural

finance

puoduction

applied

is

a product

coefficients

at

best

directions.

banker

industry,

surL_narize and

leading" are

exhaustive

elements

issues

that

the

relevant,

growth

an

Findings

above

The

key

more

theoretical showing

private

let

and

finance.

variables

will

to

on

impressive

,

the

for

conclusions.

section

studying

congratulated on

(RFMs)

and

to

be

literature

observations

The

must

my

the

reaction

Whether

caused

phenomenon programs

and

by

with

with

either

in

these

financial

agricultural

branches

findings to

an

the

all

outside

study

which

not

as

to

develop

development

crucial the

Metro appear

findings:

and

"demand-following"

is

loan

as

rural

insuring economy.

or

economic "supplythat

there


A

ban_

operating

"demand

pull"

matches

competitio

"supply

push"

GFSME,

The

IGLF,

issue

and

credit

versus

credit

is

the

n

the

credit

percentage

after

account

and

the

of

rural

sector

the

program

both

when

it and

loans

like

the

cheap to

of

to

findings

that

65

is

of

the

on

where

_e

to

meet

_,000/year

formal

of and

for

we

lending

_0 are

into enough -

for

all

credit

demand.

fact

that

5hat

loan

defaults The

fell

percent looking

institution

a

inadequate

pay.

farmers

really

not

have

to

basis;

program

the

sector

higher

taken

are

this

and

a

demand

is

that

not

are

the

inability percent

are

credit

study

rural

finding

matured

there

special

credit

and

a

costs

repayments,

disturbing using

rate

credit

best

of

loan due

income

agricultural

the

re-examine

how

primarily

patients

cheap

finding

guarantee

agricultural

agricultural

repayment

situation

need

portion

subsidized

years;

transaction

and

relevant

dissavers

welfare

accounts;

borrowers

_le the

avail

in

are

current

a market-oriented

a higher

present

to

threshold

pull"

subsidized

paid

all

substantial

of

of

twenty

fully

point

UPBRF

to

one.

past

these

are

responds

"demand

special

view

of

that

to

to

markets

view

has

of

cheap

new

the

findings

incomes

it

record

informal

Another

offering

important

poor in

the

by

countryside

push;"

traditional

a very

borrowers

"supply

when

programs

the

the

etc.

of

The

in

TBAC

below

of

peasants at

social

standards.

a


Personal

Views

•The sector

following

are

the

key

questions

facing

us

im

the

rural

in

the

rural

:

(i)

•Given

the

sector,

what

increase

(2)

present

• _nat

of

developments

in

are

state

the

the

are

standard

means

the

of

to

economy

needed

to

accelerate

the

living?

deliver

•creditb

to

the

rural

sector?

As

was

reported

make•a

non-viable

vital

resource

rural

enterprise.

I credit the

the

increased or

enterprises

become

stable areas

A small

where

and

viable.

In

the

and C.

well-being

rural

dynamic. be

given

those

the

credit This in

or

be

the

terms

solve

of

not

the

of

the

the

that

of

insure

tha£

is

farms

in

become

subsidies)

•subsidies

direct

rural

will•

without

that

not

is

majority

(even

does

failure

majority

means

credit

credit

"to

of

when

•short,

that

•would

only

Lira,

success

observation

policies

will

and

spell

Dr.

to

the

subsidies

to

"

farmers to •the

best

•should

nagging

tailored

•the

Class

viable•

production.

will

incomes

(4)

Lamberte

enterprise

•support

diiemna,

rural

Dr.

which

fully

category

by

problem

we •have

who

viable

the formal

are

formal lenders

today but

lenders' have

is

whose

how

to

circumstances

requirements not

come

deliver

up

- or with

a

credit are

to not

vice-versa, tailored-fit

•••


program.

(I

although

there

as

authors

the

am

not

was

_

sure

how

supposed

pointed

serious drop

out

this

in

problem

is,

agricultural

agriculture

still

because

loans

posted

in

a

1986,

positive

growth). t

The

development

cooperatives

is

that

it

is

whose

products

one

among

disposable

surplus

If

the

only

cooperatives,

rice

although

coming

(!)

harvest

for

in

indirect

finance

growth

of

now other

in

coming

central

are

to

cavans at

_e

s_all.

help

the

small

developments,

expensive

manner:

processors a

forward

that

we

find

into

aquaculture

rural

But

_0

right

favorable

on

non-farm

a

to

disposable

s success

producers

branching

by

is

farmers

30

only

merchants,

integrators

industry, into

the

commercial

have

a more

traders,

this

cooperatives.

following

and

with

processed

and

long

the

are

credit

livestock

cooperative'

still

_f

or

who

be

experience

members

time,

will

financing

(2)

a

marketing

our

packed

farmers

at

are

will

be

the

sugar

cooperatives there

if

to

chance

farmers,

However,

have as

organized

multi-purpose

answer.

successful

facilitysuch

"patio,"

of

....

who

contract

in

industries

turn

basis.

the and

in

poultry hopefully such

as

sound

and

industry

in

handicrafts.

There practical the

is

pressing

program

shortest

rehabilitated

a

to

possible as

an

need

rehabilitate time.

4

come

the This

instrument

to

in

is rural

up

rural an

with banking

asset

which

development.

a

needs

to

be


However, on

how

the

rural

in

Rural

Financial

sector.

development

are

risk,

enterprise

and

or

_27

a

yield

net

rating

Of

the

am

in

full

two

of

them,

(I)

of

rural

to

rural

and

need

•to focus

encouraged

to

rural

because

in

period

serve

banks

most

and

financial

finance

- given

unfamiliarity

•for 8.5

_4

fact

will that

billion

percent

look

Profits.

sector

The

rural

its

with

the

three

Without come

the

out

of

annum,

factors,

any

subsidies

poorly

banking

worth

per

at

compared

system

Central

reflects

recently

Bank the

to

Bills

poor

at

credit

sector.

Policy

Recommendations

I_. policy

recommendations

agreement

with

the

I0

contained

in

recommendations

eJne Report, but

disagree

I on

namely:

Need

;for

Land

The high

land

land,

and

buying

Isidro,

Reform

problems

of

rentals

regulations

of

studied,

engage

and

the

the

on

be

we

subsidies

generally

-_ty

billion

of

Comments

gestat.ion

sector.

bidded

to

institutions

Risk

urban•

of

be

banks,

borrowers.

regulations,

the

to

reluctant

Financial namely:

rural can

withdrawal

needs

long

the

Institutions

The

banks

•institutions high

rehabilitating

by

can

protect

fixing

lease

is _cija

of

easily

which

land Nueva

lack

be

the

the

of

solved

tenants'

renta].s.

i>roh_bitive as

security

tenure by

right

Becuase

- _lO0,O00/ha. f_rmers

present

of

and

existing to

the

the

cost

in

San

here

can


attest_

-

the

returns

to

the

returns

and

non-farm

the

the

low

fact

is

is

low

invested

compared

in

tricycle,

that

Bank

in

of

percent

Land

rate San

San

collection

8

money

collection

Rural

has

ownership

(e.g.

collection

percent

land

livestock

sari-sari

store,

etc).

Also,

percent

the

ventures

handicrafts,

very

if

on

on

-

collection

is

is

land

rate

on

- 4

Ecijl,

Ecija

jolting

a

areas

Nueva

Nueva a

experiencing

reform

Isidro,

Isidro,

rate

Bank

has

while over

8_

experience

loans

to

land

(LBP reform

beneficiaries).

(2)

Renewal

of

Loan

Unless

Quotas

(P.D.• 717)

commercial

and

thrift

b_nks

are

required

to

@

devote agra is

the

is

Thus,

commercial

by

market

countryside

thrift

lending

can

sell

banks

Government

with

I would must

unfilled

like

for

to

undertake

6

above.

add

by

loan

policy

progr_ns

to

what

agri-agra• city-based

have

agri-agra

one

is

CB •allowed

of

which

agri-agra

What

strictly,

mortgages purchased

their

avoid

a_,riwrong the

yields.

enforced

banks

will

policy:

low

and

banks

and

the

at

retained

they

cited

of

substitutes

is

loans

reasons

banks

Lastly, •is:

buy

717

rural

agricultural

for

& secondary

originated

ag_i-agra

implementation

to

P.D.

develop

percent

projects

bank

If

_5

good

loan

may• loans

_ banks.

records

portfolios

in to

quotas.

recommendation, reduce

the

risks

that in


rural to

credit,

it.

so

These

that

risks

banks

cover

will â&#x20AC;˘the

be

encouraged

risks

from

drought/floods

---

irrigation

(_)

risks

from

pests/disease

---

plant

disease

control

market

(4)

post

risks

---

harvest

would

0rivate some

funds

and

drainage

quarantine

and

system

pest

and

---

driers,

warehouses,

mills,

to be

Government.

Needs

Finally, It

by

more

support

facilities

encouraged

Research

price

lend

following:â&#x20AC;˘

(I)

(3)

to

may

be

a great

financial

financial

I make help

a comment to

both

the

if

more

institutions institutions

on research

succeed

on

rural

policy

planners

studies

can

and

some

be

fail.

credit.

and

made For

on

the why

example,

Q

OU_

_

percent they

have

able

to

the have

the

done

rural

banks

very

"genes,

X understand

well. or

Let

virtues

us

that

study

â&#x20AC;˘which

other

i0

these

percent

to

"survivors"

rural

banks

might

l_ for be

copy.

Case the

1,000

studies

success

planners

and

and

on

the

failure

rehabilitation of

some

practitioners

alike

agriculture.

7

of

Cooperatives in

meetimg

some

rural

will the

be

credit

banks,

on

valuable

to

needs

in


ANNEX

COMMENTS

ON

THE

B.4

REVIEW

by MS.

Purita

Director,

The matter

paper

of

is

being

in

the

essentially

fact,

stabilization rather exchange are

rate

lead

to

are

in

the

consensus

and

funded

money

results

shown

or

by

taxes.

and

a_ricultural

assistance such

it

that'

is

It

is bad

assistance

loan

made need

in for

developing

which

sustained

credit

subsidies

of

resources,

by

the

Central It

important

would

be

enough

when

disastrous

particularly also

with

and

non-rationaluse

destabilization.

sector, but

well

It becomes

creation

policy

self-reliance.

too

and

rate

in

by

flexible

were

productivity

seen

towards

A

away

of

inflation.

credit

inflation

that

only

do

importance

means

a

competition

interest

moves

through

misallocation

inefficiency

subsidies

given

achieved

and

to

As

is

functions

These

main

do.

This

ceilings.

proposals

rising

to

recommendations

policies.,

determined

supported.

the

out

poli_y

arbitrary

while

and

sets

orientation

over-riding

has

its

Bank

a market

being

it

allo_ation

and

pursued

be

Experience

new

and

provide can

of

market

efficiency

advancement

most

credit

subsidies

the

econom_es'_'t0

that

from

are of

increasing

by

Central

being

recognition

general

recent

policy

:schemes:

only

in

credit

already

quota

of

functions,

than

what

thrust

away

Neri (Domestic)

achieves

the

pursued move

F.

CB-DER

best

the to

when

Bank

is

farmers

extended

funded

thane

generally

note

such

only. agreed

should

the not

be

growing throug_


credit

subsidies

that

would

but

directly

capacity,

improve

capability

to

ailing

programs base

make

The

paper

and

time

rate

and

information savings

and

weighted the

average

point

not

they

Since it

deposit available a series

doubted

on

are

and

the

prime

rates

customers,

etc.

of

equity

be

such but

and

by

deposit

banks

to

it

as

to

not

be

in

include

disclose

a

more the

prime

the

indicates whether

or

window.

rate to with

definition

collateral the

of

rate,

appropriate

att_mpts

in

the

but

"sourcing"

cooperation

difficulties

would

best

and

Previous

one

rate

rediscounting

on

get.

of

which

For

average

the

would

rediscount

rate.

base

indifferent

statistics

including

as

90

savings

the

weighted

used

MRR

"lending"

to

average

as base

the

from

it

weighted

is

and

whether

because

reluctance

customers,

a

difficult

prime

of

through

determining

not

funds

Moreover, are

selling

concessions

rate"

which

would

their is

and

much

their

the

for

is

deposits

unsuccessful

what

prime

and

it

of

rate"

of

"prime

rates

"prime

rates.

the

banks

productive

rehabilitation

so

enhance

basis

deposit

source

seriously

use

group,

which

would

the

is

were

at

as

time

not

means

o_f funds.

the

rates

the

time

and

his

The

subsidies,

develop

proposes

of

enhance

i.e.

productivity

done

continued

questions

instead

be

mobilizers

deposit

farmer

creditworthy.

also

would them

the

subsidies,

efficiency,

him

as

which

to

his

should

means

production

help

make

banks

painless

through

rates

than are

not

produce the

BAP

(e.g. business)

they

charge


The

paper

failure

in

policies

as

was

based

the

banking

i.e.

the

culprit

disintermediation.

declining

system

from

deposits savings

substitutes.

inasmuch

as

differentials

in

etc.

reserve

from

deposit

statistics could

change

This through does

the

paper

which not

belive,

seem

specialized Central Bank, Bank

'have has

to not

to

accurate

DBP,

own

disapproved

the

CB

sectors the

of

lifted

and

(i.e.

deposits

interest

shifted Recent

deposit

substitute

created

specialized

can

channeled.

be

Central

Bank

and

two

charters.

As

far

or

proposals

as

at

others,

put

This

banks. the

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Central

specialized


ANNEX

COMMENTS

ON

THE

B. 6

REVIEW

by

These

notes

excellent by order to

in

addressed

mixed

Ohio

University

primarily

the

a

'•and

comments

in

with

State

literature

My

chapters

issues

are

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authors.

of

E. Chevas Professor

are

review

the

Dr. Carlos• Assistant

specific

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ANNEX

COMMENTS

ON

THE

B.7

REVIEW

by Dr.

Epictetus Assistant

University

The the

paper

various

is

particularly have

output.

However,

that

done

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the

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E. Pa%alinghug Professor

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Philippines

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discriminant performance,

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on

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the

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under

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Sector.

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section

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in

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Fry,

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on

and

different

studies.

interesting

whether

is

Gonzales-Vega,

for

finance

which

Tan,

such

benefit-cost

"Various

Mejia,

materials

options"

(iii)

(1977)

the

rural

be

Data"

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works

various

and

under

have

might

with

discussed

good

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of

Burkner,

researchers

countries.

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faced

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Giovannini

on

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of

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point

Philippine

in out

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low

under

setting

availability

and

been

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lack income

•a section relatively concerned.

discussed

Philippines

in

and

in

Conclusion

I any

way,

Dr.

Lim

studies an

want

to

reiterate

diminish

the

in

producing

on

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an

finance deserves

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laborious

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above

paper

relevance appreciation

of

that to

Dr.

do

Lamberte

syntl_esizes the

and

not,

Philippines. encouragement.

•in and

existing Such


ANNEX

CAN

MONEY

BE

MADE

IN

by

RAMON Deputy Ministry

am

closing

not

sure

the

What long

prepared this

preceding

by

Dr.

danger

reactors

Since

have

and

Organizer,

In

fact,

Mrs.

reached

at

However, to the

say

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it

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Lim

has

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FINANCING?

K. KATIGBAK Minister of Finance

I have

essentially and

what

what

Closing

consist

discussions, idea

if

remarks.

should

I

Closing Remarks on Rural FinancialMarketResearch Central Bank, 6 January 1987

Workshop

I

RURAL

B.8

be

policy

discussions to

leads

me

on

me

to

believe

a repetition. areas, on

it,

reading

Rural

and some our

there of

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basic

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it

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estate way

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profitable.

don't

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than

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main

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relationships

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present

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The should

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Rural Financial Markets: A Review of Literature  

STAFF PAPER SERIES NO, 8702"**. *** This .is.also circulated as TBAC Working Paper. RURAL FINANCIAL MARKETS: A REVIEW OF LITERATURE*. Mario...

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