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114 In order for rural saving to respond positively to incentives to save, what is needed is rapid and widespread technological change, which accelerates the ability to save and the rates of return. Th'le higher rates of return associated with technological change would make saving more attractive and thereby would enlarge the positive substitution effect, offsetting any growth in its negative income impact. In addition to encouraging income growth in the agricultural sector, this would result in higher capital forimation, which in turn would increase the need for financial SclVit:es. Ihrougl this mechanisn, scale and scope economics for the viability of rural financial institutions would also improve. To accomplish this, agricultural credit policy should aimi at improving vertical orgalization, density, coverage of farme:s, and the mmnber of functions performed by RFIs, besides maintaining interest rates that are conducive to inmestment.
9 Flow of Funds of the Rural Financial Institutional System T lie issue of how growth and development of' a rural financial institutional (RI"I) syiteini affects the flow of public resources is i nportant. Increasing public iresources through tile tax system has a negative effect on incentives, Which increases disproportionately as the level of taxation iises. At the same time, the requirements for investment in public goods are immense. This is particularly the case for rural development, where the private operating units tend to be small, hence recquiring public provision of many services that large firms can provide in tie private sector. Although the total resources that can be raised front rural saving are( immnense because of th t eXiClit of' the RFI system, opport tliitie:; for leakage through subsidies, poor adihtinislratioi., and corruption are also great. A widespread b~elief that ani RFI system is generally inefficient, undisciplined, and often corrupt has led to a tiegative allittide about such institutions, and an implicit view that they represent a lge net drain on public reventes, for which tlle retiln is of doubtful valuie. lowever, this view arses front a gross oversimplification of Il e flow of funds associated with ;a RFI system. In tackling this issue, this chapter first outlines a fratmlework to examine whether an RFI system is a net drain on or a contributor to public resor ices. 'This fralnework is gcneral inll ature to account for both the umifunctiolal and multifunctional roles of this system in agricultural development. The chapter also discusses sonie dceterminnts of the net contribution of a system. Finally, a comparisotn is made between arl improvelment itl the fiuctions of an RFI system and an increase inl interest rates to deteriliie which option has the largest imnpact on net contribution, profit, and unit transaction costs of the system. This analysis is based on stylized data that are partially derived froti earlier chapters, since actual data are not available. Framework for Determining the Net Flow of Funds of an RFI System Visualize an RFI system that has the following inflows during any given year: * Equity capital * Reserves * Deposits 115
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,AFOOD POLICY EVIEWl Institutional
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FOOD POLICY REVIEW 1 Institutional
Page 5 and 6:
Chapter One Chapter Two Chapter Thr
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15. Unit transaction costs, unit ir
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47. Relative importance of intcecst
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Foreword Thiis report introduces a
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1 Summary This study analyzes two a
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3 Six organizational principles for
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2 Introduction Finance and Economic
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An obvious problem innate to an act
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9 Selection of Theme and Issues for
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I1 TIhe issue of scale economies is
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13 There is also a problem of indiv
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15 Figure I-Share of borrowing of f
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17 Figure 2-Share of'agricultural l
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19 specific or economywile developm
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Table 1- Continued 21 Region, Count
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Table 2-Continued Government Nation
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25 regional without higher or lower
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27 Caribbean, compared with Asia. T
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Table 3 -Continued Proportion of Pe
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31 LICs (including Bangladesh, Indi
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33 Functional Structure of RFIs and
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35 approximated from available lite
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Figure 3-Stylized organizational fr
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5 Transaction Costs, Profitability,
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411 or fiom new borrowers. Moreover
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43 Table 6-Unit transaction costs o
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45 tiotis largely by borrowing fi'o
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47 Table 9 -Transaction costs of br
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49 'T7heSonali Bank's unit uct marg
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Table 14-Estimated parameters of th
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53 PACS) was established ill March
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55 Table 16-Deposit growth rates of
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57 rIIIIal Output (28 p)Celt) and o
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59 Although APS loans were dominant
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Table 2 0-Pattern of loans advanced
Page 75 and 76: 63 Table 2 1- Unit profit and unit
Page 77 and 78: 65 resources are mainly channeled t
Page 79 and 80: 67 Table 25-Various costs, gross ma
Page 81 and 82: 69 BAAC also en1joyced sc.;le ,~ol
Page 83 and 84: 71 iuzividual farmers at the distri
Page 85 and 86: 73 Agriculture and Cooperatives 197
Page 87 and 88: 75 like the county and plimaly coop
Page 89 and 90: 77 Table 33-Transaction and financi
Page 91 and 92: 79 Table 3 6 -Structure of assets a
Page 93 and 94: Response of Rural Loan Demand to In
Page 95 and 96: 83 Table 3 9-Estimated multivariate
Page 97 and 98: 85 Table 40-Estimated multivariate
Page 99 and 100: 87 separate deteriminants of demand
Page 101 and 102: Table 4 1-Continued Type of Demand,
Page 103 and 104: Table 4 1-Confinued Type of Demand,
Page 105 and 106: Table 4 2 -Evidence on interest ela
Page 107 and 108: 7 Response of Supply of Rural Depos
Page 111 and 112: 99 Table 4 6-Relative importance of
Page 113 and 114: 101 I1e positivc respolse of supply
Page 115 and 116: Table 48- Continued 103 eBased on t
Page 117 and 118: Table 4 9 -Pattern of total rural s
Page 119 and 120: 107 is substantial saving even in d
Page 123 and 124: 111 nient), and lastly, the inverse
Page 125: 113 Table 54-Positive and negative
Page 129 and 130: 117 interest I'evellie and payment.
Page 131 and 132: Table 5 5 -Continued 119 cin scenar
Page 133 and 134: 10 Conclusions and Implications ase
Page 135 and 136: 123 differential increase in demand
Page 137 and 138: 125 can be attained. Multifunctiona
Page 139 and 140: 127 fully achieved. Had the institu
Page 141 and 142: 129 so doing, improvements in verti
Page 143 and 144: The standard error of The standard
Page 145 and 146: Appendix 2 Reasons for Delinquency
Page 147 and 148: Region/Country 135 Reaso.z Near Eas
Page 149 and 150: References Abbott, J. C. 1 9 7 3a.
Page 151 and 152: 139 Aku, P. S. 1986. Lending to far
Page 153 and 154: 141 Caibbean Country Department II,
Page 155 and 156: 143 144. Princeton, N.J., U.S.A.: W
Page 157 and 158: 145 1975. Agriculturalcredit in Asi
Page 159 and 160: __ 147 Gurley, J. G., and E. S. Sha
Page 161 and 162: 149 G. Hunter and A. F. Bottrall, 5
Page 163 and 164: 151 Lee, T. Y., D. H. Kim, and D. W
Page 165 and 166: 153 __ _. 1976. The new economics o
Page 167 and 168: 155 Olu, W. 1985. Formal credit and
Page 169 and 170: __ 157 Rao, B. P. 1970. The economi
Page 171 and 172: 159 Singh, G., and S. R. Asokan. 19
Page 173 and 174: -- 161 Verghese, S. K. 1983. tivfit
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