I Fiance Apicultural

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2 rural financial system is a net contribution to or a drain oil public resourccs? And, (6) what policy conchisions can he drawn from this analysis? In analyzing these questions, two types of nonprice factois are considered: those that relate to the various organizational iiieails for promoting RFIs (for example, th1w deisity of coverage of RFIs), and those that relate to the external eiiviroilinleiit of agriculttuie and its econouiic ullit, such as technology. Tiese six issues are pursued )ecaise of the liimited analysis on the first two (11lest iolls, inal)propriatC study of the third question, and inadequtate research on tvh last two qucstions iil ie literature reviewed. Errors of omission and colnlinissioll have led to questiona)le reoiilliielldations and formulation of underlying pir-inises Fbr those no ICnIiations. These includc an understated treed for public policy to focus oil institutional ieans of fostering growlh of RFIs and iitcgrated rural capital markets; premature Cmphasis oii Jrivalizatioil of' these instituitions; oveI-siat (-iliCIH of the level of arid iii(,reasCs ini train0ction Costs, with a consequent, uiwarrutd conchtsioii that RFI-s are not viable; aiid assumption of an excessively inclastic 'sCl)olsc of rural loan demand to IC id-Slierest iatC aid a positive and highly elastic I't-Sp01 s1 of supply of riral savings and deposits to i.2al iltaetcst ratcs, with a colisr,(Jilit oveem phasis on incrCasc i1 intercst raIts as a policy instumCnt foi RFIs. Niich of the ahove RAhlows fromi a "liiail-folhowiuig instead of a "SUl)~ly-healinig ap~proach to rural filiiaice policy. Bascd on thc li-c-Iise that this distinction between deiiaiid-following and slipply-lcading filiance is artificial and ilicorlect, in this study particular attntion is given to thc simultaneity of druatld for and supply of finance. Specifically, lie, technology aniid inicreasecd fiialle' aire Se 'i as coill[)lllntaiy. Tlis study shows that in Ihot I developed and developilg couitri.s formal rural lenders anid integrated rural financial iarkets emerge through a dclil)elaic uiblic policy iather than unguided maket forces. This is i suilstaiiiial part becluisc die fiiaicial market transactions, which d,-al ill fllurC cveilts, ar- iniately imirf-ct. Oii CoISe(iiCIICC of public policy is tl secular decline ill the relative importalick! of private informal lndcls ini the process of ecoinoiluic 1ev)developent. hi ottl triCs like Jap:,t, dic Republic of lKorea, Taiwan, and the United States (referred to thoughioit tis analysis as 1mniris successful ii dcvdlop)lllt of RFIs), publicly supported RFIs have successfully developed, and such institutions are elierging il an inreasing number of developing coulltries, such as Iangladesh, Egypt, India, Malaysia, Syria, and Thailand. Althiough often protpted by financial crises, finailcial restructuring has in recent. years taken forlis that have led to lower savings rates, higher inflation rates, lower ecoi c growth, and laikruiptcy of tle finmncial institutions. EXamples are drawin Froiii Argentiia, Brazil, Chile, Turkey, and U1ruiguiay. Thie utfvorable te'suits arose from tIhe decline ill loanable funds, perhaps (ule to elimination of pul)lic iiistitutions, with inade( 1 Itatc attention to the alheative s availahle, reduced substitiuon of fitancial dleposits ",I- unproductive fbrms of saving, high substitutahb)ility of fitllncial deposits for productive capital formation, and high interest rates that Cncourage inliscrininatC lending. Thus, restructuring RFIs proves to be a complex question requiring carefid aialysis aild circuminspect decisions.
3 Six organizational principles for developing appropriate RFIs are proposed in this study: (1)promoting multiple RFIs-that is, more than one RFI for a given service area; (2) encouraging a variety of forms of organization of these institutions; (3) ensuring vertical organization of the structure of RFIs from local to regional and national levels; (4) encouraging high geographic density of the field-level offices of'"' Is; (5) ensuring that a high proportion of rural clients are leached 'III; and (6) promoting diversified and multiple finctions that ho, zontally integrate tie agricultural production, input distributiou, and marketing and processing subsystems for tie bemiefit of Ihcir clients and themselves. The first two of these six principles are [te most commonly implemented the world over, including the four successfi,! countries. In almost all countries, multiple instead of single RFIs and a wide variety of forms of organization are Found. These include go vetimiet-stmpported autonomous public-sector banks and corporations, cooperatives, private commercial banks, amnd govermnent depart niemits. But many developing countries have RFI systems that are not characterized by iedesirable attribu tes implied by ti ereemiaiting foit lorganizing priniciples. The systems ill the Four successful countries are bot h vertically and functionally integrated, with broad, denise coveragC of rura areas and population. This has enabled ile systells to better -calize their basic objectives of rural growth with equity, itegratio, of r1il financial markets, and economies of scale amd scope (more lypcs offservices and larger tmnllibers of tie111). The rural financial systemn is generally bctter organized ill Asia thani ill Sub-Saliarani Africa, Latin America and the Caribbean, or the Near East and Mediterranean Basin. 11C, analysis comifirnis that the average transaction costs of RFIs are lower when they are vertically integrated, have high geographic density, reach a high proportion of rural clients, amid have multiproduct operations that are liorizotially integrated. Future policy should accord high priority to improvinmg the last four of the six orgamizational principles for p1oiotimig ap-propriate RFIs. The level of interest rates is complex hut impothmlt to achieving the basic goals of agricultural credit policy. There arC two findings, with initeracting implications, that are particularly impormant. First, ill developing coutmit-ies, unlike developed countries, demand for rural loans is elastic with regard to the weal interest late, while tle supply of rural deposits and rural savings inigeneral are inelastic. The formiier arises because interest costs form a sigmiificamit share ill total costs of 1)o(hIctjon wien ariculture changes fromi a sulbsistetnce orientalion to a inarket one. But the latter occurs because flhr,,ers, being producers, have a lower preference for savings f, financial assets than for physical, produtctive assets. Thus, raising lending and deposit ates has a greater effect in reducing productive imvestment tlhan ill raising deposits, ; mid it has a net effect of reducing the extetit to which economies of scale art.achieved, with a consequent tise iutiansaction costs. Of course, increst rates ilutst , over the long rmin, covel transactioni costs as well as the cost of funds. Hence, the levels of, deposit rates and transactlion costs are important to the level of interest rates. But, due to the relation betweeni interest rates, scale of operation, aid transaction costs, there is atcausal
Page 1 and 2: ,AFOOD POLICY EVIEWl Institutional
Page 3 and 4: FOOD POLICY REVIEW 1 Institutional
Page 5 and 6: Chapter One Chapter Two Chapter Thr
Page 7 and 8: 15. Unit transaction costs, unit ir
Page 9 and 10: 47. Relative importance of intcecst
Page 11 and 12: Foreword Thiis report introduces a
Page 13: 1 Summary This study analyzes two a
Page 17 and 18: 2 Introduction Finance and Economic
Page 19 and 20: An obvious problem innate to an act
Page 21 and 22: 9 Selection of Theme and Issues for
Page 23 and 24: I1 TIhe issue of scale economies is
Page 25 and 26: 13 There is also a problem of indiv
Page 27 and 28: 15 Figure I-Share of borrowing of f
Page 29 and 30: 17 Figure 2-Share of'agricultural l
Page 31 and 32: 19 specific or economywile developm
Page 33 and 34: Table 1- Continued 21 Region, Count
Page 35 and 36: Table 2-Continued Government Nation
Page 37 and 38: 25 regional without higher or lower
Page 39 and 40: 27 Caribbean, compared with Asia. T
Page 41 and 42: Table 3 -Continued Proportion of Pe
Page 43 and 44: 31 LICs (including Bangladesh, Indi
Page 45 and 46: 33 Functional Structure of RFIs and
Page 47 and 48: 35 approximated from available lite
Page 49 and 50: Figure 3-Stylized organizational fr
Page 51 and 52: 5 Transaction Costs, Profitability,
Page 53 and 54: 411 or fiom new borrowers. Moreover
Page 55 and 56: 43 Table 6-Unit transaction costs o
Page 57 and 58: 45 tiotis largely by borrowing fi'o
Page 59 and 60: 47 Table 9 -Transaction costs of br
Page 61 and 62: 49 'T7heSonali Bank's unit uct marg
Page 63 and 64: Table 14-Estimated parameters of th
Page 65 and 66:
53 PACS) was established ill March
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55 Table 16-Deposit growth rates of
Page 69 and 70:
57 rIIIIal Output (28 p)Celt) and o
Page 71 and 72:
59 Although APS loans were dominant
Page 73 and 74:
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
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71 iuzividual farmers at the distri
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73 Agriculture and Cooperatives 197
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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
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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,
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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 109 and 110:
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 121 and 122:
Page 123 and 124:
111 nient), and lastly, the inverse
Page 125 and 126:
113 Table 54-Positive and negative
Page 127 and 128:
9 Flow of Funds of the Rural Financ
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
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149 G. Hunter and A. F. Bottrall, 5
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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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I Fiance Apicultural

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