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128 A feeble response of ru. :('eposits to interest rates is in significant part clue to farmers' preferenc for holding their savings and assets in physical productive resources ratther than in financial deposits. Even in developed countries, the share of such resources in total savings and assets is still very large. Furthermore, the interest rate is a less important determinant of both rural loan demand and rural deposit supply than nonprice factors in developing, as well as developed, countries. In developing countries, these factors mainly include the existence of new technology, the density of formal RFIs, and their multiproduct services. In addition to the last two factors, the safety and liquidity of these institutions' deposit facilities largely determine the supply of rural deposits in these countries. Whether total rural saving (physical plus financial) will increase or in the real rate cannot be stated a decrease with tie increase interest priori because of its positive substitution and possibly negative income effects. Empirical evidence on farmn households in an Indian district, Taiwan, andithe Republic of Korea shows that this responise is positive but inelastic. This is due to a very high positive substitution effect of the rate of return, which has more than offset the possible negative income effect or has beeni reinforced by this impact also being positive. Such a result may have been induced by rapid and widespread technological 1ore change in agriculture. Moreover, rural saving is also influenced by factors other than tle rate of' return. Most of' these noninterest factors center arounid soiiie ineasuire of the ahility to save. Finally, promotion of a vertically and horizontally integrated RFI system has a nuch larger impact on its net contrihution to public the effects of increases in interest rates on resources, conipared with rural loans and rural deposits. Such a system can be designed by deliberately promoting financial services (viable loans, nonfund-based credit, collection of deposits and equity capital, legitimate refinancing, and so on), not only for the agricultural production subsystem, but also for farn inputs marketing, agromarketing and processing, and related rural sideline economiiic subsystems. It can also be designed by organizing educational and training programs for building such a system. That public goods like rural roads, transportation, electricity, and lhealth and educational facilities miust be developed is self-explanatory, but no cohntry waits until these public goods are developed and until perfect macroeconomic managemient arises for an RFI system to enierge by itself, as historical patterns have shown. A more prudent policy approach is to simultaneously develop both the public goods and RFIs that seive the interests of their clients as well as themselves. In conclusion, it is proposed that future research should especially address the following questions: What are the administrative costs for all activities between the original saver and the ultimate investo.? What isthe loan delinquency rate? low much of this is bad and doubtfid debt? What is the viability of an,institution after allowing for the cost of such debt? For developing countries, three implications can be drawn for the development of Formal RFIs. First, promotion of a nationally integrated formal iural financial market with sustained governient support is essential to transfer of new technology for agricultural development. Second, in
129 so doing, improvements in vertical organization, density, proportion of rural clients reached, and the fuictionad structure of formal RFIs arc centrad to their clients well-being and to their own. And third, these iml)rovements, together with the maintenance of conducive interest rates, art, fa: more important to achieving the objectives than financial libealization alone. Sucl, liberalization may be important, but to be effective, it must be accompanied by thic positive actions stated here.
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,AFOOD POLICY EVIEWl Institutional
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FOOD POLICY REVIEW 1 Institutional
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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
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63 Table 2 1- Unit profit and unit
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65 resources are mainly channeled t
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67 Table 25-Various costs, gross ma
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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
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 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: 127 fully achieved. Had the institu
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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