I Fiance Apicultural

10
" Tratisaction costs of extcinding rural ciedit by RFIs arC high and
rising. These costs eventually lead to losses, making them inefficient
and iiviable. !hey also lack volintaiy mobilization of rural
deposits and delIinquency rates are high.
* Response of rural loan demand is highly inelastic to the real
interest rate.
* Response of supply of'iiiral financial deposits to the real interest
rate is positive and highly elastic.
" Response of supply oftral saving (p)h ysical and financial) to the
real intercst rate is also positive and highly elastic.
This study tests these premises by reviewing ilie-available literature
and finther processiing olata wh~rTer fasible. It then proceeds to alternative
causes of existing iroblCms of RFIs' viability and contribution to
agricultnral development and suggests positive policy alternatives.
Data Sources, Methodology, and Their
Strengths and Weaknesses
Theire is iio a tietnldouis wealth ofexperirce ill developing coulintries
regarding develop nt of RFIs. A large"literatitc exists, including extensive
description and massive amouits of qualtitative data. lDale Adams
and his colleagues at )hio State I Ilversity have dolle iinch to develop,
collect, and codify that vast literature. Tlhese stildies awr largely at tile
cointi, or instituiional level. Tile issue.s are complex, and the variables
are far larger than even the large imitibc ofstudies that ail be drawn on.
Tis, a coiparative, cross-iation al analysis can rely only ill small part oil
the rigor of' standard statistical tests. A more than nornal appeal to
judgment is necessary. Nevertheless, the authors have tried to array tile
evidence carefilly so that the readler can evaluate their judgnienits.
'Ilet methodology of this study starts witih a large ituitliberof counttry
and instituztiortal cases and then puisucs three elements. First is a critical
review of tile )blis red and unltplblislcd literatire. Second is frthcr
processing and analysis of tie data and information given ill this literatle.
This is especially doloe in claptrls ehited to issues ott promotion of
RFIs and tlre iml)act of real ilterest rates and itoirpricc flilors oil ritial
loan demand and rural dleposit arod saving Suppilies. And third, 13 brief,
case studies, iostly ol Asia, are prepared to covel tIre issues oi ll lllsaction
costs, scale ecoltotijies, viability, and developiental effects of RFIs.
A distinctive fleatme of' these case studies is that oblaiting econrolilies
of scale and scope (that is, savings resulting firotit the volhiiiie and
composition of Ixisittess) itt trailsacliort costs is considered ait alternative
to raising interest rates ill orlder to imiptove ilt- viability of RFIs. This is
important becalrse such eco nomics reflect it ore e ficicit ise of ma nagerial
lesotirces tlan are cotmon to most activities of, RFIs. Also, tire case
stuldies i ovide all oppoitt1lily to ohbsetve Irow RFIs use these ia nagerial
iesoltrces to diversify tlrir lenrding and ioirlenling operations. Of
tile large ritillrber of st ndies iin1( rdr \eiew, oi1lV two addlcssCd this issue
directly (B. NI. l)csai 1986b; l)csai and Nainboodiri 1991).