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38 are integrated to forai a mutifunctional RFI system in order to improve the rate of return on investments by farmers. From Table 5 itis clear that largcr proportions of RFIIs in higher income countries iinAsia and North America are muiltifinctional and semi-multiflinctioial. Surprisingly, Asian LICs stand next to these coUlltries in this regard, followed by Asian MICs, other than Taiwan and the Republic of Kora.Afiican MICs and lICs have few if any Inultifuinctional RFIs. The Near Fast an( Mediterraean Basin appears to have RFIs with better ftIncional structures than Latin America and the Calibbcali.
5 Transaction Costs, Profitability, Economies of Scale, and Their Effects on Development ransaction costs, defined later in this chapter, are largely under tie control of rural financial institutions. Subsequent chapters show that the level of interest rates influences the level of investmnert in rural development. Since transaction costs help determine interest rates, either directly through competitive market forces or through their influence on the administrative setting of lending rates, it is important to measure theim and to understand what determi lnes them. A substantial amount of recent literature argues that because transaction costs in low-income countries are high and rising, RFIs are generally not profitable, and they have contributed little or even negatively to agricultural development (Adams and Kato 1978; Alined and Adatns 1987; Cuevas 1 9 87a; Von Pisclike, Adams, and Donald 1983). Analysis in this chapter is organized around the following information: " Importance of the issue of the transaction costs involved in lending to farmers vis-,¥vis all other activities of RFIs; * Definitions and concepts regarding these costs and their relation to the viability of RFls; * Cross-national comparison of transaction costs on a comparable basis; and * Transaction costs of selected RFIs, scale relationships, and viability, and the developtmental accomplishments of RFIs in various countries. Importance of Considering Transaction Costs for All Activities of RFIs Some critics of past agricultural credit policy have exclusively dealt with the transaction costs involved when RFIs lend to farmers (Ahmed and Adams 1987; Cuevas 9 8 1 7 a, 1987b; Ctievas and Graham 1984; Gadgil 1986; Gheen 1976; Meyer and Srinivasan 1987; Meyer, Baker, and Onchon 1979; Nyanin 1982; Saito and Villanueva 1981; Srinivasan and Meyer 1986). There are severe limitations to this approach. 39
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 and 14: 1 Summary This study analyzes two a
Page 15 and 16: 3 Six organizational principles for
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: Figure 3-Stylized organizational fr
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
Page 67 and 68: 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
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 109 and 110:
97 Table 44-Estimated multivariate
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:
109 Table 52-Estimated multivariate
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
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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