Modifications of Small-Farmer Credit in the Maisan 77 Program of the Philippines
Octavio, Generoso G.
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https://hdl.handle.net/2142/69854
Description
Title
Modifications of Small-Farmer Credit in the Maisan 77 Program of the Philippines
Author(s)
Octavio, Generoso G.
Issue Date
1983
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Abstract
This study was conducted to determine possible reforms that may improve the Maisan 77 credit program. Specifically, it aimed to pinpoint suggestions that will reduce the net costs of lending and improve the financial and economic well-being of farmer-borrowers.
To accomplish these objectives, survey data were used to specify and validate a liquidity-specified linear programming (LS-LP) model. Simulations of the model were made with variations in: (1) interest rate, (2) credit limit, and (3) mode of loan disbursement. The effects of a "break-even" rate of interest was given special focus since this is the rate of interest at which the credit program recovers its lending costs.
The results of the simulations showed that:
(1) The welfare losses of the farmer due to increases in interest rates can be offset by coordinated increases in the size of loan, thus, making the credit limit as more important to the farmer's well-being than the rate of interest he has to pay.
(2) Disbursement of program loans in cash only resulted in improved financial structure and liquidity reservations for the farmer. The objective function, net cash flow and cash available increased. Reserved cash decreased while total reserved credit increased. These indicate that credit reservation tends to substitute for cash, allowing the farmer to commit more of his cash to production. A likely consequence is the possible extended outreach of the program to small farmers who have not yet been served with loans.
Cash only disbursement of loan relaxes the restriction on its use. A more versatile loan like moneylender funds will be valued highly. Thus, higher valuation of cash program loan may lead the borrower to preserve such loan--and to protect it by paying back his/her debt.
(3) The effect of break-even interest rate just by itself, is a general reduction in the farmer's welfare, though the lender recovers its lending costs. However, when coupled with increasing credit limit and an all cash disbursement of loan, results showed improvement in the well-being and liquidity position of the farmer as well.
Using simple calculations, it was shown that the public sector's net cost of lending can be reduced by simultaneous increases in interest rate and credit limit.
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