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Do Small Farmers Borrow Less when the Lending rate Increases? The Case of Rice Farming in the Philippines

Author

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  • Briones, Roehlano

Abstract

The new generation of credit programs directed at small borrowers emphasizes financial sustainability. Based on anecdotal information (especially from microfinance experiences), proponents of cost recovery claim that raising formal lending rates would have a minimal impact on borrowing. Rigorous evidence for this conjecture is however sparse. This study conducts an econometric test of this conjecture using data from a survey of small rice farmers from the Philippines. Alternative regression techniques tend to reject the conjecture; in particular, a regression that controls for selection effects shows a unitary elastic response of formal borrowing to the lending rate.

Suggested Citation

  • Briones, Roehlano, 2007. "Do Small Farmers Borrow Less when the Lending rate Increases? The Case of Rice Farming in the Philippines," MPRA Paper 6044, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6044
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    File URL: https://mpra.ub.uni-muenchen.de/6044/1/MPRA_paper_6044.pdf
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    References listed on IDEAS

    as
    1. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    2. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, Elsevier.
    3. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
    4. Sharma, Manohar & Zeller, Manfred, 2000. "Rural financial services for poverty alleviation," MP05 briefs 7, International Food Policy Research Institute (IFPRI).
    5. Dean Karlan & Jonathan Zinman, 2005. "Elasticities of Demand for Consumer Credit," Working Papers 926, Economic Growth Center, Yale University.
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    Cited by:

    1. Annim, Samuel Kobina, 2009. "Sensitivity of loan size to lending rates: Evidence from Ghana’s microfinance sector," MPRA Paper 21280, University Library of Munich, Germany.

    More about this item

    Keywords

    credit demand; interest elasticity; rural credit; credit policy; Philippines; Asia;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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