PhD Thesis
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.
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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.
function, net cash flow and cash available increased.
decreased while total reserved credit increased.
The objective
Reserved cash
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.
more versatile loan like moneylender funds will be valued highly.
Thus,
Ahigher 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.