Three essays on rural credit

This dissertation explores rural credit issues in three essays. The first essay identifies the determinants of rural credit demand and supply. The second essay examines the determinants of repayment rates in loans from individual and institutional lenders. The third essay is a literature review on policies to support rural credit access.; The first essay identifies determinants of credit demand as well as formal and informal credit supply using data on rural Philippine households from a survey done by the International Food Policy Research Institute (IFPRI). Results of empirical investigations show that credit demand is influenced more by providing signals, such as group membership and housing features, rather than tangible indicators of creditworthiness such as asset ownership and professional experience. Formal lending is determined by traditional indicators of creditworthiness such as credit group membership, agricultural productivity, and collateral provision. Informal creditors allow more flexibility in lending, including servicing to newer residents and those without groups, but offset the risk by still requiring collateral and lending to more affluent areas. The differences among the three parties suggest a credit gap between formal lenders and borrowers as well as segmentation between formal and informal lenders.; Using the same data set, the second essay identifies repayment determinants of loans to individual and institutional lenders. Regression results show that repayment rates are high when the borrower has social ties with the lender. But repayment rates are low if the ties are too strong, suggesting enforcement difficulties in close relationships. Repayment is also low with civic connections and greater assets, which indicate the influence of non-market elements in settling debts. However, loan terms such as penalties, interest rates, and collateral requirements encourage repayment. The results suggest an interesting situation where households exercise flexibility when they can, leading to generally low repayment rates, but are diligent when they should be, which encourages timely settlement in some instances. The findings also suggest that if credit access initiatives are to be implemented or replicated in the area, it should have incentive mechanisms that eliminate the non-market elements while also harnessing the determinants that encourage prompt repayment. This paper suggests group lending may be a suitable credit program.; The third essay is a survey of the literature on rural credit policies. It shows that exogenously determined initiatives such as targeted credit programs and interest rate ceilings achieved limited success. On the other hand, programs that accounted for local institutional conditions such as co-financing schemes and group lending have had more impact in terms of providing credit access to rural households.