Danielle Kate Ugay BSBA FM 2

TASK 8

1. Identify the components and estimate the costs borne by small farmers in availing of loans for their
production and other income-generating activities;

- farmer borrowers’ perception of high interest rates and banks’ view of the risks of agricultural lending
and pricing continuously contribute to the problem of access to credit which is deemed necessary to
increase agricultural production and income, and for financing institutions’ viability and sustainability.

2. How did banks and other lending institutions price their agricultural and non- agricultural loans,
and estimate what constitutes the lending costs;

- Farmer borrowers’ perception of high interest rates and banks’ view of the risks of agricultural lending
and pricing, both contribute to the problem of access to credit necessary to increase agricultural
production and income, and financing institutions’ viability and sustainability. Both views however have
yet to be proven empirically. Also, the thinking that small farmers view access to credit as more
important than the interest rate remains untested and unverified.

3. State the empirical evidence to show the effect of varying interest rates to small farmers’ decision
to borrow;

- Small farmers who may be good credit risks are unable to acquire credit from formal channels and
resort to these informal sources. In the Philippines, these are comprised of the traditional moneylenders
which were the landlords, as well as traders, input suppliers, big farmers and warehouse owners.

4. What are other factors affecting small farmers’ and fishers’ decision to avail loans for their
production and other income-generating activities relative to the interest rate; and

- La Due and Leatham (1984) point out that using variable interest rates shift the risk from lenders to
borrowers and raise administrative costs additional costs resulting from monitoring rate indices,
informing borrowers of changes in the rates, and recalculating payments.

5. Based on the study, what recommendations proposed by the researcher on the components and
equilibrium level of interest rate and price of agriculture and fisheries credit.

- compute the interest rate among various scenarios wherein an informal borrower would be willing to
switch to formal borrowing which could be helpful in formulating future credit policy.