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Loan    
        
Loans are borrowed funds with specified terms for repayment. When there are insufficient accumulated savings to finance an activity and when the return on borrowed capital exceeds the interest rate charged on the loan, it makes sense to borrow rather than postpone the investment until sufficient savings can be accumulated. Loans are also an important means of solving imbalances between household income and expenditure, provided income flows in the future are sufficient to meet the repayments. Credit is used widely as a poverty alleviation tool as it can enable people to start or improve enterprises but usually it is not a sufficient solution on its own. There is a wide variety of loan products for a financial institution to consider.

  
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TitleDo Small Farmers Borrow Less when the Lending rate Increases? The Case of Rice Farming in the Philippines
Author/ EditorRoehlano Briones
Content Language(s)English
Type of Document Study Guide
Abstract / DescriptionThe 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.

The paper is organized as follows: Section 1 is introduction to the study. Section 2 provides additional background and related studies. Section 3 develops the theoretical framework and econometric model. Section 4 presents the survey frame and data analysis. Section 5 concludes.

Keywords CREDIT DEMAND; INTEREST ELASTICITY; RURAL CREDIT; CREDIT POLICY
Country PHILIPPINES
Date of Publication/Issue2007
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Number of Pages29 pp.
  
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