Small farmer participation in the institutional credit market : a Thai case study
The central task of this thesis is to understand why the institutional credit disbursed by rural credit programmes (RCPs) in developing countries tends to by-pass the small farmers to whom it is frequently directed. In undertaking this task, a number of secondary research objectives are pursued, notably, the measurement of credit demand and the investigation of credit-rationing procedures. The case for RCPs is discussed and selected aspects of programme performance examined. The problem of large-farmer bias is identified and several possible explanations drawn from the literature, which relate broadly to demand-side (borrower) behaviour and supply-side (lender) behaviour. The importance of these various explanations is examined in the context of a case study of farmers in N.E. Thailand. By constructing a series of linear programming (LP) models of representative farms, short-term credit demand is derived and the scarcity value of credit is found to be high for independent farmers (those not participating in the RCP). Questionnaire responses support a positive interpretation of the LP results (independent farmers face a credit-supply shortage) and provide additional evidence that the tendency of small farmers not to borrow from institutions cannot be explained by lack of demand. Demand schedules are constructed to quantify some of the income disadvantages facing farmers who have no access to institutional credit. The behaviour of the major lending institution in the study area is then explored in greater detail by investigating the possibilities for non-price credit rationing. Multiple discriminant analysis (MDA) is employed firstly to identify the precise criteria by which small farmers are excluded from the institution's loan portfolio,· and secondly, to estimate the population total of independent farmers in the survey area excluded by these criteria. The number is high, indicating that lender behaviour is a major barrier to small farmer institutional borrowing. Income schedules from the MDA and LP analyses are brought together to show that some relaxation of the current rationing criteria would allow more small farmers access to rural credit without necessarily jeopardising the lender's commercial viability.