Download Is the weakness of formal rural finance a supply

The weakness of formal rural finance
in Peru : a supply-side problem?
Catherine Guirkinger
University of Namur, Belgium
Carolina Trivelli
Instituto de Estudios Peruanos, Peru
« Limitado financiamiento
formal para la pequeña
agricultura:¿Solo un problema
de falta de oferta?”
Conventional wisdom
The lack of rural credit is an obstacle to
agricultural development.
Empirical evidence

Market conditions for formal financial institutions
have improved over the last 15 years.
HOWEVER:

Household survey in Piura: No deepening of formal
credit market between 1997 and 2003.
The questions

Research question: Why do farmers not
borrow (more) from the formal sector?

Policy question: Should we be worried?
Outline of talk

Rural finance in Peru since 1990

Credit markets in Piura and Huancayo

Supply constraints?
A majority of farmers in Piura and Huancayo claim having access to
formal loans

Demand constraints?
 Some simply do not need formal loan
 Many are discouraged by risk and transaction costs




Conclusions
Supply and demand constraints have a negative impact on the ag
sector
The deepening of rural formal finance requires a broad policy response
Rural financial sector in Peru: recent
evolution

1992: closure of state development bank
(banco agrario)

1997-1998: El Niño + financial crises
Loan Volume to Agricultural Sector
(100 millions of 1982 $US)
6.0
Banco Agrario
Private Sector
5.0
4.0
3.0
2.0
1.0
0.0
sept-04
2003
2002
2001
2000
BA Closed
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1980-1989
1980-1989
Crisis
Positive changes in market conditions
for small farmers

Micro-finance institutions (municipal and rural
banks) increased their supply
Ag-portfolio of CMAC Sullana
Graphe page 41

Gráfico 3.
Saldos de cartera agropecuaria de la CMAC Sullana
1995 - 2002
30,000
Miles de Soles 2002
25,000
20,000
15,000
10,000
5,000
0
1994
1995
1996
1997
Saldo acumulado de cartera
Lineal (M onto otorgado agrícola)
1998
1999
2000
2001
2002
M onto otorgado agrícola
Lineal (Saldo acumulado de cartera)
2003
Positive changes in market conditions
for small farmers

Land titling program

Information: credit bureaux
Micro-level evidence: the case of Piura
and Huancayo
Piura
•Only irrigated ag
•Rice, cotton, corn
•Banana, Lemons, Mango
Mantaro Valley
•Central Highlands (3,200 m.)
•Irrigated & rainfed ag
•Potatoes, fava bean, grains
•Artichokes
Micro-level evidence: the case of Piura
and Huancayo


Credit use
terms
Does the lack of access explain the
limited credit market participation ?

The percentage of farmers claiming having
positive supply to formal loan increased from
56% to 71% between survey years in Piura
and was 73% in Huancayo in 2003.
Why not taking a loan if it is available:
Demand constraints?

Do farmers need formal credit?
 Many who have access to cheaper formal
loans take an expensive informal loan.
Why not taking a loan if it is available:
Demand constraints?

Transaction costs as an obstacle.
Why not taking a loan if it is available:
Demand constraints?

Risk as an obstacle.
100%
90%
80%
70%
60%
racionados por riesgo / c. transaccion
sin acesso
50%
sin necesidad
con credito formal
40%
30%
20%
10%
0%
piura 97
piura 03
Conclusions

Credit constraints are prevalent and costly

Demand-side obstacles require specific
interventions