Who Borrows Money and Why? Investigating Rice Farmers' Credit Demand and Influencing Factors

Date

6-2022

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Gemma U. Reyes

Committee Member

Melodee Marciana E. De Castro, Jyro B. Triviño, Mar Cruz

Abstract

The study investigated the factors affecting rice farmers’ credit decisions in Barangay Banlic, Calamba City. The specific objectives of the study were to (i) describe rice farmers’ current socio-demographic, farm, and credit situation (ii)discuss the rice farmers’ available credit sources, preferred credit sources, and problems encountered in accessing these sources (iii) predict the likelihood of farmers obtaining loans through logistic regression analysis (iv) provide a deeper understanding on farmers’ considerations and preferences (v) provide an appropriate plan of action for farmers, LGU, and other credit sources to address the current agricultural financing issues and challenges related to credit demand and access in Calamba, City.

Majority of the interviewed rice farmers in the area are male, married, and high school graduates. Rice farmers in the area have an average age of 55 years old, have an average household size of four people, average agricultural income of rice farmers in the area is only 2975.49 pesos per month, an average farm size of rice farmers is 1.26 hectares. and have an average farming experience of the rice farmers in the area is 27 years.

Furthermore, the study results showed that most the rice farmers in the area are members of cooperatives because of the subsidies they receive from the LGUs in the form of fertilizers and seedlings. Moreover, they also receive additional knowledge and training regarding rice farming because of seminars given by the DA to them through the cooperatives. Rice farmers in the area also have access to roads and transportation, and the location of their homes is near lending institutions such as banks, cooperatives, and microfinance institutions based on their assessment. Currently, most rice farmers in the area have no existing credit or loans. Rice farmers who have experienced borrowing in the area have been borrowing money for an average of 11 years from the different sources of credit available to them such as banks, cooperatives, and microfinance institutions. At the same time, the average amount that rice farmers in the area borrow is 32,777.70 pesos. Meanwhile, the interest rates from different financial institutions range from 0 to 40 percent. Additionally, for all sources of credit, the average interest rate that they receive per year is 7 percent. Moreover, by source of credit, rice farmersreceive an average annual interest rate of 2.6, 2, 2.5, and 6.5 percent from banks, microfinance institutions, cooperatives, private individuals, and relatives respectively. Lastly, payment of loans is usually a one-time payment at maturity, or every after the harvest season.

The available sources of credit of rice farmers in Barangay Banlic, Calamba, Laguna are banks, cooperatives, informal sources, and microfinance institutions. The most preferred sources of credit in the area are informal sources such as private individuals and relatives because of quick and hassle-free transactions. Most rice farmers consider the interest rate, mode of payment, and accessibility of loans when they are obtaining their loans. They do not consider collateral, amount of loanable funds, loan maturity, loan processing time, and loan application requirement. Meanwhile, most rice farmers who have not experienced borrowing do not consider the abovementioned factors. Their indifference is attributed to their lack of demand for credit due to their negative perception of it. Additionally, most of the rice farmers in the area rarely renew their loans.

While majority of rice farmers perceive credit to be important in their farm operations, it was evident that they have hesitations and negative perception of obtaining credit. Rice farmers fear obtaining credit due to the uncertainty of being able to pay. They also believe that obtaining credit is more cumbersome than helpful because of the interest of some loans. The common problems rice farmers experience in borrowing are lack of awareness and knowledge on how to borrow from some sources, high interest rates, stringent payment collection, not being able to pay due to fortuitous events, little to no power in negotiating terms and condition, and stigma around rice farmers, among others. However, some of these problems were misconceptions. Also, farmers noted that the credit policies in the area are good in paper but lack proper implementation.

Logistic regression analysis was used to determine the significant factors that affect the credit decisions of rice farmers in the area. It showed that the significant factors affecting the decisions of rice farmers in obtaining loans are accessibility of lending institutions, income, and farm size. Notable findings in the logistic regression analysis were females are more likely to borrow money compared to male rice farmers, married or widowed rice farmers are more likely to borrow money compared to singe rice farmers, and lastly, more educated rice farmers are more likely to borrow money compared to less educated farmers. Thus, the confirmed hypotheses of the study are only that female rice farmers are more likely to borrow compared to male rice farmers and that the less accessible lending institutions are, the less likely they are to obtain loans.

Given this, the researcher recommends providing seminars and hands-on training on different loan programs being provided by the department agriculture to increase knowledge and awareness and address farmers' misconceptions and disinformation on different credit sources, simplifications of loan requirements and process, and also recommend that aside from the national and local government unit, the private sector should also give rice farmers in the area donations of farm inputs such as fertilizers as this could also be a positive way to market their brand and increase their sales as well. This is to encourage the rice farmers in the area to loan from formal sources of credit instead of the informal ones. Lastly, sanctions and policies may be created to protect farmers against discrimination and disinformation regarding the actual terms and conditions of the loans.

Language

English

LC Subject

Credit--Management--Decision making, Rice farmers--Philippines

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993 2022 M17 P43

Notes

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Document Type

Thesis

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