The weakness of formal rural finance in Peru : a supply-side problem? « Limitado financiamiento formal para la pequeña agricultura:¿Solo un problema de.

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Presentation transcript:

The weakness of formal rural finance in Peru : a supply-side problem? « Limitado financiamiento formal para la pequeña agricultura:¿Solo un problema de falta de oferta?” Catherine Guirkinger University of Namur, Belgium Carolina Trivelli Instituto de Estudios Peruanos, Peru

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) : El Niño + financial crises

BA Closed 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

Positive changes in market conditions for small farmers Land titling program Information: credit bureaux

Micro-level evidence: the case of Piura and Huancayo Mantaro Valley Central Highlands (3,200 m.) Irrigated & rainfed ag Potatoes, fava bean, grains Artichokes Piura Only irrigated ag Rice, cotton, corn Banana, Lemons, Mango

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.

Transaction costs as an obstacle. Why not taking a loan if it is available: Demand constraints?

Risk as an obstacle. Why not taking a loan if it is available: Demand constraints?

Conclusions Credit constraints are prevalent and costly Demand-side obstacles require specific interventions