Credit

Constraint in
Agriculture
By: Eunese Irish A. Garcia
AECO 130 U-2R
Socio-demographic Profile of
the Respondent
 Sally Clamosa is a 38 year-old vegetable
vendor in a public market.
 She has three children and is married to
Robert Clamosa, a tricycle driver.
 She earned a highschool degree.
 Aling Sally only earns a meager income in
selling vegetables.
 Usually, the capital that she needs to buy the
vegetables comes from her availment of
credit.
 On the other hand, Mang Robert can only
earn if his kumpare will lend him the tricycle.
The profit that the family gains is only enough
for their day-to-day expenses.
 The household only earns roughly around Php
20,000-30,000 annually as their net income.
Computation of Effective
Interest Rate (EIR) and
Nominal Interest Rate
 AlingSally prefers to avail credit from an
informal lender with an amount of Php
6,000
Interest Payment

Principal: Php 6,000

Interest rate: 20% (payable in 2 months)

Interest Payment: Php 1,200

Borrower’s Transaction Cost

1 kilo of any vegetable that is to be sold

(i.e sayote, onions): Php 100
Merienda: Php 30
Cellphone load: Php 20
BTC: Php 150

TOTAL: Php 1,350

Nominal Interest Rate
20% (2months); 120% (annual)
Effective Interest Rate
EIR = [(Total Cost of Credit/Loan Proceeds)
x (360 days/ Loan Maturity days)] x 100

EIR = [(1,350/6,000) x (360/60)] x 100

EIR= (.225 x 6) x 100
EIR= 135%
Classification of the Borrower
 For the informal sector:

 Q: Did the household receive any loan from an

informal credit source in the past 12 months?
 A: Yes. Sa 5-6 ako nangutang
 Q: Would you have wanted a larger amount of
loan at the same interest rate?
 A: Yes. If we have larger cash at hand, we might
be able to buy more vegetables and sell them.
 Q: How much would you have wanted?
 A: Around Php 8,000 to 10,000
 Q: Why did you not receive what you wanted?
 A: Isa sa mga dahilan nung nagpapa-utang ay
kasi nagtitinda lang naman ako ng gulay, tapos
yung asawa ko tricycle driver lang naman. Ayon
sa kanya, baka hindi ko mabayaran kung uutang
ako ng Php 8,000 o kaya ay Php 10,000

Classification: Credit Constrained

 For the formal sector:

 Q: Did the household receive any loan from a

formal credit source in the past 12 months?
 A: No.
 Q: In the last three years, have you applied for a
formal credit and been rejected?
 A: Yes.
 Q: Which formal credit source rejected your
application?
 A: Bank
 Q: In which year?
 A: 2013
 Q: Why was your application rejected?
 A: Di raw sila sigurado kung paano ako
makakabayad. Saka ang dami kasing papeles
na kailangang ipasa. Eh wala na ngang pera
tapos gagastos pa para sa requirements nila. So
hindi namin naipasa yung mga requirements
nila samin. Eh tapos wala rin naman kaming
pang-kolateral.

Classification: Credit Constrained

Conclusions and Perceived
Implications
 The individuals who do retail business in
the agricultural sector seem to be credit
constrained.
 Because of the limited income in the small
enterprise like retailing, they are most likely
to be denied of credit.
 This implies that the value chain actors in
the agribusiness arena face a lot of
financial constraints.
 “Financial constraints in agriculture
remain pervasive, and they are costly
and inequitably distributed, severely
limiting smallholders’ and other actors
ability to compete.” World Bank, 2008.