Credit accessibility of small-scale farmers and fisherfolk in the Philippines

Modernizing the agricultural sector is one of the main thrusts of the Philippine government. Partnership with private and government financial institutions has been a major mechanism of the government in developing the agricultural sector through credit and financing. Agricultural producers rely on credit facilities to help them raise the capital needed in their endeavors. They require investments and inputs in agriculture-related activities that will initiate production and increase returns. Total loans granted to small farmers and fisherfolk remains low despite government efforts agricultural credit and insurance programs. Banks are reluctant to provide them financial assistance due to the high risk involved in agricultural lending. This research examines the accessibility to credit of small farmers and fisherfolk in the Philippines. It also examines if differential pricing exists in agricultural loans. This research gathered primary data from 1028 sample respondents receiving credit from both formal and informal sectors as well as non-borrowers. The sample respondents consist of small-scale farmers and fisherfolk in selected regions in the Philippines. They were interviewed using a pre-tested structured questionnaire. Selection of sample respondents was done using stratified random sampling. Logit and general regression analyses were undertaken for this research and a number of specification tests were performed to determine the robustness of the models. The findings showed that the explanatory variables such as age, household income, household size, loan duration, loan processing, bank distance, interest rates, loan size and regional dummy variable for Southern Tagalog have significant influence on the small-scale farmers and fisherfolk probability of borrowing from formal lenders and their accessibility to formal credit. Except for the household size, loan processing, loan duration and loan size, all the statistically significant independent variables had signs consistent with the hypotheses. In the regression model, the main determinants of interest rates are loan purpose, loan duration and source of loan. Regions in Central Luzon and Southern Tagalog were found to have lower interest rates relative to Western Visayas. In addition, interest charged on loans to farmers tends to be lower than the interest charged on loans to fisherfolk.