CYRIL JED G.

MARTEL CREDIT TRANSACTIONS

IMPACT OF RURAL BANKING

ON RURAL FARMERS OF
STA. CRUZ, DAVAO DEL SUR

Presented to:
FISCAL BLAIR DURA
Cor Jesu College Law School
Digos City

In partial fulfillment of the Requirements on

Credit Transactions

Presented by:

Martel, Cyril Jed G.

MAY 2019

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ABSTRACT
Financial institutions and credit cooperatives have the potential to provide
affordable credit to small-scale farmers because they can reduce transaction costs
and lower the risk of default. In developing countries like the Philippines, these
two kinds of lending arrangements have mixed results, although their difficulties
reflect shortcomings in implementation rather than in the lending arrangements
themselves.

The paper aims to support the notions that financial institutions such as rural banks
are vital in the survival of rural farmers in developing countries such as the
Philippines. Other studies suggest that in lieu of effective government programs
and projects, rural farmers can turn to rural banks that offer low interest to support
and enhance their industry.

Furthermore, other studies also point out that financial institutions, particularly
rural banks, that mobilize savings deposits are less dependent on external sources
and increase the borrowers' incentive to repay. The success of rural banks requires
training of members as well as management. Studies suggest that financial
institutions should not expand their activities beyond financial intermediation until
they develop strong institutional and managerial capabilities.

This study provides a conceptual framework and related literature which can
provide the readers basic concepts about rural banking and its effect to rural
farmers in general. The study indicates that by providing a financial alternative for
rural farmers, farmers from agro-industrial municipalities such as the Municipality
of Sta. Cruz, Davao del Sur can enjoy a significant increase in their production by
decreasing productions costs.

INTRODUCTION
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Sta. Cruz, Davao del Sur is an Agro-industrial Municipality located right between
the lush foot hills of Mount Apo on one side and the abundant Davao gulf on the
other. As such, a major part of its income generation comes from agriculture and a
majority of its inhabitants directly or indirectly rely on agriculture for their living.
Sadly, as it is the case for farmers in other parts of the country, farmers in Sta. Cruz
get less facility in agricultural inputs especially agricultural credit. Due to the lack
of credit at proper time they cannot produce crops at proper efficiency. With this,
the responsibility of rural banks needs to be increased.

The Philippines, like any other developing country, has traditionally experienced
low productivity, low income levels, low domestic savings, unemployment, and
malnutrition. The Government, in its efforts to alleviate this seemingly perpetual
problems, established Rural Banks to channel credit to productive rural ventures
and promote rural development. Rural development is a strategy intended to
improve the economic and social life of the rural poor (World Bank 1975). It is
hoped that, in the long term, credit will enable the poor to invest in agricultural and
non-agricultural productive assets, to adopt new technologies and farming
methods, and to minimize environmental degradation.

Rural banking is the process of conducting banking transactions out in the country
where bank branches are too far away to be of use. Rural banking is popular for
very small towns and farmers who live far away from areas of larger population
and cannot make the drive to these locations whenever they need to use banking
services. Typically, an agent of the bank will visit these rural locations and offer to
make transactions in an official capacity. Rural banking is a common practice in
places where banking institutions are few and far between and people who need to
carry out banking transactions may have difficulty finding a way to do so. With
modern technology, more and more people have access to online systems that
allow them to conduct certain types of banking without a nearby branch, but this
technology is not available for everyone, and demand for rural banking is still high
in some areas (Sathyajith S Kumar)

According to Moshi (1969), the purpose of rural development is “a rise in the

standard of living and favorable changes in the way life of the people concerned”.
However, there is some anecdotal evidence that many beneficiaries of rural bank
credit are salaried workers, whose likelihood of loan repayment is believed to be
better than that of the small scale rural producers. There is also some evidence that
loan repayments use the credit for purposes other than those for which the loans
are intended. Much analysis has not been done on the effectiveness or impact of
rural bank on rural farmers. As such, I think this type of study is very important for
our agriculture and farmers.

STATEMENT OF THE PROBLEM

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The Government has been doing its part in promoting and enhancing rural
development in an effort to increase the living standards of the people living in
rural areas by providing programs, projects and activities centered and focused
around the core problem of agriculture. However, these projects have failed for a
variety of reasons including the uncontrolled downward spiral of prices for
agricultural products such as coconut and corn including the high cost of living for
farmers, and the lack of coordination between government agencies. With this,
more and more farmers in the rural areas develop problems in dealing with rural
banks or credit institutions including preparing viable business proposals and
collateral securities that the banks do demand.

As Kumar puts it, majority of the farmers are not well educated in order to plan or
write their own business proposals. In addition, it becomes very difficult for the
farmers to secure loans because of the collateral securities demanded by the banks.
Some of the banks even look at the scale of the farm before granting loans. The
most alarming problem that the farmers do face is the high interest rates or bank
charges. It is very difficult these days for the farmers to borrow money from the
rural banks because of the high interest rates. More of the farmers do even end up
by selling their lands or assets in order to pay the loans they have borrowed.

The most alarming problem that the farmers do face is the high interest rates or
bank charges. It is very difficult these days for the farmers to borrow money from
the rural banks because of the high interest rates. More of the farmers do even end
up by selling their lands or assets in order to pay the loans they have borrowed.
This research will therefore look at the impact of rural banks on farmers in the
rural areas

JUSTIFICATION OF THE STUDY

The recognition of credit as a powerful instrument for the reduction of property in
developing countries has led to a multiple of programs on agricultural credit,
cooperative and integrated rural development in the past few decades
(Yasmeen,993). As Sta. Cruz is fundamentally an agro-industrial municipality, the
agricultural sector and farmers can play an important role for economic
development and as such, study on agriculture and on farmers are necessary for the
development of this sector. Various studies identified the smallholder farmers as
constituting the greatest force in food production. Unfortunately, these farmers
have meager financial resources to undertake innovative farming activities. The
rural financial markets have not satisfied their credit needs. Therefore, they have to
resort to formal loan sources. However, no systematic study so far has been
conducted on this topic.
The inability of the borrower to repay the borrowed fund in accordance with the
loan terms constitutes a major issue with the banks. This involves non-repayment
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in both principal and interest by farmer borrowers. Loses in both principal and
interest to banks can result in loan shrinkage, liquidation and ineffectiveness
(Arene, 1993). Since a bank is a financial institution, it should be established in
rural areas to serve rural farmers. As a profit making organization banks fear to
establish their branch at rural areas further hampering the productivity of rural
farmers.

As such, this study aims to give importance to the impact of rural banking in the
life and activities of farmers. It will provide information about different agent and
organization involved in rural credit and the main objective of the study is to
identify the impacts of rural banking on rural farmers.

AIM OF THE STUDY:

The main aim of the study is to identify the impacts of rural banking on rural
farmers.

OBJECTIVES OF THE STUDY:

The specific objectives include:
 To find out the importance that rural banks have on farmers in Sta. Cruz,
Davao del Sur.
 To find out the impact of rural banks on the rural farmers.
 To understand the rural banking system.
 To identify the problems rural banking system.
 To know the attitude of farmers towards rural banking in Sta. Cruz, Davao
del Sur
 To attempt to offer suggestions and recommendations based on the findings
of the research.

HYPOTHESIS:
My hypothesis is that rural banking is the single most important driving force
behind rural farmers’ development.
RESEARCH QUESTIONS:
The leading questions that will be proposed to pursue are:
1. What benefit do you get from rural banks?
2. What role do rural banks play in your community?

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3. Do all kinds of farmers get loan from the rural banks?

4. Generally, what impact do rural banks have on you in your farming?
5. What other strategies do you think should be implemented by rural banks to
help rural farmers?

REVIEW OF RELATED LITERATURE:

This section of the study seeks to find out what others have written about the
subject matter. This section primarily deals with what other authors have done in
regard to this subject matter.

Samuel Kewaku Ebeng (2008), Ghana. He conducted a study at Abokobi areas.

The main aim of the study is to identify the impacts of rural banking on rural
farmers. This study examined the impact of rural banking on rural farmers in
Ghana. The convenient sampling procedure was used to select thirty (30) farmers
and four workers at the rural bank studied for the research. Regression analysis
was the major statistical tool used to analyze the data collected from the rural bank.
SPSS and Microsoft Excel software were used for the analysis. From the research,
it was found out that the higher the interest rate, the lower the demand for loans.

Namara Martha (2012) conducted a study in Uganda. This research papers under
the topic “Rural Banking in Uganda: It’s Impact on Rural Farmers”. The main aim
of the study is to identify the impacts of rural banking on rural farmers. This study
examined the impact of rural banking on rural farmers in Uganda. It was found out
that all the farmers do save their monies at the financial institutions. In addition,
the major type of account they do open is a Savings Account. 66.7 percent of the
farmers have applied for a loan before. 33.3 percent did not even attempt to apply
for a loan because of the fear they have for the high interest rates. Some of the
requirements needed to borrow money are a viable business proposal or a business
plan, four guarantors who are salary workers and collateral securities. The reason
why the banks do ask for these items is to protect the interest of the bank and
propel customers’ commitment to payment of the loan. In addition, the interest
rates are too high for the small or peasant farmers to cope with. This is because,
those who borrowed money from the bank, found it difficult to pay the loans back.
This resulted in the sale of assets and the collapse of most of these farms.

Sharma (1967) stated that for agricultural development, credit is an important input
which ensures adequate working capital as well as infrastructural development.
Adequate credit increases the agricultural output. Agricultural credit and
agricultural development goes by hand in hand, hence the farmer should be
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provided adequate and cheap credit (Dutta and Sundaram, 2005). It is supported by
Kanthimathinadhan (2005) and suggested that without cheap credit is not possible
for small and marginal farmers to survive.

Shetty (2004) and Shivaloganathan suggested in their work that better institutional
credit facilities is highly essential for agricultural growth. Shivaloganathan
suggested multi-agency approach in order to fill gap between supply and need of
credit in agricultural sector.

Pathania(1987) analyzed the utilization of cooperative credit in agricultural sector

and concluded that with the proper utilization of Cooperative credit the farmers can
increase their productivity. It was strongly supported by Sharma (1989), Modi and
Rai (1993), Sathey (1996) and Patnaik (1999). Mamoria and Tripathy (2003)
rightly stated that the agricultural output and efficiency largely depened upon the
inputs applied and methods adopted. B.Subrahmanyam (2005) viewed that
Cooperative rural credit delivery system has been farmer-friendly and has out
reached to serve agriculture.

Uma (2012) conducted a study on impact of rural banking on farmers. The main
objective of the research was to identify the key factors that impact the farmers.
After an effective research she found that the more interest rate is high the low the
demand for credit among the farmers. She suggests to reduce the rate under the
control of farmers.

Ubam (2012) make an study on “Effects of Rural Banking Scheme on the

Investment Potentials of Rural Farmers in Ebonyi State”. The main objective was
to find out the impact of rural banking scheme on investment potential of rural
farmers. The study determined the effect of rural banking scheme on the
investment potentials of rural farmers in Ebonyi State. A total of 218 farmers and 6
banks were selected using multi-stage random and purposive sampling techniques
respectively. Data collected were analyzed using both descriptive and inferential
statistics. Results showed that most (90.8%) of the respondents accessed loans
from NACRDB Ltd and also there was an increase in the volume of loan disbursed
to farmers between 2003 and 2004 and a continuous decrease between 2005 and
2007. Bureaucracy (61.9%), distance to the bank (55.5%), level of collateral
(54.1%), size of farm (49.1%) and credit worthiness (39.4%) (Table 2) affected
significantly the amount of loan demanded by farmers.

Jinan et al.(2008), conducted a study on the topic: impact of rural development

scheme of islami bank Bangladesh limited on beneficiaries in Mymensingh area.
The present study was conducted to assess the impact of investment provided
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under “Rural Development Scheme” (RDS) of the “Islami Bank Bangladesh

Limited” (IBBL) on the basis of using data collected from 25 respondents of each
of group of investors, agriculture and business of the five selected villages in sadar
upazila of Mymensingh district. Total household annual incomes were Tk. 59696
and Tk. 87332 respectively for the agriculture group and business group. The
beneficiaries have increased their income (61 percent in agriculture sector and 89
percent in business sector) by using RDS credit. After joining the RDS, there was a
remarkable improvement in the living standard of the participant households.

HYPOTHESIS
My hypothesis is that rural banking is the single most important driving force
behind rural farmers’ development.

RESEARCH QUESTIONS:
The leading questions that will be proposed to pursue are:
1. What benefit do you get from rural banks?
2. What role do rural banks play in your community?
3. Do all kinds of farmers get loan from the rural banks?
4. Generally, what impact do rural banks have on you in your farming?
5. What other strategies do you think should be implemented by rural banks to
help rural farmers?

LIMITATIONS OF THE STUDY:

 This study will be limited to the impact of rural banking on rural farmers.
There are a number of factors that boost rural development but very limited
mention will be made of them and their impacts.
 The study will be limited to selected farmers in Sta. Cruz, Davao del Sur.

CONCLUSION
The study had the objective of assessing the impact of rural banks in promoting
rural agricultural development to rural farmers of Sta. Cruz, Davao del Sur.

Further studies show that impact of the rural banks was manifested in the area of
employment generation, increase in incomes, savings and education. Seasonality’s
effect on agriculture in most developing countries cannot be neglected. This
seasonality brings with it fluctuations in income which in the long run affect

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consumption leading to transitory food insecurity. For the rural farmer and the poor
to survive there is therefore the need for households to have a certain credit that
they can fall back on. Institutionalize finance like the rural banks, therefore
stabilizes income and help to achieve food security (Afful, et. Al. 2015).

The result shows farmers in the area enjoy the services of the bank and the bank
itself has made significant impact on their lives not just only through the
disbursement of credit or as something to fall back on when their income source is
low but that it has had a high effect on output, income, savings and labor force
(Afful, et. Al. 2015).

In most of the developing world, incomes of most farmers are low, static and
dependent on the whims and caprices of the weather. Income from agriculture vary
year to year and season to season and a household’s inability to control such
fluctuation in consumption either by access to savings or credit leaves them
vulnerable to food insecurity of transitory nature and in the long run chronic food
insecurity. Effective credit facilities thus become important to farmers, as it creates
an insured blanket for future shocks and in the long run reduce the need to
liquidate their productive asset (FAO, 1994; Habibullah, 1982; Bauer, 1952) and
giving them the opportunity to acquire the basic needs of man.

In conclusion for rural banks to make a significant impact in agricultural

development and the bigger picture of improving the food security of the rural
farmer, emphasis should be placed on more education for the farmers on the use of
the credit and not rely mainly on the governments programs, projects and
activities.
BIBLIOGRAPHY:
1.http://Www.Grameen.Com/Index.Php?
Option=Com_Content&Task=View&Id=949&Itemid=199
2.http://Www.Doublegist.Com/Developmental-Impact-Rural-Banking-Nigeria/
3.http://Www.Thedailystar.Net/Newdesign/News-Details.Php?Nid=177457
4.Jinan,T.Basgar,N. Jahan And Khanam,T.S.(2008). Impact Of Rural Development
Scheme Of Islami Bank Bangladesh Limited On Beneficiaries In Mymensingh
Area.Post Graduate Thesis. Department Of Agricultural Finance , Bangladesh
Agricultural University, Mymensingh.
5.Kwaku, A.(2001). The Legal And Regulatory Frame Work Of Micro And Rural
Finance Institutions In Ghana,Papar Presented At Rural Financial Services Project
Launch Workshop, Agona-Swedru.Ghana.

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CYRIL JED G. MARTEL CREDIT TRANSACTIONS

6. Mbam, B. N.(2012). Effects Of Rural Banking Scheme On The Investment

Potentials Of Rural Farmers In Ebonyi State.Journal Of Agricultural Research And
Development Vol.2(1). Pp. 031-036, February, 2012, Ebonyi State, Nigeria.
7. Martha,N.(2012). The Impact Of Rural Banking On Rural Farmers In Uganda:
Case Study Of Kabale District.
8.Obeng,S.K.(2008). Rural Banking In Ghana: It’s Impact On Rural Farmers (A
Case Study Of Abokobi Rural Area),Ministry Of Finance ,Ghana.
9. Khandker,S And Zaman,H.(2014). Impact Of Micro Finance, Grameen Bank.
10. Uma, D .(2012). Impact Of Co-Operative Loan On Agriculture Sector: A Case
Study Of E.G.District Of Andhra Pradesh, Vol.I(ii), Issue.4(2). International
Refereed Research Journal. pp.(74-84). Www.Researchersworld.Com.

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