Can the Informal Lenders be Co-opted Into Government Credit Programs?

It is generally known that non-financial institutions comprise an important source of credit for rural borrowers. Not only do informal loans involve lower borrower transaction costs but also are more flexible with respect to both timing and use. This paper is a preliminary sketch of current government funded agricultural credit programs that utilize non-financial institutions as conduits of lending. It focuses on the National agricultural Productivity Program in the Philippines, whose programs are aimed at providing credit to the agricultural sector by using the informal lenders as conduits. Findings revealed the existence of specialization among rural lenders according to their competitive advantage. It has also been shown that potential benefits can be gained from linking credit transactions to other assets.