(DP 1991-03) Screening and Loan Determination by Trader-Lenders in the Rural LDC

Abstract

We model the lending behavior of rural traders in a linked credit-output transaction. The likelihood of credit involvement with a trader rises with farm area, with the combination of enforceability of repayment and demand elasticity and with the likelihood of procurement of marketable surplus by the trader. Loans granted to farmers rise with farm area and the presence of output tying. Data from the Philippines support these claims.