THE URBAN INFORMAL CREDIT MARKETS: AN INTEGRATIVE
REPORT
Mario Bo Lamberte WORKING PAPERSERI ES NO. 88-25
December1988
PhilippineInstitutefor DevelopmentStudies
Tab_ of Contents
• ..
I
..
Introduction
,O,,
II.
Major Structure of the Informal Credit • Markets, Size and Trends in. Size, and Policy and Legal Environment .............
II1.
Savings, ConsumptlonCredi.tw Allocation Efficiency, Equity, Interaction with Formal Sectors and Implications for Monetary. Policy and DepositOr Security "
IV.
•
Referencek
2
"
14
Inretest Rate Formation and Trend_, C.ompetitlon BetweenFormal and Informal Sector.,.ICMs as a POskible Source of Innovations, Interl,inkage of Credit with_. Transactions In other Markets, Promoting Links with the Informal Sector ......,..,
26
•
V
1
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Conclude.
•
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Comments '
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•
" "
,
-46
0
47
List of Figures and Tables
Figure
:
The
Phllippine
Financial
Sector
...... ...
5
Tables 1.
Comparative Performance of Selected Credit Unions, Pawnshops and Banking Institutions ................... ,......
13
Types of Credit of Sector .........
the Manufacturing ., .................
15
3.
Saving
CCU
4.
Borrowing Behavior January-September
2.
5.
6. 7.
Behavior
of
Members
of CCU 1987
....
.......,..
18
Members, ... ..............
2g
Alternative Sources of Loans, Maturity Period and Interest Rate ...... .......... ruses
of Loan
Proceeds
..... .............
21 23
Trends in the Interest Rates on Savings Deposits .... ...... •.......... ...... ....
28
8.
Lending
29
9.
Interest Rate Charged Per Annum by Maturity, Size and Type of Borrower
I_.
ii.
Rates
of
CCUs,
1986
..... ........
....
31
Components lenders
of Lending Rates of Money...., .................... ......
32
Components
of
34
Lending
Interest Rates
Rate
...
12.
Trends
13.
Characteristlcs of the Six "Paluwagan" Units ...... ....... ....... ...... .......
39 •
DiStribution of Member Loans Granted by Moneylenders According to Type of Loans ...... . ......... ........... ...
42
14.
in the
Effective
... ..........
37
PHE URBAN AN
INFORMAL CREDIT MARKETS: INTEGRATIVE REPORT by
Mario
I.
B째
Lamberte*
INTRODUCTION
This
paper
pulls
together
the
major
results
of
the
various
i_/ Studies
on
topics for
are the
favorably during
urban
organized
country
considered
TOR
helm
credit
according
study
considered
a workshop
The
informal
country
study.
of
the
Philippine
informal)
and
the
limited
all
the
suggested
*Vlce-Presldent, Studies.
and
range
of
topics
system the
study
(TOR)
which
were
countries
1986.
which the
major
reference
participating
However,
for
The
(1986)
28 - 30 May
financial
budget
of
Ghate of
on
(ICMs).
terms
up by
in Manila
terlstics
including
the
researchers
cover.s a wide
in the
to
drawn
by
markets
ought
peculiar (both
to
charac-
formal
preclude
be
us
and from
topics.
Philippine
Institute
The views expressed in this Study are do not necessarily reflect those of the
for
those of Institute.
Development
the
author
i_/ See Lamberte (1988); Lamberte and Bunda (1988), Lamberte and Balbosa (1988), and Lamberte and Jose (1988). These are parts of a larger Study on ICMS in the Philippines, sponsored by the Asian Development Bank (ADB).
2
In
an
findings are
effort
which
are
purposely
discussed
to unique
left
later,
in the
II.
MAJOR STRUCTURE TRENDS IN SIZE,
and
fashionable
Credit the
other
which the
orbit
to
say
[1987]).
market
the
the
case
with
in
achieve
the
one
are
and
so
of
degree
that
to
the
are
system
that
hand,
there by
state
officially
one
Sector
has to
we
than
participants. properly the
by
the
On (ICMs)
regulated
finance"
the
financial
a big
jump
This
others
whereby
Similar
problem
now
to
is not
varying they that
of
is where
to
segments
FCMs.
in
is a continuum at
and
a
formal
regulated
identify
has
"outside
of
almost
ICMs
It
operate
instead
the
The
markets,
markets
the other.
market
AND
agencies.
to make
have
flexibility
to
on
SIZE
exist
but
regulated
belong
studies
characterized
o
financial
be
latter.
functions
that
can
will
credit
credit
financial
we
Study
it iS neces-sary
informal
What
of
under
all
ICMs,
characterization
segmented
unregulated line
ICMs
informal
regulated
the
This
less
the
LDCs
financial
in the
a greater
the
exist
Philippines.
Some
completely
are
impression
participants
degrees.
draw
from
results
and
On one
which
(Chandavarkar
to go
the
important
implications
belonging
that
institutional
leaves
of
Some
project.
formal
segments
certain
of
the
studying
the
there
perform
order
with
between
(FCMs)
hand,
TOR,
policy
this
financialsystem.
markets
the
OF THE INFORMAL CREDIT MARKETS, AND POLICY AND LEGAL ENVIRONMENT
first
identify
dualistic
under
proceeds
a line
then
been
one
Major
integrating
Philippines
Before
closely
to ;the segments
out.
after
ICMs
to draw
follow
of
the
3
The ICMs
most
are
flexible
regulations reserves deposit
important
Central
rates,
mandatory
CentralBank
can
classify
consists
two
of
those
agency
but
Central
If
subjected of
to
their
have
been
financial Bank
of
participants
are
The are be
Central
and
not
is
known
sanctions,
will
because
after
definition,
we
of
that
can
group govern-
imposed of
the
agen-
have
to
very
nature
they can
be
be
be
are
not
applied
Central
only
by
financial
government
authorities. all,
One
then
sanctions
to
of
composed
they
that
supervision
ICMs.
any
the
financial
regulations
however,
sense
only
a particular
with
regulations
become
to Bank
extended
to
institutions.
Philippines,
quite
through
are
group
registered,
the
intermediaries
regulations
from
and
reporting
that
this
with
capital,
intermediaries
say
the
of
lending and
direct
in
registered
to
on
audit
Given
law
Note,
in
effected
by
other
Bank
registered
the
ICMs.
purview
respect
then the
registered
exempted
would
they
regulations
In
groups
illegal
once
officially
the
which
the
financial
may
under
flexibility.
Philippines,
on
to
operations.
,necessarily them
regulations
fall
and
the
belong
which
they
In
not
are
with
targets,
We
is
ceilings
do
Bank.
intermediaries cy.
credit
ICMS "outside
sector
supervision.
which
the
formal
such
its
the
function
[1986]).
imposes
under
of
requirements,
(Ghate
Bank
they
the
liquidity
intermediaries
the
on
and
directly
ment
because
imposed
requirements"
hallmark
now
the which
a number years. once
registered
of It
is
operated with
and
regulatory worth outside supervised
changes
noting of
that Central
by
it.
4
A description review
of
its
issues.
The
financial
the
Philippine
regulatory financial
supervising
The
Central
system
all
banking
was
meant
ensure
instruments. reserve
was
The
the
usual
requirements,
these
became
more
sophisticated.
nies/
entities
registered
in the
Central
Bank.
tutes,
started
arose
as
On
a
financial
toemerge
esponse
the
to the
basis
of
registered
financial
categories
namely:
the
lending
of
in
of
funds
obtained
own
debt
which funds
from
instruments notes,
regularly from
the
All
obtained
(2) institutions
promissory
the
market.
other
than
engage public
in
the
(either
several
compa-
such
etc.;
and funds
as deposits
or
parby
the
substi-
innovations system.
operations, into
in
the
three
regularly
the
deposits,
of
agencies
engage
through
lending
system
financial
public
regularly
participations,
financial
these
be grouped
the
and
applied
deposit
their
which
from
public
the
of
may
which the
of
nature
were
regulated
called
(i) institutions
deposits;
being
policy
capital
government
instruments,
institutions
funds
the
196_s,
without
repression
monetary
etc.,
grew,
to oversee institutions
minimum
ceilings,
specific
the
grouping
agency(ies)
mandate
the as
in the
markets
by
banking
of
economy
with
the
such
Thus,
credit
New
the
these
described
over
effectiveness
As
clarify
I).
given
rate
a brief
regulatory
control
interest
and
help
be
the
regulations,
institutions.
tioipated
best
explicitly Its
system
can
(see Figure
institutions. to
can
under
them
Bank
financial
environment
intermediaries
directly
to
of
engage
in
form
of
the in the
issuance
broad
lending of
their
as
acceptances,
(3)
institutions
but
do
their
not own
obtain debt
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instrumentS). financial • first The
the
restwere
and
Exchange
with
then
caused
a major
financial Bank.
Funds much
tried
and
Bank. and
of
This
the
this under
or
According
groups, Bank
of Trade
(e.g. and
of
control they
regulated
rates.
This
less
1972
by putting and
along
the
Central
lines
the
the
Central interest
threatened
the
reforms
banking
institu-
of
Central
the
suggested
Bank
196_s, of
paid
Supervision
the
and
in the
financial
all
they
ICMs.
of
because
The
1972.
Securities
resources
NBFIS
policy.
the
Industry),
the
total
direct
only
although
especially
of
non-bank
before
Bank,
agencies
NBFIs,
control
to
three
Central
volume
weakness the
called
as Segments
the
the
monetary
is more
Shaw.
to
to
than
NBFIs
the
the
in the
are
the Central
government
of
subject
to correct
tions
growth
shifted
effectiveness
the
Department
decline
higher
of
be considered
system
groups
Of
by
other
Commission,
could
third
(NBFIS).
regulated
The phenomenal
rates
and
Supervision
not
registered
such
Second
intermediaries
wasunder
were
as
The
by
Gurley
definition,
NBFIs
include:
(a)
A
person
or
government
Such
financing
company,
pawnshop,
insurance and A
financial
investment
house,
non-stock
savings
with
financial investment
dealer/broker, •funds
lending
any
_ntercompany, invest-
manager,
cooperative,
and
association,
loan
association.
which
intermediary,
registered
a non-bank
broker,
loan
entity
and/or
as
securities
money
and
or
body
as an
company,
building person
licensed
regulatory
medlary,
or,
(b)
entity
holds Such
itself as
by
out the
as
use
a of
non-banklng a
business
name,
which
includes
"investment",
"lending"
whlch.connotes advertises engaged
the and/or
financial Itself
in
a
term
"financing',
wordphrase
of
intermediation,
as
a
function
financial where
or
'finance" similar
an
import
entity
intermediary,
finahcial
which and
is
intermediation
is
implied.
In general, The
term
time.
NBFIs
"public"
refers
However,
banking" the
NBFIs
functions,
public
they
All
the
supervision
the
or more
case
from
they
are
the
creditors
a license
deposits
to
not
at
public. any
have
allowed
are
They
Bank
are
all
this For
than are
institutions
Central
entities.
instruments
to borrow
obtain
that
although
requirements
twenty
in which
financial
(FCMs_).
financial
to
allowed
one
"quasi-
to borrow
•among
from
the
debt
under
the
issue.
of
requirement,
not
may
provided
instruments
markets
are
belong
varies
to
banks
are the
the
across
example,
to
to
subject
non-banking
subject
which
formal minimum
capital
different have
reserve
types
higher
institutions.
a specific
credit
of
capital
Their requirement
debt ratio.
!/ Their
borrowings
accounts, vlslon orial
are includes
powers
mented,
and
and
loan
frequently not
only
as well if violated,
portfolio,
monitored the
so that
mere
by
particularly
the
issuance
regulations
sanctions
can
Central of can
DOSRI
Bank.
rules, be
Super-
but
visit-
fully
Imple-
be effectively
imposed
on
violators.
!/ DOSRI •Stockholders
accounts•are and related
bank loans interests.
to
its
directors,
officers,
8
It
is
pawnshops other
then
clear
and
lending
countries.
Succeeded
•in
It
a
acted
crisis
hit
Insurance under
the
companies limited sale
to of
engage
their
own
insurance similar
companies
are
Central
country,
System,
and
to
insurance
associations providing the
to
submit is
to
supervise its
companies
of
to
deposits their
rural
be
financial They
from
which
at
over
the
are
it
is
still
from
insurance tO
effects
of
situation this
total
is
of
other
registered
at
end.
the the
of
the
the
FCMs.
cooperative
savings
members
their
allows
the
mutual
the
of
liquidity
part
the
of • debt
statistics the
to
insurance
mainly
Since
their
Insurance
that
exchange
like
never
issuance
considered
operate
have
However,
institutions
members
banks
the
them.
may
come
ascertain
control
Bank
although
funds
and
Central
empowered
noted
financial
to
only
The is
by•NBFIs.
credit
maintain
be
from
issued
purpose
raising
cooperative
those
to
course,
public
public,
Bank.
lending,
not
the
an
violators.
body,
is
policieS,
(CCUs).
loans
direct
monetary,
group
unions
It
Their
to
not
Bank
Another credit
the
Central
members.
The
on
the
of
The
and
independent
in
1981. the
getting
were, and
in
companies
without
government
of
an
of
unlike
finance
authorities in
companies,
•FCMs,
These
license
both
the
public
system
the
required
Bank.
operations
the
finance
several
Bank.
companies.
also
instruments
Central
is
to
when
the
financial
supervision
insurance
time
to
revoking
which
• belong
Central
companies,
Commission, regulate
a
known
the
by
the• Philippines,
from
the
became
swiftly
been
was
borrowing from
illegal.
in
investors
There
authorization
when
that
and
one
end
Except
•as rural
loan and for banks
9
under of
the
the
Rural
Banking
Central
reports
to
Bank.
the
Development
are
portfolio
or
intermediation
the they
ating
under
cooperative and
credit
thrift
CCUs
are
liabilities of
the
are
not
no
Central
and
loan
supervised
from
functions. their
portfolio,
Bank
Neither
result,
than
the
on are
they
many
have oper-
of
these
rural
banks
some
Central
regulations they
cooperative
Some own
subject
Segments
other
intermediaries
larger
loan
operate
Central
Interestingly,
by
Bank-like
institutions/individuals
not
financial
even
and
unions
the
a
the
can
be
Bank,
imposed considered
and
since
on
their
as
segment
ICMs.
Aside
use
As
their
of
jurisdiction.
Bank.
to
are
However,
credit by
of
banks.
Since there
its
rules.
unions
Department
requirements
under
Bank's
the
reserve
imposed
financial
Cooperatives
a monitoring
cooperative
supervision
submit
include
of
Central
the
of
CCUs.
compared
Central
to
Bureau
regulate
regulations
the
flexibility
The
do not
intermediaries by
required
to
Thus,
any
under
to
imposition
of
monitored
greater
and
taxes.
financial
they
not
iS attached
empowered
the
are
Bank.
which
minimal
free
CCUs
are
Central
iS
functions
virtually
Nor
(BCOD),
Agriculture,
Act,
of
of
funds
them for
to Central the
landlord-lenders, farmer-lenders,
ICMs.
credit
that
perform
raise
deposits
on-lending. Bank These
professional
include
there
financial
To
the
Suppliers,
are
on-lending.
the
extent they
Others
that are
or
trader/miller among
they
are
considered
"paluwagan"
moneylenders,
many
intermediation
for
regulations,
traders/input and
unions,
ROSCAS, lenders,
others.
10
The the
financial
past
two
introduced, the
reductfon
policy
decades.
In
including
the
of
to encourage
of
the
with
the
phased
out,
fully
deregulated.
of
To have
iS not
to say
In
fact,
a wedge
on
the four
a
of ROSCAS;
suppliers.
AS he
relatives
the
of
We
have
least formal
be
a segment
one
can
ceilings
and
the
insti-
latter
part
redlscounting
rate
credit
programs
were
market
is
regulations
regulations
Also,
and
now still
are
existing
deposit
this
examples
intermediation
lending
of
of
the
ICMs
credit the
However, ICMs
in
markets.
The Also,
especially in other
of
rate
this
in the
are
countries.
of
we have
ICMs,
which (4)
the
importance
we
urban
and
results
of not
is input
various friends/
emphasized
studies.
project
because
institutions
they
are
are
belonging
analysis
inter-country
if pawnshops
study,
"paluwagan"
comparative the
this
uDion;
in our
financial
inclusion.
facilitated
(2)
relative
the
pawnshops among
their
the
credit.
segment
included
the
through
(TOR)
of credit
moneylenders;
goes
financial
of
reference
Sources
observe
regulated
richer'with can
was
financial
financial
ceiling
(3) Cooperative
as Sources
role
of
major
(i) professional
the
the
the
restrictive
between
terms
namely:
the
of
in
imposed.
focused
studies,
that
altered reforms
rate
Towards
special
drive
Satisfy
form
types
Likewise,
[1987]).
being
interest
rate.
(see Lamberte
greatly
financial
to align
portfolio
Still
of among
and
that
of
competition.
Bank
Branching
taxes
been
started
This
SuCh
has
a set
removal
more
Central
market
remain.
1980,
differentiation
tutions 1985,
environment
is
to made
comparisons considered
as
11
The budget
project
not
constraint.
Thus,
the
studying A
did
role
the
Sample
operating
Metro
role
and
Manila
The
markets
of
this
trade
was
to
provide
much
to
establish
Sapang 20 mated
ratio
no
iS
one
the
estimated
On
a
The formal found
Size
of
that
is
members
28
of
the
"paiuwagan"
a
to
institutions
percent
per
193.
of
the
860 also
Since it
of
Marikina,
it
virtually ICMs,
However,
some
studies.
be
is
active
of
found
with
1987.
means
to
be
number that
In
operating,
households.
the
input
urban
various
as
to
in
the
size.
to
unions
regards
institution
found
community.
utilized
makes
their
by
study.
size
from
were
As
to
used.
credit was
the
million
esti-
Thus,
the
Twenty
(20)
active
of
with
stalls
virtually
in all
"paluwagan".
basis,
estimated
the
in
_1.05
191,
are
financial
of
financial
of
cumulative
"paluwagans"
project
obtained
"paluwagan"
are
this
were
urban
industry
of
moneylender
market
Stallholders
be
of
membership
public
footwear
trends
formal
resources
business-oriented an
the
analyzed
ICMs.
subject
in
moneylenders
combined
density
the
was
members the
due
was
market-based
in
the
mainly
approach
low-income
their
estimate
can
where
professional
as
method
one
Segment
an
figures
Palay
and
survey
"paluwagan"
and
utilized
impossible
indicative
in
credits,
chosen
case
and
Manila
approach
less
the
moneylenders
Metro
the
Suppliers
of
a national
institution-based
in
examine
Instead,
financial
of
conduct
resources reach must
_7.2 be
raised million
large
operate. sample
members
even For of
by pesos in
the in
1987.
areas
example, institution-
ten
where it
was and
12
market-based
credit
contributed
an
September
mobilizing
has
been
It
seems
credit
little
there
is
were
1,469
Of
up-to-date
information
a
"paluwagan"
between
potential
of
non-wealthy
combined
and
assets
four
(CCUs)
about
their
active
167,844
sources
the
of
_19,096
the
unions
known
membership
their
of
that
among
members
and
January
the
to
"paluwagan"
individuals/households
overlooked.
very
that
also
amount
deposits
Cooperative yet
are
average
1987.
in
unions
(see
credit USAID
about
are
popular
size.
A
unions
in
[1987]).
their
funds.
In
Table
the
44
members
of
NAMVESCO
credit
rec_nt
combined
of
institution-based
the
unions
I,
country,
study
1980
with
However,
uses
of
in
stated a
there
total is
assets
as
we
together
put
plus
the
included
in
no
well
as the
assets the
of
study.
/
AS
of
real 28
1986, terms
percent
in
the
of
the
the or
_278.7
of
the
same
The
What faster
figures
lated
as
(i.e.,
CCUs)
pawnshops)
expense
of
highly
these
million
Thus, a
is than
it
can
is
of
expanded regulated
all
least is
as that
during financial
the
These in
that large its
and
regulated
_40.4
pawnshops
surmised
therelative
least
to
terms.
pawnshops
that the
of be
at
interesting
amounted
nominal
assets
that
and
CCUs
in
system
alsosuggest
(i.e.,
system).
of
combined
year.
CCUs
pawnshops. growing
assets
the as
million are
roughly
the
country
total
that
absolute
the
financial crisis
institutions
of
size of
the
size
banking
sizes
in
the
is
system. unregu-
institutions period (i.e.,
at
the
banking
Table COMPARATIVE PERFORMANCE PAWNSHOPS AND
Selected
Credit
mml--m
Year
Real Assets (PM)
Unions
Growth (%)
Rate
I
OF SELECTED CREDIT BANKING INSTITUTIONS
UNIONS,
Pawnshops Real Assets (PM)
Banking Growth Rate (% )
Real Assets (PM)
System Growth (%)
Rate
1980
-
-
101.6
9.7
63,206.2
6.0
1981
-
-
105.9
4.2
67,343.8
6.6
1982
21.6
-
iii.i
4.9
1983
25.1
16.2
114.1 p
2.7
1984
21.8
13.2
108.3
1985
25.5
17.0
1986
40.4
58.4
Sources:
Table 2 Financial
(Lamberte [1988]); Statements of a
75,061.5
11.5
82,801.7
10.3
-5.0
65,587.1
-20.8
119.3
10.1
55,810.0
-14.9
146.6
22.9
41,160.0
-26.2
NAMVESCO sample of
Annual Reports (various years); Cooperative Credit Unions.
and
...%
&u
14
Wehave which
we
a more obtained
Central
Bank
terms.
Sector
Both
the
increasing
before felt. 1985
full
When
banks 1986
manufacturing
The grossly the
to
footwear
industry
the
top
the
value
8_
percent of
10_0
to _22
andrelative
1979
and
of
to
of
the
increased
trade
top
the
the
the
Sample
value firms
in
credits
1983,
averaged
had
a
year
crisis
was
dependence
on
of of
trade
data
of
the
corporations
study
firms
of
the
belong
to
82 percent
inputs. million
have since
manufacturers
material _1.4
credits.
credits
comprise
footwear
in the
2 could
from
In our
none
of and
In
1986,
while
annual
III.
SAVINGS, CONSUMPTION CREDIT, ALLOCATION EFFICIENCY, EQUITY, INTERACTION WITH FORMAL SECTORS AND IMPLICATIONS FOR MONETARY POLICY AND DEPOSITOR SECURITY
Savin_gs mobilization
of the
ICMs.
In
general,
_0.4
trade
in Table
credits
their
nominal
economy,
sample
averaged
trade
the
of
ments
inputs
of
in
by
value
The
material
of
billion
the
the
only
where
the
of
by
of
volume
trade
of
prepared
activities
presented
use
credits
lending
1000_corporations.
sales
of
their
instability
actual
in Marikina
trade
availed
a peak
reduce
their
made
of
balance-of-payments
credits
the
size
reached
the
corporations,
of
table
amounted
table
the
size
in 1986
underestimated
belonging
flow-of-funds
continued
on
the
credits
effect
sector
of
Trade
absolute
flow-of-funds
Sales
the
in view
figures
estimate
2).
since
the
and
from
(see Table
manufacturing
been
precise
role
million.
varies
professional
according
to
moneylenders
the do
Segnot
15
mobilize for
depositS.
on-lendlng
The
come
results
mainly
of our
from
Table
TYPES
OF
Year
CREDIT (In
their
study
Support
earnings
from
Funds
employment
2
OF THE MANUFACTURING Million Pesos)
Loans
this.
Trade
Credits
SECTOR
Total
1979
112,836.2 (89.3)
13,540.5 (10.7)
126,376.7 (100.0)
1980
115,553.1 (84.7)
20,894.1 (15.3)
136,447.2 (100.0)
1981
129,477.2 (86.7)
19,916.3 (13.3)
146,393.5 (100.0)
1982
140,146.7 (83.8)
27,079.0 (16.2)
167,225.7 (100.0)
1983
155,369.0 (83.0)
31,878.8 (17.0)
187,247.'8 (100.0)
1984
119,154.0 (88.2)
15,891.0 (11.8)
135,045.0 (100.0)
1985
77,091.6 (73.5)
27,753.9 (26.5)
104,845.5 (100.0)
1986
79,718.4 (78.1)
22,376.0 (21.9)
102,094.4 (100.0)
Source:
Table
VI.I
(Lamberte
and
Jose
[1988])
IIB
business.
One
husband
who
exception
started
works
to
moneylender banker,
She
interest
found
80 banks
much
higher
than
date
of
interview,
the
combined
of
of
her
moneylenders
ant
is
ire
and
that
CCUs
can
access
have with
Simply e.g.,
public
individuals, it deposits
based
and
CCUs
CCUS. bank
In is
out
low-income
credit
like
payroll
contrast,
prohibitively
limited and
vendors, to
deduction
high.
a
in
the
transactions Our
study,
those
for
are who
banking
low
cost
the of
for
9ase
do
system. cost setting,
etc.
cost
of
These
employees,
case
import-
means
fairly
in
70
attract-
to
collectors
with
be
geographic
a
the
transactions
cater
install
of
capability
is
earners.
the
hiring
the
that
of
etc.
easy
to
facilities
market
very
seems
low
amount
about
the
assist
in
an not
As
important
very
pays
an
comprised
to
entail
one
depositors
designed
offices,
e.g.,
51
an
and
_5,000,
instrument
are
operate
is
an
an
indigenous
afford.
What
"paluwagan"
institutions they
collecting
deposits.
is
opportunity
demonstrates
earners.
markets,
situation,
This
low-income
the
can
_40,200.
_100
is
to
institutions
these
because
earners
her
Palay, an
as
an
had
among
to
is
moneylender
fashion
to
low
of
there
of
deposit
This
income
Sapang
role
as
This
time
funds.
deposits
not Saving
this
mobilize
and
self-help
a
low-income
to
basically
neous
what
In
for
annum.
the
However,
the
deposits
amounting
they
mobilizing
playing
minimum
affordable
The
be
per
loanable
using
Arabia.
whose
deposits
percent
to
percent
by
observation.
time
by
money
Saudi
general
accepts
of
provided
in
this is
lending
homogeIn
Such
system of
of
market-
institution-based depositing
instance,
shows
in
a
that
_7
a
bank
depositor
_13.93
every
One tions
facilitate
As
of and
and
on
save
with
to save
results,
the
from
informal
a bank.
if
they
savings
of
low-income
a variety
of
"paluwagan" problem
that want
to
institutions
decisions
consumption
institu-
expectation
more
the
average
savings
t_e
these
overcome
12
by
of
times
of it
creasing
earners.
In
offers
of
them
indivisibl-
in accordance
with
their
"paluwagan"
are
quite
means
that
"paluwagan"
fixed
on
insignificant
There
amount
are
"paluwagan"
of
their
by _967
per
past
mobilized
indications
that
about
For
instance,
among
have
deposits
with
net
the a
for
by
bank,
CCU and
_9,145.
average has
In
to
been of
8.7
been
in-
Sapang
Palay,
averaging
_26,_80
These
such
fixed
studyhave
are
not
institutions.
existence
addition
at
the
initial
an
years.
the
sample
stood
member
or kitty two
interview,
the
year.
savings
brought
of
each
"sahod"
the
average
unions
average,
the
of
members
respondents
the
for
clear
has
than
received
"paluwagan"
date
CCU
credit
deposit
members
the
sample
that
respective
and
of
greater
their
his
the
AS
the
Considering
members
CCUS
3).
deposit
is about
not
save
(see Table
deposits.
do
existence
mobilized
fixed
savings.
the
money
these
tend
spends
capacity.
substantial
from
they by
investment
Savings
years,
and
to
in
financial
This
of
Members
shown
the
opportunities
average
feature
saving-investment
particular,
Palay
he deposlts/wlthdraws
borrow,
more.
lities
in Sapang
reciprocity.
can
borrow
time
attractive
is
they
living
of CCUs
total
members, among
and
financial almost the
half sample
18
Table
SAVING
BEHAVIOR
FixedDeposlts No.
Ave.
3
OF
CCU
MEMBERS
Savings Amt.
No.
Deposit Ave.
(P)
i.
CCU
2.
Banks
3.
*Two
82*
9,144.25
-
-
Paluwagan
Source:
Figures Table
Deposits
No.
Ave.
(P)
46 13,301.6_ (56.1) 45
38,584.10
....
respondents
Note:
Amt.
Time
(P)
-
12 22
did in V.16
not
give
parentheses (Lamberte
the
answer.
are
percent.
and
Balbosa
[1988]).
Amt,
-
32,287.54 19,_96.26
19
"paluwagan"
members,
72 percent
Interestingly,
among
bank
able
from
a bank
to borrow
Segmentation the
FCMs.
Seems For
"paluwagan"
tend
homogeneous,
like
employees Input
of
suppliers
credits
only
them.
Even
,suki"
or
do
the
low
questioned. percent of
loans
above
loan
capacity
ors
can
interest results interest than
to
while
_i,@@@
with
formula
depositors.
Show
that
rate big
on
not
it charges
credit
suppiiers
trade
credits
footwear
impact
or
members. and
cash
materials
from
lending
into
to
question
the
degree
of
high
by
of
union
up
from
ICMs
was
to _5_0
channeling
of
unions
are
larger the
fact
according tend
with
a per
12 months. using,
big
ÂŁhan
those
that
the
to
risk.
to charge
to small
can
found
13 percent
period
times
manufacturerS.
to
their
puts
only
a maturity
input
down
fairly
locality,
trade
raw
The
credit
adjusted
grant
in and
are
only
buying
than
uses.
loans
Several
were
unions
same
institutions
equity
is aggravated
iS
they
ICMs.
these
for
which
amounts
This rate
the
one
given
this
them
ICMs
members
in the
to narrow
productivity
annum
5 months
is,
Indeed,
example,
per
borrow
tend
favorable
For
where
directly
of
to high
in the credit
are
That
to prevent
perceived
period
same.
clients.
seems
25.2
Loans
of
bank.
5).
pronounced
vendors
firm.
in a
a handful
4 and
in areas
market
moneylenders
segmentation
only
deposits
cooperative
to manufacturers
functions
The
are
same
prime
from
to be more
the
have
(see Tables
to operate all
not
depositors,
instance,
allocative
funds
do
footwear
higher
also
be
charging maturity annum
for
With
the
depositof
small
effective Likewise, effective
manufacturers
20
Table BORROWING
Sources
of
BEHAVIOR
OF
CCU
4
MEMBERS,
JANUARY
(i) No. of Respondents
Credit
- SEPTEMBER
(2) Average Amount Borrowed (_)
1987
(3) Average Maturity
(4) Average Interest
days
(%)
!/ i.
CCU
80 (97.6)
21,760..30 (23,615.20)
258.7 (572.4)
19.5 (5.8)
2.
Banks
4 (4.9)
12,750.00 (18,191.12)
322.5 (75.0)
19.5 (7.33) \
3.
Professional Moneylenders
7 (8.2)
2,785.70 (2,118.50)
65.7 (30.3)
4.
Friends/Neighbors/Relatives
14 (17.0)
10,607.14 (10,388.93)
95.0 (60.0)
5.
Traders/Suppliers
51,613.46
53.5
29.3
(19.3)
(4.2)
120.0 (0.0)
2_/
3j
6.0 (-)
6_/ 26 (51.0) 6.
Paluwagan
(121,792.49)
22 (26.8)
19,096.26 (41,486.10)
-
-
i_/ Effective interest rate which discounted in advance plus
is the interest all charges.
Refers to only 7 respondents. loans without maturity.
The
other
rate
7 respondents
have
3_/ Refers not
4/ Refers 5_/ Refers 6_/
to only charged
one respondent. The other interest on their loans.
to only
those
to an
average
who
are
amount
engaged borrowed
Price differential between goods This is based on theresponses Note:
Source:
13
respondents
in a business. per
month.
bought in cash and on from 15 respondents.
Figures in parentheses in column (I) are percent, while in columns (2) - (4) are standard deviations.
Table
V. 21
(Lamberte
and
were
Balbosa
[1988]).
credit.
21
Table
ALTERNATIVE
Source
SOURCES
OF
LOANS,
5
MATURITY
Respondent Number % of Total
PERIOD
Average Maturity Period (Days)
INTEREST
Average Interest Rate (%/ annum) *
Average Amount• Borrowed (B)
0
0
Savings Association
4
8.9
67.5
66.2
1,137.50
Moneylenders
9
20.0
76.4
iii.ii
1,558.89
Relatives
8
17.8
10.62
0.0
2,525.00
12.58
0.0
3,481.67
13.7
12,021.43
24
Others (friends, neighbors, etc.)
7
Source..
Table
V. ll
53.3
15.6
(Lamberte
23.43
and
Bunda
[1988]).
-
RATE
Bank
Traders/ Suppliers
-
AND
-
22
••
In
general,
loan
proceeds,
Table
6 shows
and
This how
It
are
to be
loan
noted,
was
of
the
important
to
dealt
the
data
model results
that for
is
indeed
is,
however,
of
various
studies
can
such
be
the
sample
of
CCUs
proportion
of The
loans
working
prompted
capital.
proportion
I_t
of
such
acquisiton
as of
consumption
from
an
are
• the
family
household
seems
substitutes
important
unfortunate do
hypothesis.
obtained
the
purposes,
sectors
It
test
uses
to
be
loans.
informal
other
CCU
purposes.
significant
other
from
the
these
their
ICMs.
and
a great
of
of
of
savings
of
producti_e
Productive
of
these
members Thus,
a
with.
to
most
for
etc.
and
each
the
extent
augmenting
uses
formal
plementary
a
large
use
obtained
to
repairs/improvement,
education,
Whether
be
for
loans of
period
used
house
the
the
•features
members
used
however,
proceeds
appliances, one
them
restrict
of
that
maturity
not
attractive
vendors.
was
use
consumption,
kinds
market
short
borrowers
the
do
allocated
noted
proceeds
relatively
to
be
ICMs
of
determine
should
loan
the
one
The
"paluwagan"
the
is
is
institutions
loans.
in
borrowers
"paiUwagan".
credit
and
lenders
not
issue
that
permit
us
Nevertheless,
the
or that
studies.
sectors
is
must
the
nature
to
construct
some
various
com-
of a
indicative
One
inaicator
i
of
the
the
expense
Some
substitutability of
Segments
the of
only
information
hand,
it
economic
must crisis
be
of
other.
the
urban
available recalled during
both We
ICMs to that
the
can
perhaps
through us. the
period
that
examine time
When
-
1986.
the
since
looking
Philippines 1984
one
at
at
behavior
of
these
are
the
data
suffered As
expands
may
the be
the on worst
seen
in
23
Table USES
6
OF LOAN PROCEEDS (In Percent)
•Uses
CCU
Business
Paluwagan
60.0
49.2
5.8
3.2
1.9
10.2
6.4
9.6
3.7
12.3
1.7
2.4
Savings
0.9
7.8
Education
8.1
0.5
2.5
-
1.2
-
-
i.I
Jewelries
0.1
-
Others
7.7
3.8
Household House
repairs/improvements
Family
consumption
Payment Loans
appliances/furniture
of
loans
to others
Medical
care
House/lot Application
Sources:
acquisition for
overseas
job
Table V.8 (Lamberte and Bunda (Lamberte and Balbosa [1988]).
[1988])
and
Table
V.13
24
Table
I,
ing
the
real
system
crisis
assets
had
been
period,
the
real
while
those
Pawnshops;
which
are
2,
The
same
both
bank
be
1984.
dropped
precipitously.
manufacturing
credits
when
that are
from
during
loans
the
to
normal
each
qualified already
credit, informal Table However, bility organized
out,
One
for
non-wealthy
%he
4 and
Table
among seems
to
partly
5,
is only of
exist.
For
free
formal
and
observation the
markets
credit fast
and
implying
that
on
move
from who
one
do
not
handful
the
ICMs,
instance,
members
from
to
trade
both
had
should
market
to
have
CCUS
element and
moneylenders.
be
results. are
can
substi-
however
LDCs
access
some
sectors
are
As
severely the
access
between As
suggest
informal
survey in
irrelevant. a
Table
of
seem
times,
substitutability
segments
to
dependence
of
terms
recovered
its
abnormal
individuals
sectors
types
loans,
consideration
of
in
absolute
results
the
general
easily
question
credit
both
financial
cannot
that
shown
in both
finan-
scarcer.
during
into
been
as
bank
perspective,
This
taking
pointed
fragmented. Thus,
while
had
formal
As
credits
to
the
increasing.
pattern
crisis trade
became
the
grew
increased
times,
other.
by
credits
relative
macro
complementary,
tutes
size
among
bank,
during
been
credits.
economic
sector
bank
Viewed
trade
the
system
had
growth
trade
However,
their
CCUs
same
and
However,
banking
regulated
of
the
the
selected
the
CCUs
1984.
of
least
and
During
increased
the
the
said
lo_ns
before
even
of
selected
before
follow can
the
assets
the
institutions,
CCUs.
both
growing
shrinking
cial
of
other. to
formal
be
gathered
to
bank of
bank and from
credit.
substituta-
"paluwagan" Thus,
were only
25
very
few
Even
the moneylender
lend
to the
of
CCU
trade
and
"paluwagan" who
members
credits
members
organized
of her has
borrowed two
moneylenders.
"paluwagan"
"paluwagan".
somewhat
from
units
Also,
reduced
the
the
demand
does
not
availability
for
credit
from
moneylenders.
There sectors. Banks
seems
to be a weak
None
of
serve
as
deposits
with
assets.
The
popularity (see viewed
banks
comprised
CCU
from
formal
borrowed
CCU
funds.
only
6 percent which
may
Also,
borrowed
ever
scheme"
federations
details).
between
CCUs
of
"interlending
for
ever
sample
a depository
among
below
the
linkage
a bank
a
bank.
in
weaken
total gaining
this
linkage
moneylenders
finance
1986
their
currently
the
to
from
of
is
of
informal
However,
further
none
and
inter-
their
lending
operations.
Input sources Suppliers
additional
funds.
borrowed
obtained
a
assets
formal
money
long-term
while
working
why
have
of
suppliers
the
capital. credit
the
access
market
majority to
suppliers materials.
Only
trade availed
the
credits. trade
contact
two
of
banks
in
to finance
the
the
seems
informal
borrow
In fact, credits
nine
bank
all from
One
loan
to be
of
to
market. that the
of
them
of
fixed his
link The
the
reason
they
sample
manufacturers
as input
to augment
able
is
banks
sample
acquisition
credit
from
with
1987.
a short-term
latter
the
didnot
of
Only
Secured
with
limited
from
loan
other
very
have input
of
raw
/26
Depositor
Security
participants
in
few/years, full
ICMs.
a number
of
claim
the
s%ories
their
of
about
(PDIC).
experienced
a
"paluwagan",
two the
on
defaultee's
liabilities.
the
thereby
members.
semblance
IV.
of
determining which
to
are have
average
segments the the
the
most their
bank interest
consistently -
-
organized
rate
on
lower
the
gesture
is
were
then
tried
sample
of
CCUs
the
Sample
defaulted
after
the
"sahod"
from
assumed
expected the
of
the
"paluwagan"
contributions
members
to
Insurance
managers
of
past
also
of
gives
some
"paluwagan".
on
ICMs
rate
During savings
on
the i r
deposit
Segments
the
of
period of
1 percentage
own
and the
savings
deposits
about
COMPETITION BETWEEN A POSSIBLE SOURCE OF WITH TRANSACTIONS IN THE INFORMAL SECTOR
have
savings
among
by
case
to
the
who
the
a member
security
interest
rates.
in
Deposit of
turns,
the
rate
that
prevent
core
concern
depositors
the
that
of
of
interest
based
prevailing
be
In
To
a
Newspapers
INTEREST RATE FORMATION AND TRENDS, FORMAL AND INFORMAL SECTOR, ICMS AS INNOVATIONS, INTERLINKAGE OF CREDIT OTHER MARKETS, PROMOTING LINKS WITH
Va r ious
to
the
presence
stability
noted
none
(kitty).
This
of
Philippine
claimed
succeeding
The
be
of
contrast,
ensuring
less
collapsed.
deposits.
"sahod" the
should
the
managers
in
be
predicament
In
decreasing
managers
banks
from
run
to
It
the
deposits
Corporation
receiving
seems
loans. ICMs
deposits 1982 CCUs
way
is
of CCUS
claimed on
the
1986,
the
observed
to
than
the
point
c
3_/ Core "paluwagan"
members units.
are
those
who
have
been
members
of
the
Same
27
average
deposit
rate
Interestingly,
savings
seem
to beinsensltive
when
the inflation
savers
have
been
In Sapang interest
pays
than
banks
(See
of
the CCUs
dropped_sharply by
where
bath
CCUs
and
no Ejnancial
In particular,
the
moneylender
the
for
inflation
the
rate
Table
than
banks
for
one
1986
percent,
banks.
the
operate,
opportunity
who
deposits
in that
7).
and
except
institutions
to reflect
annum
Thus,
to less
seem
per
both
rate.
deposits
80 percent
higher
rate
rates
inflation
penalized
on
by
deposit to
Palay
rate
capital.
given
year
cost
mobilizes
in 1987.
of
deposits
This
which
the
was
is much
only
3.8
percent.
Lending loans, the of
rates
maturity
degree CCUs,
in
the
period,
of monopoly the
ICes
vary
repayment power
determination
according scheme,
exercised of
the
complicated.
Interesh
rate
advance
and
charges
(i.e.,
tion
insurance,
collection
charges)
have
the
of
the
shows
effect
that
is only
the
half
of
raising
nominal the
rate,
effective
for
by
the
advanced
charges.
Indeed,
the
average
lending
rate
of
CCUs
charge
the
off-repeated
claim
banks.
that
being
iS what
and
to
In
fee,
loan
rate.
lending This
lower
8
half
being
and
other of
disproved
lending
these
members,
rate
has
in
Table
to
other
is
redempAll
known
the
case
rates
collected
on _ interest
effective
the
imposed.
is
rate,
banks.
lenders
are
interest
payment
of
lending
service
interest
size
of
and
lenders.
payments
effective
accounted
approximates
by
are
which
type
effective
somewhat
additional
to type
rates
CCU the than
28
Table
TRENDS
IN THE
7
INTEREST RATES ON SAVINGS (Percent Per Annum)
CCUs Year Nominal
1982
8.6
1983
Source:
8.6
---Real
DEPOSITS
Banks .... _'-" ...... Nominal Real
-1.6
9.8
-0.4
-1.3
9.7
-0.3
1984
8.7
-41.6
9.9
-40.5
1985
8.6
-14.5
10.8
-12.3
1986
8.0
8.6
7.8
Table
IV.I
(Lamberte
7.2
and
Balbosa
[1988]).
29
Table
LENDING
8
RATES OF CCUs, (In Percent)
CC US
NR
1986
NRC
NER
i.
BVDCI
6.5
ii. 9
13.5
2.
PSPDCi
7.0
18.7
23.0
3.
CMDCI
6.5
17.3
20.9
4.
DTDCI
10.8
21.6
27.6
5.
MCMCCI
7.9
22.3
28.7
6.
MVDCI
6.5
20.9
26.4
7.
UPCCI
10.0
12.2
13.8
8.
FEUCCI
9.0
13.0
14.9
9.
DSE (CBP) KBCI
9.0
10.
PECCI
Note:
Table NR
IV.2
= nominal
(Lamberte lending
NRC
= nominal
lending
NER
= nominal
effective
ii.i
12.0
14.0
16.3
8.5
16.2
19.6
Average
Source:
10.0
and
Balbosa
[1988]).
rate rate
plus
lending
other
charges
rate
discounted
in
advance.
3O
Interestingly, operating
in
federation
Metro
lending
have
rates
rate and
among
to
the
geographic
in view
curred
a
entrants
to examine The
the
informal
substantial
surprising
ability
among
demand
for
nominal
components
shown
spread
of
charge
to
percent
be
incurred
other
D and
lower
among
do
lending
moneylenders
from
one
in-
are
new
considered
themselves
F who
not
moneylender
enjoyed
It
the seems
transfer
rates. and
in
have
spread.
borrowers
a
G,
moneylenders
the largest
that
shift
four
mixed_
F and
to establish
of
despite
could
relatively
borrowers
somewhat
they
realized
rates
1.5
rates
Since
necessary
lending
community.
lending
10 are
rate
exercise
that
operations.
the loss
to observe
this
namely
Moneylenders
clients
interest
in
the
quite
moneylenders
find
only
is
the the
of
In
differential
moneylenders,
lending
costs
to
in Table
markets.
rate
credit
margins.
of
the
completely
maturity
they
profit
who
Same
in
the
credit
to check
The
of
the
same
marketS.
though
moneylenders dispersion
sunk
the
credit
number
CCUs
the
be
interest
since
Two
the market,
that
bother
a net
rate.
of
According
results
into the
to
in
cannot
9).
the
in their
of
across
variation
differences
of
excess
loss
part
biggest
the
lending
as
The
loans
not
A realized
high
vary
belonging
rates
found
moneylenders
of
tried
Moneylender
do
other
moneylenders.
very
Table
they
by
the
location
we
for
(see
interviewed,
to
CCUs
rates.
lending
community,
substantial
We
due
the
moneylenders
futile
Even
lending
greatly
charges.
in
urban
charged
Manila.
is mainly
Variation
a Small
rates
different
service
attributed
lending
The
the to
lack
to wide of
another
31
Table INTEREST
9
RATE CHARGED PER ANNUM BY SIZE AND TYPE OF BORROWER
MATURITY,
r
Moneylenders
A.
B.
A
B
C
D
-
-
91%
E
F
G
-
-
120%
-
By Maturity (i)
1 -
(2)
15 days
........
(3)
30 days
-
-
195%
224%
-
120%
-
(4)
45 days
97%
-
195%
-
-
-
96%
(5)
60 days
70%
97%
-
137%
-
-
-
(6)
90 days
-
193%
-
-
175%
12@%
By
7 days
97%
Size
(i) small (less than V2,000)
same for all
(2) large
-
97%
same for all
193%
same same for for all all
....
60%
same for all
120%
-
(V2,000 and C.
By
type
of
borrower
(I) new
(2)
Source:
iI
more)
120%
old
Table
same for all
84%
IV.7
(Lamberte.and
-
same for all
190%
same for all
same for all
same for all
-
140%
-
-
-
Bunda
[1988]).
Table COMPONENTS
OF
LENDING
Items
A
59.2
Less.
45,0
of Funds
Gross Spread LeSS : Transactions Costs 1. Processing/ 3/ Collection Costs 2.
3.
RATES
B
weighted average I_] lending •rate
Cost
10 OF
MONEYLENDERS
C
E
F
G
126.8
135.4
131.2
90.0
72.6
60,'0
60,0
60.0
60.0
60.0
60.0
14.2
48.8
66,8
75.4
71.2
30.0
12.6
4.2
10.4
1.8
2.5
0
0
0.7
8.5
15.3
17.4
4.6
22.9
85.8
5.7
Administrative Costs Cost due to 5/ delayed payments
108.8
D
0
0
0
9.2
0
9.8
17.3
0
0
0
0
0
20.0
1.8
9 4.
Cost
of default
Total Net
12.7
25.7
19.2
16.3
22.9
115.6
25.5
1.5
23.1
47.6
59.1
48.3
-85.6
-12.9
Spread
!/ The and
maturity
lending rate is computed on
is weighted by the relative frequency of loans by the basis of nine months (i.e., January - September).
2_/ Refers to the actual cost of borrowed funds for moneylenders A and E. The rest refer to the opportunity cost of using own capital which is assumed to be the same as the cost of borrowed funds of moneylender E who is mobilizing deposits. All are computed on the basis of nine months.
_3/ Taken
from
Table
IV.8.
(Lamberte
and Bunda
[1988]).
4_/ Part-time
Salary of the moneylender is equivalent to one-half
5/ Interest 6_/ Refers Source,:
Table
rate
due
to actual IV.12
based day.
to delayed cost Of
(Lamberte
and
loan
on
the
minimum
wage
of
payments
(see Table
IV.9).
default
(see Table
IV.9).
Bunda
[1988]).
754.5@
per
day.
33
are
indeed
an
prevailing
even
The
of
checks
and
interest
explicit
plain
in
case
their
the
components
The pl_in
trade
plain
interest
trade
credit
twice
as
greatly
as
who
retailers
Supply
of
ments
with
reduce have
explicit on
of
on
check
post-dated the
or
The
trade
of
results
credits
and
the
same
for
of
the
rate
on
is almost
The
same
is true
implicit
interest
between
the
two
sources
charged
by
also
implicit
inputs
the
rate
rate
II.
credit.
interest input
alternative of
usually
of
trade
input
Suppliers
is
rate
charged
by
suppliers'
This
arising
on production.
inputs,
for
their
marketing
assure
result
This
from
in
is the
non-delivery
Since products
wholesalers/traders
contracts
themselves
theyengage
manufacturers.
risk
outlets
TO
manufacturers,
footwear
no control
have
or exporters.
footwear
business
Sources
rate
to
explanation.
Wholesalers/traders big
found
arrangement.
implicit are
Palay.
is
hand,
differential
post-dated
the
other
in Table
interest
credit
rate
the
. markets
Sapang
discount
i_terest
differs
implicit
trade
credit
However,
like
The
the
price
tie-in
rate.
wholesalers_traders needssome
on
and
high
of
capital
rates.
On
presented
credit
The
into
"tie-in"
rate
on
implicit
effective
are
discount
credit.
of
community
rate,
out
fragmented
rate
and
interest
estimating
urban
down
arises
the
severely
interest
be broken
rate
outputs of
the
further
of
in a Small
effective
consist can
indication
footwear
of
a
tie-in best
of
with steady
arrange-
way
goods
they when
manufacturers
and
have
also
are
therefore
can they have
alternative compelled
to
4-
Table COMPONENTS
OF
EFFECTIVE
Source/Component
A.
Plain
Trade
ii INTEREST
Percent
per
RATE
year
Percent
Share
Credit
_Inpu t/Suppl iers:); Discount post-dated
rate checks
Plain
interest
Price
differential
on
rate
Total
B,
33.18
28.51
7.35
6.32
75.84
65.17
116.37
100.00
31.84
40.67
9.60
12.26
36.85
47.07
78.29
i_0.00
Tie-in Credit (Whole_@lers/t_aders who are als0 input @uppliers) Discount rate on post-dated check Plain
interest
rate
Price
differential
Total
Source:
Table
IV-20
(Lamberte
and
Jose
[1988]).
3_
give
footwear
This
is
manufacturers
corroborated
co_es
to
dealing
manufacturers The on
for
which
have
products.
that
when
traders,
dictated
contract
their
shows
wholesalers/
to
credit
price
finding
with
marketing
the
better
another
claimed
products. default
by
a
the
also
wholesalers/traders
it
footwear
price
of
their
reduces
the
risk
of
extended
to
footwear
manufacturers.
This solely
is
of
borrowing
with
the
trade
power
is
The suppliers
and
are
and
116.37
pointed
out
implicit
It
reflected
78.29
the
to
footwear higher
than
charged
their
they
extended
noted
the
difference
rate
charged
implicit
that
these
informal
can both
their
accounts rate
credits
rate
charged
by
on
by
input
suppliers As
already
are
to the
trade for trade rates
pawnshops
substantially
pricing
attributed of
tied
inputs.
input
interest
trade
moneylenders,
also
neces-
is
of
charged
sources
interest
not
of
are
customers.
degree
mainly
rate
their
the
respectively. be
effective
are
are
annum,
interest
the
for
rates
who
capital
to some
who
by
effective
interest
However, by
the
find
overpricing
interest
per
suppliers
working
exercise
greater
percent
total
manufacturers
companies. those
the
be
in
input
manufacturers
wholesalers/traders
above,
of
with
since
can
effective
bothcases,
iS
credits
interest
proportion
them
suppliers
total
case
Footwear
from
input
which
the
inputs.
Therefore,
In
however,
supplying
slty up
not,
credit. the
major
credits. paid
by
substantially and different
finance from
36
In that In
determining
input
suppliers
particular,
firms.
The
established
are
charged
customers
of
the
latter
retailers,
and
addition,
large
words,
risky
trade
determine
their
firms
are than
the
relative
are
a
charged
by
than
large
big,
well-
Isetann,
COD,
these
customers
issued
lower
discount
get
lower
firms.
rates
found
to
small
rate.
have
In
better
with
terms.
implicit
are
by
compared better
show
large
those
are
to
and
usually
suppliers
able
small In
interest
other
rate
on
firms.
result
the
with
input
results
Shoemart,
issued
command
small
interesting first
are
manufacturers
they
credits
Another
adjust
with
small higher
as
checks
they
footwear
therefore,
larger
their
such
compared
therefore,
power
and
stores,
Post-dated
rate,
between
firms
less
bargaining
interest
Small
etc.
considered
effective
discriminate
department
Fairmart,
ones,
the
total
we
found
effective
shares
of
is
that
interest
explicit
and
input
suppliers
rate,
and
implicit
then
interest
rates.
Table
12
segments
of
the
when
interest
rates
greatly
Banks add
and the
lending
vary
then been
Segments
rates
CCUs
the
rates
and were
among
appear
to
the of
liberalized
up
segments
have
the
rate
to
among
financial the
the
sectors
effective
highest
of
informal
these
interest
the
of
a comparison
formal
implicit
checks, have
presents
various
lowest the
interest the
of
segments
to
1986.
the
discount rate
rates
starting
on
trade
the
markets.
rates. on
If
of
the
financial
we
post-dated
credits
Interestingly, of
1981 lending
financial
rate
rates
among
from The
lending
interest
markets.
lending
could various
the
real market
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established
an
interrupted
in 1984
and
23.1
increasing
percent,
itself
in
1986
implication
of
bank of
market
gave
It
has
been
the
removal
Results the
the
to
sector
For
a credit rate on
the
create
financial
borrowers.
variety
of
on
much
how
pattern. small of
have
contribution
one
may
(see
raise
the
intothe
sustainable
that
join
Urban
which
raise
a da_ly or one
13).
rate
on
demands
since
[1987]).
lending
rates
in
sector.
long-run,
tend
flow
her
to
pattern
we
choose
the partly
ICMS
cash
"paluwagan"
that
rates.
repayment
can and
liber-
widened
informal
the
effects
oligopolistic
community,
a member to
the
Lamberte
used.
well
the
restrictive
has
Loan
being
in
lending
in the
high.
Suit
rate
interest
in the
over
interest
the
increase
wants
Table
of
the
from
contribution
the
One
negated
(see
a low-income
he/she
have view
to 5_.3
stabilize.
overly
ceilings
practices
practices
the
rate
to be
financial
money
of
competition
to
be reasonably
"paluwagan"
amount
more
spread
spilled
market
In
Thus,
the
as
was
it re-established
bank
that
soared
that
system,
real
trend
to
In
the
interest
should
hinges
of
that
rates
again
could
opportunity
The
started
such
policies
suggest
formal
repayment
policies,
an
observed
Seem
then
is
thebanking
banks
of
but
liberalization. of
1981.
inflation
encourage
branching
structure
alization
when
economy
to
Other
rate
since
results
failed
and
interest
the
these
system.
entry
1985
respectively, when
liberalization financial
and
trend
found
a
depending cash
flow
that
requires
a bigger
amount
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CCUs into in
have
also
consideration
the
case
Salary
of
15th
from
because
CCUs the
are
the
high
maturities
loan
institution
cash
their are
maturities because
of
they
are
where a daily
turnover
are
receive
to members
use
Thus,
repayments•
longer
CCUs
take
members.
loan
granted
that•
members
month,
in the
schemes their
where
market-based
loan
of
In addition,
tenure
of
repayment
pattern
of
days.
of
Understandably, 200
30th
In contrast,
scheme
flow
5 to 48 months
security
working.
cash
and
on•these
ranging their
the
out
institution-based
every
scheduled
fashioned
repayment
of
their
members.
much•shorter,
not
exceeding
to
different
days.
Moneylenders borrowers are
to
suit
three
scheme
month.
It
of
loan are
latter's
but
is up
mostly
borrowers'
businesses.
Under
this
fore
do
not
stay
may
select
either
pal
and
interest.
vance.
A
paying
the
when
observed. this
are
the
scheme
to pay
do is
part,
the
"suki"
preferred
There
One
principal
under
who
capacity.
payment
not
every
the
whole
or
the
a
paid
"steady"
of
have
payment
moneylenders.
shareholders
of
the
••
iS called
loans idle
have
of
this
"revolving" maturity
hands
the
weekly
Interest
the
definite
in the
daily,
variation
on
become
scheme
scheme,
and
under
Borrowers
businessmen
moneylenders
second
Loans
borrower
principal.
schemes
schemes
interest
to the
payment
needs
payments
the
in effect,
The
various
"steady".•
date •
the
the
(3) general
is called
maturity
scheme
offer
of
of
scheme
are is one
dates
payment
not
scheme.
and
borrowers.
hi-monthly
payments
payment
Borrowers of
princi-
collected
which
has
there-
in no
adfixed
41
amortization
schedule.
principal
and
date.
This
the
interest scheme
only
should
is
be
offered
requirement
paid
to
within
anybody
is
the
who
that
agreed
is
the
maturity
willing
to
pay
interest.
The Under
third
this
any
called
"balik
to
Same
the
line
credit
line.
ng
inventory.
scheme
arepaid
Table
loans
the
distribution
the
abovementioned
"steady"
In post-dated
is
33
scheme. number on
the
trade
of
loan
makes
This
one
it
of
of
iS
considered
go
back
have
borrowers
to
interest
the
scheme
a
of these
finance
under
this
As
of
loans
types
of
loan.
credit.
total
can of
from
15
to
most
be
loans to
absence
instrument the
number
of to
attractive
Security
are
maximum
cash
type
The
the
always
the
three
varies
very
borrowers
week.
number
granted.
same
Usually,
the
percent.
Substantial
loans
need
and
this
proportion
credits,
check.
83
the
borrowers
among
popular
under
to a
The
or
themost
granted
granted
total
maturity
to
from
moneylenders
in
shows
loans
ranges
are
from
they
facility.
principal day
loan
a pre-established
one
credit of
effect,
within
according
proportion
In
this
who
(returnees).
these
is,
creditworthy
of
a
that
without
most
the
for
Tagalog,
borrow.
avail
Both
14
"Revolving"
the
"Balikbayan"
ask
In
borrowers,
businessmen
their
may
moneylenders
can
called
want.
to
Only
are
granted
they
balik"
with
is
borrowers
time
moneylenders
borrowers
scheme
moneylender
credit
the
payment scheme,
moneylender
the
The
The
number
of
observed, under
42 of
the
percent any
of
fixed
borrowers.
created highly
is
the
negotiable
42
Tabie 14 DISTRIBUTION
OF NUMBER LOANS GRANTEDBY ACCORDING TO TYPE OF LOANS (In Percent)
MONEYLENDERS
Moneylenders
Type
of
Loans
A
B
C
D
E
F
G
I.
"Steady"
17
20
42
30
15
20
31
2.
"Revolving"
83
50
33
40
6@
80
69
3.
"Balikbayan"
30
25
30
25 i
Total _2
Source:
----
Z
5Z''2 _
10_ _
Table
_
_
C
IV.5
100
____
(Lamberte
'
and
,
100
11_
_
Bunda
[1988]).
10_
100
10_
i
43
instrument.
In case
the
manufacturer
who
still
to the
footwear
credits trade
is
issuer
liable
formal
inclined
reason
the
and
size
that
by
used
check
a security
Supplier
defaults,
for
who
program
hls
trade
granted
him
Bank
The
In fact,
the
The
footwear
it tries
usually
percentage
point
suppliers. limited and
the
that less
post-dated the
the
checks
the
"prime"
sector
financial floating
participation
of
the
discount
of
checks
Stores competes
in
instruments. around PCIB
the
With
in the
in the
which
with
Industry
its
special
the
input
discount
up
the
units
suppliers
rate
put
problem
patterned
a Shoe
a lower
of
locations, are
input
to
such
Small
not
with
competition
department
formal
risky
below
fit
Philippine
certain
clientele
compete
One
region
this
are
opened
by offering
so-called
well-known
suggests in
to
However,
to solve
manufacturers,
to
checks
target
not
the
operations
not
ICMs,
in the
in
PCIB
are
institutions
These
to operate
Lately,
post-dated
input
trled
or
do
namely
moneyshops'
discounting one
bank,
"moneyshops". Bank
the
techniques i
financial
(PCIB),
slow
by
be operating
big
branch.
are
areeither
introduced
would
moneylenders.
Marikina
suppliers.
try,
input
formal
One
Central
markets.
of
in its
credit
they
so-called
the
public those
DeSk
of
it as
innovative
the
scale.
the by
notably
of
International
licensed
only
post-dated
institutions
thoSe
them,
of
creating
big
the
innovations
is that
doing
Commercial
the
character
diseconomies
after
financial
to adopt
probable
Still
of
creditS.
The
by
the
in rate
charged by
bY is
issued
by
are
PCIB
country.
This
informal
sector
the
large
volume
Marlklna
shoe
indus-
market
for
post-dated
44
checks •washardly
felt
by
the majority
of
the
input
suppliers
we
interviewed.
One among
innovative
federations
or central our
rural
not
have
whenever they
banks.
•they to
the
times
would
have
CCUs
or
credit credit
those
activity
devising
program
is
institutions.
by
Bank
excess
federations
have
to deal
funds which
since
access with
to their
CCUs and
scheme,
is
contri-
can
borrow
surplus while
in the
CCUs
deficit
•demand
without
have
do
scheme"
funds,
increase
external
not
Member
this
CCUs
Also,
federation
With
like
profitability
"interlending
the
their
banks,
for
resorting
this
scheme
to find
profitable.
with•the
seriously banks
which, designed
do
scheme"
banks,
their
problem.
sudden
to Strengthen
in which
federations
for
access CCU
being
this
managed
unit
funds.
CCUs
The
with
competing
schemes
scheme
insufficient
experiencing
highly
of
to enhance
of •the Central
outlet
rationing.
basically
sector,
popularity
"interlending
of commercial
contribution.
immediately
Instead
This
fund
their
are
problem.
to cope
a ready
can
or
is gaining
So-called
mechanism
informal
general
which
branches
window
mainly
several
CCUs
liquidity
designed to
fund.
excess
the
rediscounting
bute
is the
transfer have
Scheme
CCUs
Unlike
funds
short-term
such
of
liquidity
belong
the
such
financial
in turn,
Those
their
considered
provide
to exploit
ICMs,
some
linkage
the
with
is the
wholesale retail
them
to
which
are
the
currently
ICMs.
One
"wholesale-retail"
credlt
comparative
federations
banks
to credit
their
member
advantage have
union CCUs. of
both
already
an
45
"interlending Such
Should
find
less
difficulty
in
adopting
scheme.
The earlier We
scheme"
wish
from
issue
on
interlinkedtransactions
when
we
discussed
to
discuss
the
results
theurban a
sample
24
percent
credits
from
product
markets
is
Of
by
mainly foreign
the ting direct
the
practice also
total
the
sharp
the
markets. local
contact
supermarkets.
are
with
of
in
1986, are
because
the
to
show
they
have
footwear
customers,
export
that
about trade
suppliers. with
the
manufacturing
obtained
by
were
input
for
department
contri-
recently footwear are
markets
manufacturers
the
suppliers.
who
difficulty
like
in
behavior
input
percent
demand
gathered
obtained
declined
the
we
urban,
also
have
ICMs.
borrowing
wholesalers/traders more
Obviously,
local
in
15
the
credit
credits
transactions
catering
also
the
trade
who
decrease
markets
are
interlinking
in
Apparently,
suppliers
the
with
transactions
Results
who
prevalent value
which
manufacturers
Of
manufacturers
buyers.
local
studying
footwear
interlinked
to
by
dealt in
interlinked
manufacturers.
wholesalers/traders
Accordingly,
The
wholesalers/traders
footwear
buted
examined
formation
information
study.
sample
the
rate
additional
footwear the
interest
the
were
that
sector.
input
of of
seems
sample
of
sector
of
It
here
waspartly
in
than
due by also to
penetracan
have
stores
and
48
V.
CONCLUDING
This the
paper
various
certainly segments have
COMMENTS
has
tried
studies
on
increased of
the
non-wealthy
our
urban
successfully
to pull the
together
urban
ICMs.
understanding
ICMS.
For
mobilized
been
devised
flow
pattern
of
by
the
of
significant
ICMs
borrowers.
major The
the
instance,
individuals/households.
have
the
take
into
This
helps
results
workings
informal
amount
Loan
findings
of
of
have some
institutions deposits
repayment
from
schemes
that
the
cash
consideration ensure
of
high
repayment
i
rates. be
Certainly,
obtained
project
are
once
better the
integrated.
insights
results
of
on all
the
operations
studies
on
ICMs
of
ICMs
under
can this
47
References
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In DevelImplications,
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PIDS.WORKING PAPERS W_P.No. 88-01
A General Assessment of Fcceign Trade Bat-tiersto Philippine Exports. ErlindaM.MedaUa (P23.00)
W_P.No. 88-02
Economics of Upland Resource Depletion: Shifting Cultivation in the Philippines, Marian S. delos Angeles (P23.00)
"W.P.No.88-03
W.P.No.88-04
W_.No. 88-05
W.P.No. 88-06
W.P.No. 88-07
WP.No. 88-08
The Size, Financing and Impact of the Public Sector Deficit, 1975.1984 Ros_io G. Manasan (P17J30) An Analysis of the Role of Pawnshops in .the Firianclal System, Mar/o B. Lamberte (P14.00) The Financial Markets in Low-Income Urban Communities: The Case of sapang Palay. Mar/o B. Lamberte (P23.00) Informal Savings and Credit in the Urban Institutions Areas: The Case of Cooperative CreditUnions. Mario B. Lamberte and Jovm Z. Balbosa (P37.00) The Manufacturing Sector and the Informal Credit Markets: The Case of Trade Credits in the Footwear Industry. Mario B. Lamberte and Anita Abad Jose (P31.00) Japan's Aid to ASEAN. Present Realities and Fut]Jte Challertge.Filologo Pante, Jr. (PI2.00)
WP.No. 88.09
ces.oo) W.P.No. 88-10
W.P. No. 88.11
W.P. No. 88.12
WJLNo. 88-13
W_P.No. 88-14
WP.No. 88-15
W_P.No. 88-26
W_P.No. 88.27
Copies may be obtained at the: " WP. No. 88-28 RESEARCHINFORMATIONSTAFF (RIS) PHILIPPINEINSTITUTEFOR DEVELOPMENTSTUDIES ROOM307, NEDA SA MAKATIBUILDING 106 AMORSOLOSTREET, LEGASPIVILLAGE MAKATI 1200, METROMANILA,_INF.S TELS: 86.57..05 / 88-40-59
The Effect of an Exchange Rate Devaluation on a Small Open Economy with an External Debt Over. hang.Josef T. Yap Financing the Budget Def'r,it in a Small Open Economy: The Ca_eofthe Phi]ippine_,1981.86. Ma. Socorro 8. Gochoco (P23.00) Nhe On-site and Down° streamCosts of Soil Erosion. W//frMo de Cruz/ Herm/n/a A. F_nc/s¢o/ Zena_la T_wan-Conway (P58.00) " A Review of policies Impinging on the Iaformal Credit Markets. Mdiga 1t. Agabin_27.00) Flexible .Fttaction_ Form . Estimates of Philippine Demand Elasticities for Nutrition Policy Simula. fion.AgnesQui=onbing Political Economy of Credit Availability and Financial Lfoeralization: Notes on the Philippine Experience. V. Bruce J. Toientino(Pll.O0) Rural Deposit Mobiliza. tion in the Philippines, 1977-1986.Rhenee Blanco andRichard Meyer fP13.00) The 1989 Program of Government Expenditures in Perspective. Rosario G. Ma_asan (P14.00) A Review of Investment Incentives in ASEAN Countries. Rosario G. Manasan (PI4.00) Scien¢_ and Tedmology and Economic Develop. ment. Maria K Lamberte (Pl0.00)