Premium
The role of credit in a rural economy: The case of Thailand
Author(s) -
Ambali Jayaprakashan,
Saeed Khalid
Publication year - 1986
Publication title -
system dynamics review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.491
H-Index - 57
eISSN - 1099-1727
pISSN - 0883-7066
DOI - 10.1002/sdr.4260020203
Subject(s) - loan , productivity , business , dual (grammatical number) , default , distribution (mathematics) , rural economy , developing country , rural area , finance , economic growth , economics , medicine , art , mathematical analysis , literature , mathematics , pathology
Rural credit schemes have formed an essential part of the rural development programs implemented in the developing countries over the past few decades, although a high default rate has made it difficult to continue to support them. This paper analyzes the high loan default rate in the rural areas of Thailand and attributes the problem to the distribution pattern of land ownership. The availability of credit may help to fuel investments into farm inputs which increase land productivity. However, when most of the land is absentee‐owned, a large share of the benefits of improved productivity is siphoned away by the landlords while the farmers are left with the responsibility of servicing the loan. Since the farmers' financial capacity is limited, a high rate of loan repayment default results. The analysis of the paper is based on a system dynamics model of a dual rural economic system, often encountered in the developing countries. It is shown that the lack of credit facilities is not a fundamental impediment to rural development.