The Structure of Interest Rates in Underdeveloped Rural Areas

Anthony Bottomley

American Journal of Agricultural Economics, 1964, vol. 46, issue 2, 313-322

Abstract: This article sets forth the components of the rate of interest in underdeveloped rural areas. They are (1) the unit opportunity cost of the lender's raw material-money, (2) the administration charge on each unit loaned, (3) the unit premium for risk, and (4) any unit monopoly profit. The determinants of each one of these elements of the rate of interest are discussed, and suggestions are made regarding action which might reduce their size. The general conclusion is that the development of the farmer's collateral will allow him to borrow more at less risk to the lender, as well as put him in contact with the low interest, urban money market. This will in its turn help to reduce the unit administration costs on loans together with the lender's premium for risk, as well as tend to eliminate whatever monopoly profit the lender has been able to obtain. Only in this way can the rural rate of interest in poor countries be reduced.

Date: 1964
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:46:y:1964:i:2:p:313-322.

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