The cost of funds and access to credit : the case of smallholder oil palm growers in Papua New Guinea

Abstract

This thesis is about the cost of funds to borrowers and access to formal sector credit by smallholder oil palm growers in the Hoskins oil palm project in Papua New Guinea. This study finds that the cost of funds to smallholder oil palm grower borrowers is high and their access to formal sector credit is restricted. The study has uncovered many underlying factors responsible for this situation. It is not the result of government policies nor of actions of the formal commercial financial sector. These underlying factors are driven by insecure land titles and poor savings and banking history. This research enriches the existing literature on the determinants of financial development by contributing to the understanding of three important factors: borrower transaction cost, property rights and relationship banking. It shows that the development of an efficient property rights system and a good relationship with commercial banks would lower the cost of funds and enhance financial development. This study contributes to the growing empirical research that analyses the determinants of financial development.