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The Essential Triangle of Production (ETP)
Galor, Z.
Publication Date: Mar 2003
Document Type: Paper
Appreciating the non-credit needs of poor producers
This paper introduces the fundamentals of credit transactions and argues that the poor face two difficulties in accessing credit for productive purposes:
- Providing sufficient and appropriate guarantees;
- Providing an appropriate destination for the credit to ensure repayment of credit.
The author highlights the role of mutual guarantees and lists the Grameen Bank in Bangladesh, which uses mutual guarantee model, as a successful example. Underlining the limitations of mutual guarantee, the paper proposes a comprehensive model which it describes as the essential triangle of production (ETP). The author underlines the universality of ETP and lists its characteristics:
- Credit requirement for purchase of production inputs;
- Production process;
- Marketing of the product and return of credit.
The paper argues that the traditional set-up is biased against the producer because of three reasons:
- Production is financed by moneylenders, who lend the money at the highest possible rate of interest;
- Supply of inputs is done by the private trader who sells these inputs at the highest possible cost;
- Marketing is through middlemen, who pay lowest possible price to the producer.
The author recommends that in order to ensure better returns to the producer, development projects need to address not only the credit side of the ETP but also the production (including inputs) and marketing. This can be ensured by formation of producer co-operatives.
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