RuralFinance 2
RuralFinance 2
RuralFinance 2
The bulk of the world poor is in rural areas Rural finance remains a major policy concern In the 1960s, there were agricultural banks, development banks and rural cooperatives to serve rural needs. Large nonperforming loans experience of such institutions led the World Bank and others to rethink rural finance strategy. In the 1970s and early 1980s, micro finance institutions led by Grameen Bank in Bangladesh started a new trend.
Rural financial markets are part of the domestic financial system and are therefore affected by government and central bank policies. Rural financial markets tend to be fragmented and consist of formal, semi formal and informal financial intermediaries. 2
COMPLETE RURAL FINANCE Important to remember that rural finance must cover the following :
Payment services, including remittances Seasonal credit for farming, consumption and investment General insurance and cover against uncertainties
MICRO-FINANCE
In recent years, efforts to expand access to credit to the poor have focused largely on funneling credit to the poor through micro-finance institution (MFIs).
A clear strength of such programs has been their ability to reach the poor and to do so with astonishingly small default rates. However, as these programs have proliferated, a number of concerns have arisen about the capacity of MFIs to adequately serve the financial needs of poor households on a sustainable basis. Evaluation of micro-credit programs to date provide little evidence that they actually enable borrowers to accumulate productive assets or move out of 4 poverty.
1.
1.
Capital for financing inputs, labour and equipment for income generation.
Households can adopt more effective precautionary savings strategy. Insurance services can reduce the cost of bearing risks. Financial services could stabilize consumption of food and other essential goods during lean times.
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1.
1. -
1. -
3. Link rural finance to non-financial activities - In particular to product processing, input supply, and marketing activities. 10
TECHNOLOGY TO PROMOTE RURAL FINANCE Technology (ICT) have contributed to improvements in financial service delivery and lowered transaction costs. Internet reduces Information Asymmetry and improves market through reduction of time and transactions (eg Indian farmer experience) Development of ICT to rural areas key to rural prosperity Government should provide R&D to improve crop yields, types and crop management
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KEY IS PROMOTING RURAL SMEs Sustainable poverty reduction is contingent upon the dynamic growth of self-reliant institutions. The essence of self-reliance of the poor and their institutions is local resources (including local skills):
Savings deposited and accumulated by the poor in local financial institutions are the basis of selffinancing and household risk management; How to finance and nurture successful rural SMEs is key to rural growth and development.
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Savings
(low-return activities)
Growth
Growth
Credit
(High-return activities)
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Growth
Growth
Viable enterprises
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CONCLUDING THOUGHTS
To be successful, rural finance must assist borrowers in total income generation, including marketing and improving product.
Formal financial institutions have scale but find administrative costs too high in rural finance. Microfinance has reach, but cant break out of small scale. Investment in human capital is key to empowering the poor to break out of poverty. [Teach a man to fish, not to eat fish].
Substantial poverty reduction requires holistic approach, not just finance.
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