Rural Finance

The environment of rural financial intermediation has changed significantly in recent years. The concept of privatization has been embraced by an ever-increasing number of countries, and the role of markets in the determination of prices for traded agricultural products has been enhanced. Food and agricultural input subsidies, including those for agricultural credit, have been reduced or eliminated. In addition, the search for more sustainable agriculture and rural development policies and programmes has been intensified and the alleviation of poverty has attracted renewed interest. Further, financial intermediaries are increasingly pressed to ensure that the credit provided will not harm the environment and to consider that necessary environmental assessments also add to the cost of credit.

Structural adjustment programmes strongly emphasize privatization of various parts of developing countries' economies. In the financial sector, this is reflected in an increased role of commercial banks and other privately-owned financial institutions. Particularly during the transitional period, there has also been a clear indication of the emergence of semi-formal and informal financial intermediaries to meet the needs for financial services at the grassroots level. A main principle is that rural financial systems have to be developed systematically if larger numbers of the rural population are to be provided with cost-effective and quality facilities for savings deposit and credit.

FAO's Rural Finance Group assists Member Countries in building viable rural financial intermediation in rural areas, in particular in:

designing the general policy and regulatory framework affecting rural finance and, more particularly, specific financial sector policies and supporting legislation;
advising on restructuring rural financial systems to include various types of institutions, and ways of establishing more effective operational linkages between savings and credit and between informal and more formal intermediaries;
designing and implementing systems (including computerized micro-banking systems), institutions and operational procedures to provide effective, viable and sustainable financial services to the rural population, with special emphasis on: savings, realistic interest rates, operational efficiency, training; and
advising on the appropriate role and methodology for crop insurance in overall agricultural development, with specific emphasis on risk management for credit-financed investments.

SEE NORMATIVE FRAMEWORK:

Improving Delivery of Financial Services to Rural Areas (TCP)

SEE PROJECT EXAMPLES:

USEFUL FAO LINKS: