Rural Finance Policies
Financial markets in rural regions tend to be
underdeveloped in many countries of the world. Financial services such
as the provision of formal agricultural credit to small farmers,
opportunities for medium- and long-term lending, and deposit facilities
are lacking in most rural areas. The absence of these financial services
have important implications for agricultural development and for small
farm households. Major segments of agriculture cannot modernise without
the support of a strong financial system; an increasingly
capital-intensive agriculture requires access to working capital and
seasonal loans along with medium- and long-term credit for on-farm
investments.
Likewise, many poor people in rural areas are
disadvantaged by financial markets that perform poorly. They have less
opportunity to climb out of poverty by accumulating financial savings
and they have no access to formal credit because the financial system is
not innovative or sufficiently efficient to reduce transaction costs and
to provide small clients with access to affordable and durable financial
services. A more efficient financial system would help accomplish the
dual objectives of boosting production and easing rural poverty.
When devising a policy for agricultural and rural
finance, there are particular key issues that must be considered, but
each country is a specific case and must be dealt with accordingly.
However, the issues outlined below are broad questions applicable to any
country that attempts to formulate or update its agricultural and rural
finance policy:
-
what are the main objectives of agricultural and
rural finance policy?
-
who are the main policy decision makers in
agricultural finance?
-
what are the policy areas that affect the
provision of agricultural credit?
-
who are the different opinion leaders and
stakeholders and how do they participate in the policy making
process?
-
what is the role of information and research in
policy formulation?
-
how best are policy monitoring and evaluation
effected?
-
what is the role of the government in agricultural
and rural finance?
The document "Agricultural Finance: Getting the
Policies Right" elaborates a framework for policy making in rural
finance and suggests a diagnostic methodology to assist policy makers in
examining and analysing their specific country situations and in
answering questions such as the key issues addressed above. Those
engaged in the policy making process may include governments, donor
agencies, financial experts/consultants and project designers. The
document may be found here.
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