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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