Rural Financial Services: General

Financial intermediation is an important process through which funds are channelled from suppliers to prospective users. In most countries a diversity of institutions, instruments and markets have evolved to provide financial intermediation services. These include formal institutions such as banks, semi-formal institutions such as cooperatives and informal providers such as traders and moneylenders.

Providing financial services in rural areas is a particular challenge as agriculture has unique characteristics of dependence on natural resources, long production cycles and vulnerability to risks, while scattered populations greatly increase operating costs. This Learning Centre aims to bring together resources that can help financial service providers to operate efficiently in this environment and increase their outreach in a sustainable manner.

Library Resources

resource title type year resource
CSAF State of the Sector 2018 Report 2018

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The Council on Smallholder Agriculture Finance (CSAF) is a pre-competitive alliance of 12 financial institutions that seek to expand the market and develop industry standards for lending to small and medium enterprises (SMEs) in the agriculture sector. In 2014, one of the CSAF members made a US$200,000 working capital loan to a sorghum processing enterprise in East Africa. The loan was made in local currency at the going market rate for loans of this size in other sectors. The borrower, in turn, used the loan to purchase drought-resistant sorghum from several thousand smallholder farmers, many of whom had lost their maize crop in prior seasons because of drought. The business successfully repaid the loan 13 months later and, by linking the farmers to a ready market, generated higher and more reliable incomes and food security for thousands of vulnerable families.

Read the report  to learn more about the evolving credit market for agricultural SMEs, such as:

  • Growth and risk trends for agricultural SME lending 
  • Constraints to market growth and strategies for unlocking impact
  • CSAF’s collaboration with MIX to develop an online and publicly accessible platform where users can track trends and create customised reports on annual lending activity in the agricultural SME finance market, expected to launch in early 2019.
Executive Summary – CGAP National Surveys of Smallholder Households Paper 2018

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This executive summary highlights key themes in this wealth of information on smallholders from CGAP’s research on the agricultural and financial lives of smallholder households throughout Mozambique, Uganda, Tanzania, Côte d’Ivoire, Nigeria, and Bangladesh, including household demographics, sources of income and expenses, the formal and informal financial tools used, and level of trust in financial services providers. The summary also outlines the intersection of smallholders' financial and agricultural lives and answers important questions: What crops and livestock they do they grow? Who buys it? How do they get paid for it? How does this all fit into their overall livelihood strategy?

Each short section in this summary complements CGAP data and insights for each country and shares key thematic data from across the six countries. 

These insights are meant to inspire FSPs to look more closely at their market and uncover opportunities to better serve smallholder households. The data are nationally representative and can be used with other datasets and estimates to size the market and inform business models. They can also be used to pursue a range of research questions and conduct market segmentations to better understand the heterogeneity of smallholder households.

The Global Findex Database 2017 - Measuring Financial Inclusion and the Fintech Revolution Report 2018

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The Global Findex database is the world’s most comprehensive data set on how adults save, borrow, make payments, and manage risk. The 2017 edition includes updated indicators on access to and use of formal and informal financial services. And it adds new data on the use of financial technology (fintech), including the use of mobile phones and the internet to conduct financial transactions. Financial inclusion is on the rise globally. The 2017 Global Findex database shows that 1.2 billion adults have obtained an account since 2011, including 515 million since 2014. Between 2014 and 2017, the share of adults who have an account with a financial institution or through a mobile money service rose globally from 62 percent to 69 percent. In developing economies, the share rose from 54 percent to 63 percent. Yet, women in developing economies remain 9 percentage points less likely than men to have a bank account. This third edition of the database points to advances in digital technology that are key to achieving the World Bank goal of Universal Financial Access by 2020.

Author Asli Demirgüç-Kunt, Leora Klapper, Dorothe Singer, Saniya Ansar, Jake Hess
Publisher World Bank Group
Number of Pages 151 pp.
Primary Language English (en)
Region / Country Global
Keywords Remittances, Access To Finance, SME Finance & Leasing, Mobile Banking, Microfinance, Banking, Gender Finance
Related Resources
Inflection Point: Unlocking growth in the era of farmer finance 2018

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Following decades of more singular approaches to providing smallholder farmers with financial services, the smallholder finance industry is now marked by a more diverse set of actors – financial service providers, funders, market and research platforms, and technical assistance providers – yielding new approaches to collaboration and greater access to information and technology than ever before.

Our new study builds on Dalberg's 2012 Catalyzing smallholder agricultural finance.  It provides a sophisticated picture of how the smallholder finance space currently operates by describing the key actors and the nature of their interactions, and conceptualizing these in a new "industry model."  The study identifies market frictions across the major components of the “industry model” that continue to inhibit smallholder farmers’ access to financial services and opportunities for removing them, and rallies sector actors around the need for more collective action than ever before.

Author Laura Goldman, Michael Tsan, Radoslava Dogandjieva, Clara Colina, Sanat Daga, and Virginia Woolwort
Number of Pages 70 pp.
Primary Language English (en)
Region / Country Global
Keywords Agriculture Finance, Access To Finance
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Research on Rural Financial Reform Innovation and Sustainable Development Countermeasures in Hebei Province of China Paper 2018

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In the process of the reform of the rural financial reform innovation in Hebei Province of China, the government should play a positive leading role. This article argues that the government should accelerate the completion of land ownership work, set the “two rights” value guiding price and perfect the value evaluation system, promote the compulsory “agricultural loan insurance”, and gradually built a sustainable and modern rural financial ecology.

Author Huang Ying
Publisher Scientific Research Publishing
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Asia
China
Keywords Hebei Province Rural Finance, Confirmation of Land Right, Modernization Rural Finance Ecology
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How To Change Your Vision of Rural and Agricultural Finance Article 2017 English (en)

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Emilio Hernández of CGAP gives us a preview of the upcoming Boulder RAFP training

Emilio Hernández leads CGAP’s work on financial innovation for smallholder families. He will be teaching two courses at the 3rd Annual Boulder Rural and Agricultural Finance Program (RAFP), which will take place from 17 July to 4 August 2017 in Turin, Italy. In this Gateway interview, he lets us know what to expect from this year's training program.

Gateway: The Boulder Institute of Microfinance is set to host its third annual Rural and Agricultural Finance Program (RAFP) in July. CGAP is a prominent partner for this program. Can you tell us more about it? What does it seek to achieve and who is the target audience?

Emilio: The RAFP represents a global learning platform that brings together leading financial service providers, policy makers, regulators and donors, to exchange state-of-the-art knowledge on how to expand rural and agricultural finance markets in developing countries. It aims to develop capacities and build consensus among these targeted stakeholders so that they can return to their countries ready to define and implement strategies that promote further financial inclusion.

Gateway: Financial institutions and practitioners often lack the necessary knowledge on how to serve rural clients and manage agriculture-specific risks. What other constraints do financial institutions face when serving the agricultural sector, and in what ways does RAFP address some of those constraints?

Emilio: Knowing the financial needs of smallholder families - and how rural livelihoods shape these needs - allows providers to design products that are valuable for clients and have proper risk management strategies. In addition, these products need to be delivered in such a way that they can be scaled up. This has a lot to do with developing the right business models and exploiting digital technologies. New technologies can help to reduce costs and aggregate services from multiple providers in rural areas, so that the economics of financial intermediation work.

During the RAFP, we analyze different experiences from around the world to identify ways that client-centric rural financial services can be feasibly delivered by several partners, as well as identify the technological platforms that can be developed to facilitate this process.

For entire article, click here.

How To Change Your Vision of Rural and Agricultural Finance  -  English (en)

Business Model Sustainability - Promising Pathways and Opportunities for Research: Understanding Profitability in Smallholder Finance Brief 2017

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This brief, the third in the Learning Brief series on smallholder finance, intends to bring clarity to efforts currently undertaken by financial service providers (FSPs) to reach financial sustainability and to set the stage for future research. Drawing from a review of Mastercard Foundation rural and agricultural finance partner experiences - including documentation, interviews, and a survey of 17 financial service providers - and secondary research from external sources, this brief provides FSPs with evidence to guide their journey in achieving financial sustainability. The Lab’s analysis of different partner business models sorts these efforts into five different pathways to reach sustainability:

  1. Scale;
  2. Cross-subsidizing;
  3. Long-term subsidies;
  4. Shared costs;
  5. Unit economics.
How Digitizing Agricultural Input Payments in Rural Kenya is Tackling Poverty: The Case of One Acre Fund Case Study 2017 English (en)

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This new case study features an examination of the nonprofit organization One Acre Fund (OAF) which teaches better crop management techniques and provides inputs on credit, like seed and fertilizer, to smallholder farmers throughout East Africa. In many cases, the results speak for themselves. In 2015, the average Kenyan farmer in OAF earned $211 (or 48 percent) more than peer farmers not in OAF. Productivity growth for smallholder farmers is essential to achieve the Sustainable Development Goals of ending poverty and achieving food security. Since 2014, OAF has enabled farmers in Kenya to make loan repayments digitally using the mobile money service M-Pesa instead of in cash, increasing economic opportunity and financial inclusion in some of the world’s poorest farming communities.

The case study also examines the challenges of cash repayments for farmers and the One Acre Fund and highlights the solution linked to replacing cash with digital repayments.

How Digitizing Agricultural Input Payments in Rural Kenya is Tackling Poverty: The Case of One Acre Fund  -  English (en)

Author Daniel Waldron and Eugene Amusin
Publisher The Better Than Cash Alliance
Number of Pages 16 pp.
Primary Language English (en)
Region / Country Global, Africa, Eastern and Central Africa
Kenya
Keywords Agriculture, digital finance, digital payments
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Credit constraints and farm productivity: Micro-level evidence from smallholder farmers in Ethiopia Paper 2017 English (en)

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This paper investigates the nature, extent, and impacts of credit constraints in Ethiopia’s agriculture. Using a direct elicitation approach on a panel of 5,308 smallholder farmers, we find that around 66.6% were credit constrained, a majority of them (71.9%) due to risk factors and transaction costs (14.33%). The results of the bivariate probit model with partial observability reveal that access to credit was positively correlated with farm and household sizes, farmer’s wealth and share of titled lands while demand for credit was boosted by the existence of a microfinance institution in the village. The hypothesized heterogeneity of credit constrained farmers is corroborated by the results from the endogenous regime switching regression model which show that the determinants of credit constraints and their impact on farm productivity are specific to the type of constraints farmers face. Predictions from this model indicate that alleviating credit constraints would generate substantial productivity gains in Ethiopia of around 60%. Our findings suggest that expanding farmers’ access to financial information, increasing the number of branch offices of banks and microfinance institutions in the country and particularly in rural areas, and easing financial transaction costs might increase farmers’ access to credit and significantly alleviate their credit constraints.

Credit constraints and farm productivity: Micro-level evidence from smallholder farmers in Ethiopia  -  English (en)

Author Adamon N. Mukasa, Anthony M. Simpasa, and Adeleke O. Salamia
Publisher the African Development Bank
Abidjan, Côte d'Ivoire
Number of Pages 40 pp.
Primary Language English (en)
Region / Country Global, Africa
Ethiopia
Keywords Access To Finance, Financial Access, Financial Services
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The Potential of Using Digital Financial Services for Savings Groups in Bangladesh Paper 2016

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This report includes the findings from an assessment conducted in Bangladesh by FHI 360 through the USAID mSTAR project that aimed to identify opportunities that may exist for leveraging digital financial services within informal savings groups, the majority of which are comprised of low-income rural individuals. The assessment looked into the challenges facing different savings groups with regards to cash management, required level of effort to manage a savings group (cost and time), literacy, and exposure to financial services.

The assessment also looked into the existing savings products and services that are being used by savings groups and informal savings and expense behaviors at an individual level.

Learnings from this assessment can provide guidance in formulating group savings products and increase understanding on how digital financial services can be used to bring about efficiency regarding delivery of these products. It also aims to provide mobile financial service providers with additional information about the poorest segment of the population and the value of targeting this segment through additional services.

En ordre disperse : PNSR 2010-2015 : Des progrès encore insuffisants dans la mise en oeuvre de l’approche programme dans le secteur rural au Burkina Faso Guideline 2016

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Le document d’information de Oxfam qui analyse l’efficacité du Programme national du secteur rural au Burkina Faso, lancé en 2011. Découvrez pourquoi la coordination et l’alignement de différents acteurs du pays sont essentiels pour le bon fonctionnement de ce programme.

"Au Burkina les partenaires au développement financent la grande majorité des investissements dans le secteur agricole. Au moment de l’élaboration de la deuxième phase du PNSR, les enjeux liés à la coordination et à l’alignement prennent une importance particulière afin d’éviter les duplications et les incohérences, et garantir l’atteinte des résultats du plan global de développement du secteur agricole. L’engagement pris à Malabo en 2014 devant l’Union Africaine de promouvoir « la croissance et la transformation accélérées de l’agriculture en Afrique pour une prospérité partagée et de meilleures conditions de vie », ne sera pas possibles sans cet alignement."

The Role of Financial Services in Building Household Resilience in Burkina Faso Paper 2016

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This paper summarizes how findings from formative research, ten “resilience diaries,” qualitative follow up and economic games, answer the two key research questions listed above. As this research is not related to any specific program or product, its primary purpose is to illustrate how families anticipate and cope with shocks, relating household behaviors and preferences to design features that could improve financial services offered for building resilience.

It is organized by first reviewing some of the recent literature on resilience and providing contextual information on Burkina Faso. Then it describes research partners and research methods used. The findings section describes resilience diary outcomes, first illustrating the context in which the female participants live, then focusing on shocks, coping mechanisms and mechanism preferences. Last follows the discussion, recommendations and conclusion, with these sections summarizing key findings related to the two research questions and putting forth recommendations for financial services that would build household resilience in the face of continual covariate and idiosyncratic shocks. The audience for the paper includes financial service providers (FSPs), technical assistance providers, and others interested in the intersection of financial inclusion and resilience.

A poverty-sensitive scorecard to prioritize lending and grant allocation: Evidence from Central America Paper 2016 English (en)

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Development projects are generally subject to a potential tradeoff between sustainability and poverty reduction. Grants are also commonly assigned without a standardized criterion. This paper proposes an innovative scoring tool that combines both a risk and poverty scorecard to prioritize lending and grant allocation. We implement and test the instrument through a competitive fund for demand-driven projects in Central America intended to better link smallholder farmers to markets and improve their welfare. The evaluation results show that the highest-ranked projects generally have a larger economic impact on their beneficiaries than lower-ranked projects. We observe a larger effect on income, access to credit,and access to local markets, and the relative differences are stronger over time. The proposed scorecard tool is intended to better ensure the accountability and sustainability of development funds and can be easily adapted to different contexts

A poverty-sensitive scorecard to prioritize lending and grant allocation: Evidence from Central America  -  English (en)

Author Hernandez, Manuel A.; Torero, Máximo
Publisher International Food Policy Research Institute (IFPRI)
Washington, D.C.
Number of Pages 32 pp.
Primary Language English (en)
Region / Country Global, Americas, Central America
Keywords Lending, Access To Credit
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Zoom Microfinance n°48 Document 2016

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"Zoom Microfinance", édité par SOS Faim, aborde de nombreuses thématiques sur lesquelles il est possible de porter à la fois un regard rétrospectif et prospectif avec le prisme du financement rural et agricole, tels que le risque agricole, le financement de filières ou le modèle agricole pour la finance verte.

L’adaptation de la cacao-culture ivoirienne au dereglement climatique: l'agroecologie pourrait-elle etre une solution? Paper 2016

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Le 17 septembre 2016, 38 producteurs et représentants coopératives de la filière cacao équitable se sont réunis à Agboville en Côte-d’Ivoire pour participer à un atelier organisé par le RICE dans le cadre du programme « Équité » sur la thématique « L’adaptation de la cacao-culture ivoirienne au dérèglement climatique : L’agro-écologie pourrait-elle être une solution ? ». L’objectif de cette rencontre était de permettre aux organisations de producteurs, membres du RICE de s’accorder sur le diagnostic de la situation actuelle de la caca-oculture ivoirienne et de proposer des solutions aux contraintes identifiées. Plusieurs experts et acteurs de commerce équitable ont également participé à cet atelier.

Primary Language English (en)
Region / Country Global, Africa
Keywords commerce équitable, agroécologie
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Cracking the Nut 2016: Regenerating Rural and Agricultural Development Conference Proceedings 2016 English (en)

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Participants from 49 countries attended this year’s Cracking the Nut 2016 to discuss “Regenerating Rural and Agricultural Development.” This learning event was timely given the increasing appreciation for the fact that we need to do more than just halt deforestation in order to protect our natural environment. Last year’s agreement at the United Nations’ Climate Change Conference in Paris emphasized the importance of replenishing deforested lands, which is key to “regenerating” rural and agricultural development and to allowing us to produce sufficient food to feed our expanding global population.

The focus for the Cracking the Nut 2016 conference was “Regenerating Rural & Agricultural Development.” As a community of international development practitioners, agronomists, donors and private sector stakeholders who are engaged in creating shared value, participants came together to learn from each other about how to replenish deforested lands, finance environmentally sustainable development and encourage investment in climate-smart agriculture.

For the conclusions, click on the document below.

Cracking the Nut 2016  -  English (en)

Digital Financial Services for Smallholder Households Toolkit Toolkit 2016

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This toolkits comes in three parts: Teaser that sets out the scope; How to Do Note and Lessons Learned. The purpose of the How To Do Note is to provide guidance to country programme managers (CPMs) and partners on the design and implementation of digital financial services (DFS) that target smallholder households. The proposed guidelines intend to foster a culture of innovation that leverages new and emerging technologies to address smallholder-specific financial needs, while offering sufficient safeguards for farmers and their families. The purpose of the Lessons Learned Note is to synthesize the innovations and development of DFS, focusing on how the services are meeting the financial needs of smallholder households. The authors offer examples of smallholder-specific DFSs as well as mainstream ones, highlighting the implications in each case for smallholder farmers and their households. The lessons learned discussed in this note complement the guidance on design and implementation presented in the How To Do.  

 

Author IFAD
Publisher IFAD
Rome, Italy
Primary Language English (en)
Region / Country Global
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Grain de Sel_n°72_Agriculteurs et accès au financement : quel rôle pour l’État ? Paper 2016

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Le dernier numéro de la revue Grain de Sel, publiée depuis presque 20 ans par l’AFD, s’intéresse en particulier au financement des productions agricoles familiales. Dix ans après un précédent dossier sur le financement des exploitations familiales ouest-africaines, Inter-réseaux a décidé de consacrer de nouveau un numéro de sa revue à ce sujet. Passant en revue les différents moyens qu’ont les exploitations familiales pour accéder à des crédits aujourd’hui, ce numéro s’interroge en particulier sur le rôle de l’Etat, dont l’implication dans ce domaine n’est désormais plus taboue, voire souhaitée. Découvrez quels sont les défis de ce secteur ainsi que les solutions possibles qui pourraient être développées en collaboration avec l’appui de l’Etat. 

Contenu de la revue :

Partie 1 : Cadrage
Partie 2 : Modes de financement
Partie 3 : Débats Références
Des agriculteurs en manque de financement
Pourquoi est-il si difficile de financer l’agriculture familiale ?
Un retour des banques dans le financement de l’agriculture ?
Microfinance en Afrique de l’Ouest : histoire, défis et limites
« Financement par et dans les chaînes de valeur » : de quoi parle-t-on ?
Le warrantage paysan : stocker pour accéder au crédit
Les leçons du fonctionnement du financement informel en Algérie
Des téléphones portables au secours du crédit agricole ?
L’assurance agricole : un levier en panne ?
Les organisations paysannes face aux besoins de financement des
agriculteurs
Financement des exploitations familiales : quel rôle pour l’État ?
Vu de France : « l’endettement est inhérent au métier de paysan »

Author Inter-réseaux
Publisher Inter-réseaux
Paris, France
Number of Pages 36
Volume / Issue# 72
Primary Language French (fr)
Region / Country Africa
Keywords Agricultura familiar
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Financing Smallholder Farmers to Increase Incomes and Transform Lives in Rural Communities Article 2016

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Without financial access and sufficient yearly earnings, many farmers also lose up to 50 percent of their annual potential income because they must gain quick access to cash to afford household expenses all year. In the time leading up to harvest, farmers often experience a “hungry season” in which they struggle to pay for family necessities including food. To make ends meet until their

crops are ready to be sold, many farmers are forced to borrow from unregulated moneylenders at exorbitant interest rates or sell their future harvest early at a reduced rate to receive the cash they need to buy clothes, feed their children and survive. To address these challenges, Opportunity’s agricultural finance initiative provides small-scale farmers with all of the tools they need – including

a full range of financial services – to sustainably improve their crop yields, reduce hunger and food insecurity and meet the growing worldwide demand for food.

Author Opportunity International
Publisher Opportunity International
Oak Brook, Illinois
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Smallholder Farming, smallholder finance
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Responsible Bundling of Microfinance Services Paper 2016 English (en)

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Financial institutions serving the poor can offer a range of savings, insurance, and even nonfinancial products in addition to their core credit products. Bundling these products into one packaged sale can be a cost-effective distribution strategy and a means to differentiate the provider’s offering by its added value to clients. However, it may also raise the risk of confusing clients who receive too much information at once and do not fully understand the secondary products they are offered or the risk that clients feel pressure (whether direct or indirect) to purchase those ancillary products.

 

We partnered with Crezcamos, a microfinance institution in rural Colombia, to explore the influence of a joint sales strategy on the uptake, understanding, and recall of crop insurance products. Our mixed-methods research design combined qualitative interviews with end clients, loan officers, and other Crezcamos staff with a randomized intervention testing the impact of “unbundling,” or separating the insurance offer from the loan application process on take-up and understanding of the insurance. We worked with Crezcamos to develop a standardized approach to offering the insurance product, which relied on an explanatory video and other tools and emphasized crucial information about the product while underscoring the voluntary nature of the client’s decision.

Responsible Bundling of Microfinance Services  -  English (en)

Transferts d’argent et bureaux de poste en Afrique - Répondre aux besoins des migrants et de leurs familles en milieu rural Document 2016 French (fr)

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Aujourd’hui, les bureaux de poste en Afrique délivrent plus d’argent que de courrier (c’est-à-dire plus de transactions financières que de lettres), ce qui constitue sans doute la preuve la plus convaincante que des réformes d’envergure ont été menées au sein des réseaux postaux africains. Cela confirme également le rôle décisif que jouent ces bureaux dans l’offre de services de transfert d’argent des migrants. Dans plusieurs pays du continent, la part de marché de ces transferts atteint désormais 20 pour cent et plus,2 et sur les marchés où les bureaux de poste jouent un rôle important, le coût des transferts est bien inférieur à la moyenne africaine. Les bureaux de poste participant activement à l’offre de transferts améliorent la compétitivité du marché et sa transparence et contribuent à faire baisser à la fois les coûts et les délais de réception des transferts d’argent. Les bureaux de poste cherchent une nouvelle place sur un marché où les services (financiers) dématérialisés et numériques sont en plein essor dans des écosystèmes de plus en plus divers. Les agents d’argent mobile s’installent littéralement au coin de la rue et dans les hameaux les plus modestes, tandis que les banques se développent rapidement à travers leurs agences, leurs terminaux en libre service et d’autres canaux. En outre, les institutions de microfinance et les associations d’épargne et de crédit disposent de réseaux très étendus. Toutefois, bien que non encore prépondérants, les bureaux de poste africains occupent une position bien spécifique dans cet écosystème. Ils semblent toucher plusieurs segments de population peu ou pas couverts par les autres canaux, qu’il s’agisse des personnes âgées ou des femmes, des jeunes ou des ménages ruraux. Comme le souligne également le programme d’action d’Addis-Abeba (AAAA), les réseaux postaux sont déterminants si l’on veut garantir à tous un accès plein et égal aux services financiers formels.3 Les bureaux de poste sont généralement considérés comme des établissements dignes de confiance. Ils sont pratiques, ceux qui n’ont pas l’habitude des services financiers peuvent s’en faire expliquer l’utilisation par un employé et ce sont des lieux qui disposent toujours d’espèces

Lire la publication en ligne  -  French (fr)

Publisher FIDA
Rome
Number of Pages 52
Primary Language French (fr)
Region / Country Global
Italy
Keywords envoi de fonds, bureaux de poste, transferts d'argent
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A Change in Behavior: Innovations in Financial Capability Report 2016 English (en)

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The report “A Change in Behavior: Innovations in Financial Capability” reviews the current landscape of financial capability interventions and it highlights a trend in its early stages that ties financial capability interventions more closely to actual customer behavior, especially at critical decision-making moments, when signing up for and using financial products. This trend also takes into account insights about how people learn and the kinds of support they need to achieve their goals. Expanding this behaviorally-informed approach, which is already occurring to varying degrees, will require creativity beyond the traditional modes of financial education that dominate the scene, and it will require greater involvement by providers, who are uniquely placed to meet clients at those critical decision moments. 

A Change in Behavior: Innovations in Financial Capability  -  English (en)

Rapport de conférence - SAM 2015 Conference Proceedings 2016 French (fr)

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Le rapport de la Semaine africaine de la microfinance est désormais accessible en ligne et revient sur les conclusions des différentes sessions plénières et parallèles. La conférence, organisée à l’initiative des réseaux régionaux africains de la microfinance (AMT, AFMIN, AFRACA et MAIN) et promue par ADA en partenariat avec la Coopération luxembourgeoise, s'était tenue autour du thème «Innover pour accélérer la finance rurale en Afrique». 

Lien vers le site  -  French (fr)

Author ADA
Publisher ADA
Luxembourg
Number of Pages 52
Primary Language French (fr)
Region / Country Global, Africa, Eastern and Central Africa, Northern Africa, Southern Africa, Western Africa
Senegal
Keywords Innovation, Innovation rurale, Finance rurale, Microfinance Agricole
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Lecciones tempranas de las implementaciones a gran escala del Modelo Graduación Case Study 2016

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La Fundación Ford ha publicado un documento con las lecciones tempranas de la implementación a gran escala del modelo de graduación de extrema pobreza. En este se presentan algunas de las características importantes del modelo implementado actualmente. Una de ellas es que este modelo ha migrado de ser en su mayoría rural – 75% de los proyectos eran rurales en Diciembre de 2015 – a tener un enfoque mixto en el que 48% de los proyectos son rurales y 25% son mixtos, es decir tienen un enfoque rural y urbano. En este documento se presentan los estudios de caso de Perú y Colombia.  

Author Ford Foundation
Publisher Ford Foundation
Number of Pages 125
Primary Language Spanish (es)
Region / Country Global
Keywords Ford Foundation, Agricultural Productivity, Agricultural Development
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The Role of Financial Services in Reducing Hunger Article 2016 English (en)

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the CGAP paper “The Role of Financial Services in Reducing Hunger” summarizes research supporting several mechanisms through which financial services can facilitate progress toward the Sustainable Development Goals (SDGs). Improving access to financial services can help farmers make profitable investments that increase their yields. Research shows that financial products that are designed for the specific needs of farmers are effective in increasing input use and raising outputs. The ability to smooth income enabled farmers to make bigger and, in some cases, more profitable investments that increased output and food consumption. Therefore, designing products around farmers’ specific financial needs can have big effects at both macro and micro levels.

The Role of Financial Services in Reducing Hunger  -  English (en)

Best Practices for Sustainable Models of Pro-Poor Rural Financial Services in Thailand Report 2016

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This report attempts to familiarize the present pattern of rural financing in Thailand and bring forth the factors contributing to the success of financial support systems which provide financial assistance to sustain rural development and farmers’ organizations in Thailand. It thereby explores the best practices and systems prevailing in the (rural) financial market and establishes its scope for replication and scaling up in wider contexts. The contents of this document are based on altruism and nuances drawn from the real life cases from the different type of financial institutions and their practices in lending and deposit mobilizations from the supply side. On the demand side it exhibits the real life benefits derived by the communities and farmers across various strategic intervention locations. The case studies in this report covers a cross section of institutions and target groups towards a wider understanding of the scope of rural financing options and its levels of impact in a causation framework.

Conclusiones preliminares del proyecto de registros financieros de hogares de pequeños agricultores Document 2015

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El documento se enfoca en los hallazgos del proyecto de registros financieros de hogares de pequeños agricultores, emprendido con el objetivo de ofrecer un panorama integral de la vida financiera de los hogares de pequeños agricultores como productores agrícolas pero también como consumidores, trabajadores y emprendedores fuera del agro. El resultado de la investigación permitirá obtener información  sobre las fuentes de ingresos y el uso que se les da dándole relevancia a la interacción entre flujos de efectivo, la importancia de los rendimientos de la actividad agrícola, las herramientas financieras que se utilizan y las áreas críticas en las que el uso de nuevas y mejores herramientas podría agregar valor. Entre los principales elementos identificados hasta el momento se tiene que: a) los hogares de pequeños agricultores generalmente obtienen ingresos de distintas fuentes, como la producción agrícola, los trabajos ocasionales en actividades agrícolas y no agrícolas, el empleo por cuenta propia y los pagos de transferencias, b) la producción agrícola ofrece a las familias de pequeños agricultores una fuente importante de ingresos en especie, c) los hogares de pequeños agricultores utilizan una amplia gama de herramientas financieras formales e informales tales como cuentas corrientes, de ahorro y crédito rotativo, préstamos de amigos y familiares y el crédito de los intermediarios agrícolas.

Author Anderson, J. & Ahmed, W./ CGAP
Publisher CGAP
Number of Pages 20
Primary Language Spanish (es)
Region / Country Global
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La importancia del sector microfinanciero en Centroamérica Article 2015

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El informe regional de la Red Centroamericana y del Caribe de Microfinanzas (REDCAMIF) -que agrupa a 134 entidades micro financieras en Centroamérica y República Dominicana- muestra en sus datos que el sector micro-financiero es importante para el fortalecimiento de las economías nacionales de cada país y particularmente en el área, contexto en el cual el acceso a los recursos financieros es limitado. De acuerdo a la información de este documento en Centroamérica el micro financiamiento se ha convertido en una alternativa para la reducción de la pobreza y las desigualdades sociales. 

Author Secretaria de Integración Económica Centroamericana (SIECA)
Publisher SIECA
Number of Pages 13
Primary Language Spanish (es)
Region / Country Global, Americas, Central America
Keywords Centroamérica; Microfinanzas
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Report on Best Practices for Sustainable Models of Pro-Poor Rural Finance Services in India Report 2015

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This IFAD- and APRACA-supported study is a part of the project on “Documenting Global Best Practices on Sustainable Models of Pro-Poor Rural Financial Services in Developing Countries.” It has attempted to document the best sustainable practices of pro-poor financial services in India and to select the most sustainable and replicable practices for the countries in the Asia-Pacific region to draw lessons in evolving suitable strategies for the benefit of their people.

Author Anil Kumar Singh and Team Nabcons
Publisher APRACA, IFAD
Number of Pages 118 pp.
Primary Language English (en)
Region / Country Global, Asia
India
Keywords Rural Finance, Rural Financial Services, Microinsurance, Self Help Groups
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Jornadas de finanzas rurales inclusivas Paper 2015

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El documento es una recopilación de las disertaciones y principales conclusiones a las que se llegó durante las jornadas de finanzas rurales. Con el fin de contribuir al financiamiento rural, el documento busca visibilizar las experiencias exitosas de productores organizados que otorgan herramientas financieras al sector productivo, generando mejoras en sus ingresos a través de la incorporación de valor y la modificación de sus procesos productivos y/o comerciales.

Author Varios autores
Number of Pages 57
Primary Language Spanish (es)
Region / Country Global, Americas, South America
Argentina
Keywords Finanzas Rurales Inclusivas
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Report on Best Practices for Sustainable Models of Pro-Poor Rural Finance Services in Philippines Report 2015

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The objective of this report is “to enable rural finance providers and governments extend financial services on a sustainable basis, through the application of best practices suitable to their unique operating environments”1. A documentation of best practices of sustainable, pro-poor rural financial services provides the information and data for policy formulation on how those best practices could enhance the delivery of financial services to small clients, especially poor households.

Based on a set of criteria, the best practices documented in this report have the following characteristics: First, it is pro-poor, that is, accessible and favorable to the poor; Second, it is technically and financially feasible which are factors that can make replication feasible and; Third, it is cost-effective, profitable and sustainable. In other words it is viable and doable over a continuous period without the assistance of a subsidy in any forms. Sustainability of the rural financial service is a necessary but not sufficient
condition for providing the poor with access to financial services such as credit, savings and other financial services. Those sustainable rural financial services should be pro-poor as well because a financial service could be sustainable but it does not serve the poor because it is not accessible and does not provide favorable terms to the poor. For instance, credit at relatively low and competitive rates. Governments in the region have realized the limited impact of efforts to mobilize substantial funds to
support the rural population when those funds are not accessible nor provided at reasonable and favorable terms to the poor.

Author Gilberto M. Llanto and Jocelyn Alma R. Badiola
Publisher APRACA, IFAD
Number of Pages 124 pp.
Primary Language English (en)
Region / Country Global, Asia
Philippines
Keywords Rural Finance, Rural Financial Services, Financial Services, agricultural loan guarantee, value chain financing, Microinsurance
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El Fondo de Garantía una respuesta al riesgo de crédito agrícola: el caso del Fondo de Garantía para América Latina Document 2015

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El documento muestra que el fondo de garantía puede ser una respuesta al riesgo de crédito agrícola, para ello toma como ejemplo el Fondo de Garantía para América Latina y explica que  el establecimiento de un fondo de garantía es un medios útil para gestionar y compartir el riesgo entre las diferentes partes implicadas facilitando así un mayor compromiso por parte de las instituciones financieras dedicadas al mundo rural. En base a lo anterior, SOS Faim ha creado un fondo de garantía para los países andinos en colaboración con las organizaciones locales de productores y microfinancieras.  

Author Fondo de Garantía Latinoamericana
Number of Pages 12
Primary Language Spanish (es)
Region / Country Global
Keywords crédito agrícola
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Report on Best Practices for Sustainable Models of Pro-Poor Rural Finance Services in China Report 2015

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This country report on rural finance best practices in China is a part of the series of country reports being published by APRACA with the financial support from International Fund for Agricultural Development (IFAD).

The Chinese government has used several policy instruments to promote rural finance and microfinance, including the provision of agricultural on-lending to the RCCs, tax concessions and subsidies extended to regulated RFIs for rural and micro-lending, and partial liberalization of the lending rate of interest for rural and micro-lending. The government also permitted the entry of new types of RFIs to strengthen competition in China’s rural financial markets. Obstacles to sustainable rural financial services for meeting the changing demand remain in China.

Despite the great efforts made by the financial regulators and the progress achieved after the reforms in 2005 and 2006, China’s RFIs remain slow in penetrating the rural financial markets (RFMs). Overall, the loanable funds have been channeled from rural to urban areas and from the poor western regions to the richer coastal regions by the formal financial system in China. On the whole, the financial markets in China are dual: large- and medium-size enterprises, especially state-owned enterprises (SOEs), have access to cheap credit from formal banks while the privately owned small and micro-enterprises and farmers either have very limited access to formal credit or have access to formal credit at a much higher cost. Many MSEs and small farmers are dependent on finance from informal sources to meet their
demand.

Based on the inclusion criteria involving mass outreach to rural communities and households, operational sustainability, and innovations in financial products and services, authors selected three best cases for rural and microfinance in China: the mobile phone product by Chongqing Rural Commercial Bank (CRCB), the case of CFPA Microfinance Pty. Ltd. (CFPA MF), which is a semi-formal RFI unregulated by CBRC, and the microfinance downscaling by city and rural commercial banks in China.

Manual de gestión de nuevos negocios Document 2015

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El propósito principal de este manual es contribuir con información aplicada sobre conceptos, modelos, enfoques e instrumentos prácticos  para generar y realizar negocios en el mundo de la producción secundaria de pequeña escala; es decir, las pequeñas empresas y microempresas rurales. El manual hace énfasis en el concepto de agro-negocio concebido como una oportunidad entre otras, para que la población con bajos recursos y sin tierra de las áreas rurales, pueda generar su fuente principal de ingresos o complementar los ingresos que percibe obtiene de otras actividades. Ello lo diferencia de los manuales convencionales de administración de empresas que se enfocan en la configuración física, técnica, financiera y comercial de las unidades conocidas como empresas formales. 

Author Paulina Monares, Aníbal Monares, Waldo Bustamante
Number of Pages 144
Primary Language Spanish (es)
Region / Country Global
Keywords microempresas
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Economía y Finanzas Populares y Solidarias para el buen vivir en Ecuador Document 2015

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El documento contextualiza y conceptualiza el nuevo rumbo del desarrollo emprendido en Ecuador basado en la construcción del  buen vivir que  tiene como actor destacado a la economía popular y solidaria y a las finanzas populares  y solidarias. Asimismo, el trabajo sistematiza la gestión de  la Corporación Nacional de  Finanzas Populares y Solidarias como entidad financiera.

Author Corporación Nacional de Finanzas Populares y Solidarias
Number of Pages 126
Primary Language Spanish (es)
Region / Country Global
Ecuador
Keywords Ecuador; Finanzas sociales y solidarias; Buen Vivir
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Report on Best Practices for Sustainable Models of Pro-Poor Rural Finance Services in Indonesia Report 2015

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The goal of this current study was two fold. First, to document the best practices in the provision of financial services to rural poor of Indonesia. Second was to pilot two or three best practices to make its impacts on the target segments and subsequently to scale up its implementations. To achieve these goals a combined research method is applied. The method includeed extensive literature review, field visits, indepth interviews and focus group discussions. In documenting the best practices in operation, the consultant worked in close cooperation with Country Working Group (CWG) consisting of the lead institution and other institutions involved in rural finance. To aid the selection of financial service schemes which can be considered as best practice in Indonesia, together with the consultant the CWG, it developed a checklist of best practices indicators.

Author Nuryartono, N., Hutagaol, M.P., Anggraenie, T. et al.
Publisher APRACA, IFAD
Number of Pages 100 PP.
Primary Language English (en)
Region / Country Global, Asia
Indonesia
Keywords Rural Finance, Rural Financial Services, Access To Finance
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Desafíos para ampliar la cobertura de servicios financieros Report 2015

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El documento presenta los principales hallazgos de la actualización de la base de datos y visualizaciones de FINclusionLab para Perú cuya información se nutre principalmente de la base de datos de la Superintendencia de Banca y Seguros (SBS) y se complementa con información de las cooperativas miembros de FENACREP y las ONG microfinancieras pertenecientes a COPEME. FINclusionLab permite visualizar la evolución de los puntos de acceso a servicios financieros que junto con los datos sobre volumen de créditos y depósitos permite analizar la evolución y profundidad del sector financiero por tipo de entidad en las distintas regiones del Perú. 

Author Martínez, R./Editorial MIX
Publisher Editorial MIX
Number of Pages 12
Primary Language Spanish (es)
Region / Country Global
Peru
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La banca móvil para la inclusión financiera en las áreas rurales de Ecuador Article 2014

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El documento describe la iniciativa digital llevada a cabo por la Red Financiera Rural (RFR) con el fin de prestar acceso a servicios financieros a 382.220 personas que viven en las áreas rurales de Ecuador. La iniciativa se basó en una infraestructura digital, se instalaron quioscos transaccionales en comunidades alejadas y se capacitaron a los oficiales bancarios para ir a las áreas rurales con teléfonos inteligentes o tableta e impresor móvil para proveer servicios. Mediante este servicio las personas que viven en zonas rurales y remotas realizan pagos, acceden a préstamos y depositan sus ahorros. 

IFAD press clippings Article 2014

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Please receive the attached listed press clippings by IFAD on the topic of rural finance, perhaps as something to start with. The clippings are sorted in chronological order with latest entry at the end (page 40).

Politiques et pratiques de développement N°13 | Agriculture familiale : Le commerce intra-régional pour nourrir le continent africain Newsletter 2014 French (fr)

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37% de la population africaine est sous-alimentée en Afrique de l’Est, 12% en Afrique de l’Ouest. La demande alimentaire du continent va continuer à augmenter fortement ces prochaines décennies, du fait de la croissance démographique et de l’amélioration espérée du niveau de vie. Le commerce entre pays africains peut contribuer à répondre à cette demande, tout en renforçant la place de l’agriculture familiale et des produits locaux dans l’économie nationale. Mais aujourd’hui, le commerce intra-africain reste très faible, par rapport aux importations en provenance du reste du monde, et ne représente que 10 à 20% des échanges commerciaux du continent. Son développement implique des politiques agricoles et commerciales adaptées et favorables au développement des filières de production et de commercialisation locales.

 

Politiques et Pratiques de développement

Ces notes sont destinées à alimenter la réflexion sur les politiques de développement en se fondant sur l’expérience du Gret et de ses partenaires.

Les défis du développement durable supposent une réflexion renouvelée sur les stratégies et modes de développement, prenant acte des enjeux contemporains, mobilisant l’état des connaissances et l’expérience pratique. Ces débats concernent les acteurs publics et les acteurs du système d’aide, mais aussi les organisations de la société civile et les citoyens. À travers cette collection « Politiques et pratiques de développement », le Gret fait valoir les acquis de son expérience de participation aux débats internationaux et de ses propres résultats sur le terrain pour favoriser la construction d’analyses et de stratégies de développement. Il espère ainsi influencer les processus de prises de décision et de conception des politiques publiques et des programmes de coopération dans ses domaines de compétences.

Plusieurs entrées sont privilégiées pour cela : la valorisation d’expériences innovantes et des leçons que l’on peut en tirer en termes de politiques publiques ; la formulation de recommandations issues d’analyses transversales sur des thématiques sectorielles ; l’expression d’opinions argumentées sur des sujets d’actualité. Ces notes synthétiques, d’un format de quatre pages, sont destinées à l’ensemble des acteurs du développement et particulièrement aux décideurs (policy makers) et leaders d’opinion.

Politiques et pratiques de développement N°13 | Agriculture familiale : Le commerce intra-régional pour nourrir le continent africain  -  French (fr)

Author Laurent Levard, Amel Benkahla
Publisher Groupe de Recherches et d'Echanges Technologiques (GRET)
Nogent sur Marne
Number of Pages 4
Primary Language French (fr)
Region / Country Global
Keywords Agriculture familiale, Cadre Réglementaire, Réforme De La Réglementation, Politique, Dialogue Politique
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Farmer Bankability and Sustainable Finance: Farm-Level Metrics that Matter Report 2013 English (en)

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Niger is a country that is perpetually living with risk. Dealing with this requires more emphasis on long-term structural solutions, rather than short-term quick fixes in order to improve the resilience of the agricultural sector. The document shows that a comprehensive agricultural risk management strategy requires substantive and sustained financial investments to move from short-term crises responses to those of long-term risk management.

Farmer Bankability and Sustainable Finance: Farm-Level Metrics that Matter  -  English (en)

Author Rainforest Alliance
Publisher Rainforest Alliance
Number of Pages 28 pp.
Primary Language English (en)
Region / Country Global
Keywords Sustainable Financial Services, Agricultural Finance, Bankability, Access To Finance
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Credit Constraints, Occupational Choice, and the Process of Development: Long Run Evidence from Cash Transfers in Uganda Paper 2013 English (en)

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How to stimulate employment and the shift from agriculture to industry in developing countries, with their young, poor, and underemployed populations? A widespread view is the poor have high returns to investment but are credit constrained. If so, infusions of capital should expand occupational choice, self-employment, and earnings. Existing evidence from established entre- preneurs shows that grants lead to business growth on the intrinsic margin. Little of this evi- dence, however, speaks to the young and unemployed, and how to grow employment on the ex- tensive margin—especially transitions from agriculture to cottage industry. We study a large, randomized, relatively unconditional cash transfer program in Uganda, one designed to stimulate such structural change. We follow thousands of young adults two and four years after receiving grants equal to annual incomes. Most start new skilled trades. Labor supply increases 17%. Earn- ings rise nearly 50%, especially women’s. Patterns of treatment heterogeneity are consistent with credit constraints being relieved. These constraints appear less binding on men, as male controls catch up over time. Female controls do not, partly due to greater capital constraints. Finally, we go beyond economic returns and look for social externalities. Poor, unemployed men are com- monly associated with social dislocation and unrest, and governments routinely justify employ- ment programs on reducing such risks. Despite huge economic effects, we see little impact on cohesion, aggression, and collective action (Peaceful or violent). This challenges a body of theo- ry and rationale for employment programs, but suggest the impacts on poverty and structural change alone justify public investment.

Paper  -  English (en)

The New Microfinance Handbook: A Financial Market System Perspective Book 2013 English (en)

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This book describes the financial market system, the functions within it, and how they work in serving the needs of the poor. It examines the financial service needs of poor people, and discusses how a diversified financial sector can address these needs in an accessible and beneficial manner.

The book aims to contribute to greater access and usage of financial products and services that genuinely meet poor people’s needs through sustainable market-based financial service providers. It highlights the need for a wider financial ecosystem, moving beyond the traditional meaning of microfinance to inclusive financial systems

Microfinance Handbook  -  English (en)

Understanding Youth and their Financial Needs Paper 2013 English (en)

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The SEEP YaFS Working Group collected and analyzed findings from recent market research studies of young people conducted in multiple countries. Understanding Youth and their Financial Needs presents a synthesis of these findings. It is derived from market data from youth related programs in covering twenty two countries. Additionally experts from twelve practitioner organizations, members of SEEP’s YaFS working group, contributed in different capacities to the analysis and interpretation of these results for the broader industry.

The Understanding Youth and their Financial Needs publication provides deep insights into the financial decision making behaviors of youth (e.g., spending, saving, and borrowing) at three different levels—the client level, market segmentation level, and institutional level—and shows how these behaviors can inform the design of financial and education support services. At the client level, the synthesis examines youth financial behaviors that are influenced by young people’s income flows, expected contributions to their families, and experience and perception of formal financial services. At the institutional level, it examines how different market segments (e.g., current life stage and/or age, gender, enrollment status, and geographic location) affect youth financial behaviors and consequently the design of both delivery mechanisms and products.

Insights into the money flows and financial behaviors of youth provide an important launching point for FSPs to design appropriate and sustainable youth-friendly products. They can also serve as a reference for policy makers seeking to develop, promote, or strengthen new or existing youth programs within their respective countries.

Understanding Youth and their Financial Needs  -  English (en)

Scaling up in Agriculture, Rural Development, and Nutrition Paper 2012

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IFPRI’s 2020 Vision Initiative approached Johannes Linn to develop a set of policy briefs that would contribute to a better understanding of scaling up in agriculture, rural development, and nutrition. The authors and other experts met at a workshop in Washington, DC, in January 2012, to discuss their draft briefs. The resulting series brings together a variety of experiences from around the world, delineates different pathways for scaling up, identifies both the key drivers that push the scaling-up process forward and the key spaces that enable initiatives to be scaled up, and outlines the lessons learned. These briefs were written by a wide range of actors, from local communities

and nongovernmental organizations to private businesses and donors. They provide an invaluable perspective on the challenges and opportunities for successful scaling up.

Role Reversal Revisited: Are public development institutions still crowding out private funders? Report 2012

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In little more than 20 years, Microcredit has grown into a $100 billion plus activity. This makes it one of the rare development success stories. Such a stunning rate of growth was made possible, because the poor who receive these credits use them to create wealth. That newly created wealth in turn allows borrowers to repay their loans with interest. Unlike typical development projects, which depend on subsidized funding, microcredit pays for itself. It can thus access capital markets to fund its growth.

This report looks at the respective role of official development finance institutions (DFIs) and private lenders in funding microfinance institutions (MFIs). It starts from the premise that as the microfinance industry matures, its growth can and should be financed by private resources. The role of DFIs is to pave the way for those resources: DFIs should only go where private lenders don’t yet dare to tread and act as catalysts for private funding but they should not compete with it.

Author Damian von Stauffenberg and Daniel Rozas
Publisher MicroRate
Number of Pages 22 pp.
Primary Language English (en)
Region / Country Global
Keywords Microfinance Institutions, Agricultural Microfinance, Development Finance Institutions
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Engaging smallholders in value chains: who benefits under which circumstances? Article 2012

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Value chains can be an opportunity to link smallholder farmers in developing countries to lucrative markets for consumer goods worldwide. However, they are not a sure-fire success. This article provides an overview of the conditions under which smallholder engagement in value chains makes sense and what is necessary to make them a successful tool for development.

Financial Access Survey 2012 Spreadsheet 2012 English (en)

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The FAS is the sole source of global supply-side data on financial inclusion, encompassing internationally-comparable basic indicators of financial access and usage. In addition to providing policy makers and researchers with annual geographic and demographic data on access to basic consumer financial services worldwide, the FAS is the data source for the G-20 Basic Set of Financial Inclusion Indicators endorsed by the G-20 Leaders at the Los Cabos Summit in June 2012.

The FAS database currently contains annual data for 187 jurisdictions, including all G20 economies, covering an eight-year period (2004-2011), totaling more than 40,000 time series.

Financial Access Survey 2012  -  English (en)

Participer au financement des aménagements fonciers : une nouvelle ambition pour les riziculteurs de l'Office du Niger au Mali Case Study 2012

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L’Office du Niger (ON) est un des plus anciens périmètres irrigués de l’Afrique de l’Ouest. Au départ, il était prévu d’y produire du coton pour les industries textiles de la France coloniale. Les objectifs initiaux étaient très ambitieux avec un projet d’aménagement de 1 millions d’ha en 50 ans. La réalité est cependant différente. La zone aménagée actuelle s’étend sur 90.000 ha et le riz a remplacé le coton. La moitié du riz malien y est produite.

Les enjeux dans la zone ON sont énormes, à la fois en termes de sécurité alimentaire, de croissance économique que de lutte contre la pauvreté.

A travers le cas de l’ON se pose plus largement la question de savoir si les exploitations familiales africaines sont capables de participer au financement de la construction d'infrastructures pour l'irrigation.

Going Digital Effects of Land Registry Computerization in India Paper 2010

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Despite strong beliefs that property titling and registration will enhance credit access, empirical evidence in support of such effects remains scant. The gradual roll-out of computerization of land registry systems across Andhra Pradesh's 387 sub-registry offices allows us to combine quarterly administrative data on credit disbursed by all commercial banks for an eleven-year period (1997-2007) aggregated to the sub-registry office level with the date of shifting registration from manual to digital. Computerization had no credit effect in rural areas but led to increased credit-supply in urban ones. A marked increase of registered urban mortgages due to computerization supports the robustness of the result. At the same time, estimated impacts from reduction of the stamp duty are much larger, suggesting that, without further changes in the property rights system, impacts of computerization will remain marginal.

Financing and Non-financial Services in the Agricultural Development Banking Paper 2009

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In the group of productive and social sectors which require with more attention the support of the development banking, maybe the agricultural and rural scopes, is one of the most dedicated and complex. In the first place, because of the social aspect, as always the rural areas have the highest levels of poverty; in second place, the political connotation that the problems associated to rural places (country) always have and that it is very sensitive to political decisions which lead to interferences in the agricultural development financing institutions. A third aspect, has something to do with the own nature of the agricultural activity, its high risk makes the banks not to pay great attention to it, even more when this are small producers.

In this document, are discussed a series of elements related to the characteristics of the agricultural financing, the operative modalities, ways of acting, provision of non-financial services, and finally some suggestions and recommendations which can help as references to the agricultural development financial institutions and to the organizations related to negotiations and supervision of the same.

Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila Paper 2009

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Microcredit seeks to promote business growth and improve well-being by expanding access to credit. We use a field experiment and follow-up survey to measure impacts of a credit expansion for microentrepreneurs in Manila. The effects are diffuse, heterogeneous, and surprising. Although there is some evidence that profits increase, the mechanism seems to be that businesses shrink by shedding unproductive workers. Overall, borrowing households substitute away from labor (in both family and outside businesses), and into education. We also find substitution away from formal insurance, along with increases in access to informal risksharing mechanisms. Our treatment effects are stronger for groups that are not typically targeted by microlenders: male and higher-income entrepreneurs. In all, our results suggest that microcredit works broadly through risk management and investment at the household level,rather than directly through the targeted businesses.

Author Karlan, D.; Zinman, J.
Publisher The Financial Access Initiative and Innovations for Poverty Action
Number of Pages 33 pp.
Primary Language English (en)
Region / Country Global
Keywords Microcredit, Risk Management
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The Rural Finance Landscape Guideline 2008

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This Agrodok describes current savings, lending, and insurance practices, identifies the service providers working in the informal, semiformal and formal sector and discusses current approaches and methodologies. It targets those who want to know more about rural finance as well as development practitioners concerned with identifying the financial services most appropriate for their project or organisations.

Designing and executing rural finance programmes requires ‘expert’ knowledge. Although this Agrodok pays some attention to good practices in rural finance, it is not a training manual. It does not set out to show readers how they can develop and implement programmes. The Useful Addresses list contains the addresses of organizations that can be consulted when this type of assistance is needed.

Trade Finance Guide Guideline 2008

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Trade Finance Guide is designed to help companies, especially small and medium-sized enterprises, learn the basic fundamentals of trade finance so that they can turn their export opportunities into actual sales and achieve the ultimate goal of getting paid–especially on time–for those sales.

This guide provides general information about common techniques of export financing. Accordingly, you are advised to assess each technique in light of specific situations or needs.

Community-based Financial Organizations: A Solution to Access in Remote Rural Areas? Paper 2007

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This paper begins from the premise that access to financial services is important for poor people, enabling them to better manage risk and take advantage of opportunities. It also assumes that the availability of financial services for poor households will affect the ability of countries to achieve the Millennium Development Goals, since access to financial services reduces vulnerability and helps poor people increase their income. This enables them to improve their well-being, including access to better nutrition, health care, and education.

However, the paper stresses that in many countries today, the rural poor are still left out of formal markets for financial services and frequently rely on informal mechanisms at the village level, such as moneylenders, supplier credit, and small savings and credit groups. A poor regulatory environment or policy framework, deficient financial infrastructure, including financial institutions, and a lack of institutional know-how contribute to the dearth of rural financial services. Even when an appropriate enabling environment exists, however, it may be difficult for financial institutions to achieve scale economies and to cover their costs when they are providing financial services to poor clients who are spread out across large distances.

This paper reviews the evidence to date on the sustainability of Community-based Financial Organzations (CBFOs), with a view toward determining whether they are a viable option for the provision of financial services to the rural poor. CBFOs are defined here as autonomous organizations owned and managed by members of a particular community. The paper states that they differ from the “village banks” in Latin America and the “solidarity groups” in countries such as Bangladesh in that such groups are usually not autonomous; they have been set up by MFIs as a cost-effective way to provide services to the poor.

Furthermore, that paper notes that the membership of CBFOs varies from small groups with as few as five members to entities with hundreds, or even thousands, of members. They may be informal, registered as associations or cooperatives, or part of a larger village organization, such as a company or women’s organization. The central characteristics of these entities, which drive their governance and management, are their financial and institutional independence, and mobilization and management of their own resources. The paper suggests that for CBFOs located in remote rural areas, lack of professional management can be a defining characteristic, because such groups are rarely able to employ staff who are skilled in the management of a financial organization.

The paper begins by discussing the objectives, key issues, and methodology used in its production before providing an overview of CBFOs. In its assessment of these organisations, the remainder of paper is based around the following themes:

  • Sustainability
  • Critical factors for success or failure
  • Linkage to formal financial sector
  • Accountability to members
  • Factors for determining the most suitable type of intermediary
  • Developing a strategy to provide financial services to the rural poor
Notas sobre el financiamiento rural y la política crediticia agropecuaria Document 2007

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En este trabajo se examinan las tendencias del financiamiento agropecuario en México y se expresan consideraciones respecto a la política de crédito. El análisis se enfoca en la política financiera agropecuaria que implementaba el gobierno federal de México a partir de tres tipos de programas: 1) los dedicados a proporcionar crédito a través instituciones financieras; 2) aquellos orientados a otorgar crédito a grupos específicos de productores, fomentar la creación de sujetos de crédito mediante fondos de garantía, así como de instrumentos para disminuir el riesgo y 3) la creación y fortalecimiento de Intermediarios Financieros Rurales (IFR), con el objetivo de convertirlos en la plataforma de primer piso para la operación de la banca de desarrollo.

Author Naciones Unidas, CEPAL
Number of Pages 53
Primary Language Spanish (es)
Region / Country Global
Mexico
Keywords l financiamiento rural, política crediticia agropecuaria
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Garantías alternativas para crédito rural Document 2007

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El documento describe innovaciones mediante las cuales es posible garantizar préstamos para los pequeños productores del área rural e identifica los posibles mecanismos de financiamiento a ser implementados, presenta dos casos exitosos sobre la aplicación de las innovaciones propuestas y realiza algunas recomendaciones para futuras implementaciones.

Author Alem, Julio/PROFIN
Number of Pages 48
Primary Language Spanish (es)
Region / Country Global
Bolivia
Keywords Garantías, crédito rural
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Rural and Agricultural Finance: Emerging Practices from Peruvian Financial Institutions Paper 2007

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This short paper begins by highlighting the issues surrounding the availability of rural and agricultural financial services, through the formal financial system, in Peru. It notes that the formal financial system in Peru provides very limited rural and agricultural finance (RAF) services and most financial institutions focus uniquely on serving urban clients. If financial institutions lend to agriculture at all, it is primarily to large agro-processors or input suppliers, rather than to farmers directly. Only 3.2% of all formal loans are for agriculture, for a total amount of US$388.8 million. Even microfinance providers, which are more inclined to serve the needs of the rural poor, focus on the urban areas of Peru. Given the Peruvian microfinance industry’s 20% growth last year, microfinance providers are likely to continue to focus on unserved urban markets, which are easier to serve than rural markets.

Nevertheless, the paper serves to stress that several financial institutions in Peru are making efforts to serve poor clients with a variety of RAF product and process innovations that reduce transaction costs and manage risks. This microNOTE captures some of the emerging products and processes of four Peruvian financial institutions. While not all of these innovations are specific to Peru, the paper argues that their positive results suggest that they may be applicable in other countries.

The paper first discusses RAF product innovations, looking at:

  • Adapting disbursal and repayment to agricultural cash flows
  • Allowing agricultural income to be considered in microlending
  • Offering longer-term loans for fixed asset-lending
  • Using technology to lower transaction costs of serving rural areas

It then examines RAF policy and process innovations:

  • Diversifying loan portfolio – not just rural and not just agricultural
  • Hiring loan officers experienced in rural and agricultural markets
  • Linking technical assistance providers to RAF clients
  • Linking RAF through processors within dynamic value chains

The paper concludes by providing four main donor recommendations:

  1. Do not be discouraged by previous RAF failures, as RAF can be profitable if well managed
  2. Support the expansion of RAF, because there remains significant unmet demand for RAF in Peru, as in other countries
  3. Disseminate lessons about Peruvian product and process adaptations
  4. Discourage negative interventions in RAF
Rural Finance Today: Advances and Challenges Document 2006

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Rural finance is referred to here as the provision of financial services through formal, semiformal and informal institutions to rural farm and nonfarm population at all income levels. The authors of this paper state that in the past, many rural finance programs failed due to a combination of lack of attention to institution building, faulty design and implementation, and bad macro policies driven by political interests.

It is noted that currently, however, promising developments may potentially push the rural finance frontier forward. The major breakthrough for current forms of rural development stem from the new rural finance paradigm of the late 1980s, which is premised on the fact that rural people are bankable, and rural clientele are not limited only to farmers and they demand varied type of financial services for which they are willing to pay. This paper highlights several advances that are being made in today’s rural finance sector, and identifies a number of remaining challenges.

The paper is divided into four key sections. The first section covers advances in institutions, which begins by highlighting that government agricultural development banks still dominate in several countries and some have been successfully reformed. It also discusses the fact that several microfinance institutions are increasing their rural operations and are becoming important suppliers or rural financial services, and that member-based informal institutions such as SHGs and SACCOs are increasing and have the potential to play an important role, especially in remote rural areas.

The second key section highlights advances in products and services. It begins with flexible savings products that are being developed to service rural areas. It also discusses how rural leasing, under certain conditions, provides a viable financial option for rural clients. Index-based insurance, the importance of remittance services to rural areas and the emergence of products that comply with Islamic laws are also covered.

Advances in processes are the topics of the third key section. The four main areas discussed here are: how a better understanding of financing through value chains is developing; how partnerships between commercial banks and informal systems are expanding rural outreach to new clients; how strategic alliances among various types of institutions are growing as a way to offer new financial products in rural areas; and, how the use of electronic technology is revolutionising the provision of rural financial services, especially in countries where the IT sector is less regulated than the financial sector.

Finally, before concluding, the paper lays out three key challenges – the possible reintroduction of interest rate ceilings; reducing the costs and risks of e-banking in rural areas; and, developing an enabling policy environment.

Author Nagarajan, G and Meyer, R
Publisher Asian Development Bank
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Rural Finance, Outreach, Challenges, Banking Services, Financial Products
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Safe and Accessible: Bringing Poor Savers into the Formal Financial System Technical Note 2006

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Despite significant evidence to the contrary, many financial institution managers and policy makers do not believe poor people save money. They tend to assume that poor people are “too poor to save,” that they prefer to consume rather than save excess income, or that when they do save it is only to access a loan.

The numbers, however, paint a different picture. Research has repeatedly demonstrated that saving is central to poor people’s economic management strategies. Projects such as the Financial Diaries initiatives in India, Bangladesh, and South Africa; MicroSave in eastern and western Africa; and studies by the International Food Policy Research Institute, for example, have documented savings practices among the poor.

What is unclear is how well formal financial institutions satisfy poor savers’ needs. Although over 90 percent of adults in industrialized economies typically have accounts in financial institutions, market studies in some areas of the developing world indicate penetration rates as low as 6 percent. Access to savings services for the poor thus varies widely.

Los mercados de las finanzas rurales y populares en México: Una visión global rápida sobre su multiplicidad y alcance Paper 2006 Spanish (es)

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El segundo documento “Los mercados de las finanzas rurales y populares en México: Una visión global rápida sobre su multiplicidad y alcance” de USAID pretende facilitar la comprensión de la evolución y situación del sector de las microfinanzas en los mercados financieros rurales y populares de México. Se muestra que en 2006 el sector de las microfinanzas estaba experimentando un rápido crecimiento tanto en el número de organizaciones como en número de clientes de las organizaciones ya existentes. Por otra parte, se expone que el desarrollo del sector no sólo se reflejaba en su crecimiento, sino también en los esfuerzos para lograr una mayor profesionalización y competencia. Explica que aunque las organizaciones de microfinanzas no requieren regularse bajo la Ley de Ahorro y Crédito Popular, varias de estas instituciones están tomando los pasos necesarios para este fin, dado que la regulación ofrecía ventajas, entre las que se encuentra que les permitirá ampliar la gama de productos ofrecidos. Finalmente, concluye que el continuo desarrollo del sector de microfinanzas va a tender hacia la diversificación de los productos, ofreciendo facilidades de depósitos, seguros, transferencia de fondos y otros servicios, para así poder dar mejor atención a los clientes en un mercado cada vez mas saturado en las plazas actualmente rentables.

Documento  -  Spanish (es)

Publisher USAID
Number of Pages 79
Primary Language Spanish (es)
Region / Country Global, Americas
Mexico
Keywords inclusión financiera; microfinanzas rurales
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Successful Experience of Government-owned Banks in Rural and Microfinance: The Case of the Land Bank in the Philippines Paper 2006

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The Land Bank is a universal bank owned by the Philippine government. The government established the Bank to provide financial services to a wide array of rural clients and to give special attention to promoting rural development, assisting small farmers, supporting rural infrastructure, and providing a variety of services to agrarian reform beneficiaries (ARBs). The Land Bank does this not only directly at a retail level but also at the wholesale level through a variety of financial intermediaries, including rural banks, credit cooperatives, and a few thrift banks.

The performance of the Land Bank is remarkable considering it has survived for 40 years without requiring bailouts to avoid bankruptcy, and it continues to serve a large and diverse rural clientele. This study looks closely into the Land Bank and attempts to determine the factors that have driven its successful performance.

This paper is organized as follows: The executive summary comprises section I. Section II presents the Philippine economic and political environment in which the Land Bank has operated. Section III discusses the institutional performance of the Land Bank and identifies the internal and structural factors that have driven it. Lessons, conclusions, and future challenges, are presented in the final section.

The main areas of focus in recent years for the Land Bank have been mobilizing deposits, diversifying and expanding the loan portfolio, lending to small farmers and fisherfolk, and building capacity through technical assistance programs.

In terms of financial performance the bank has done quite well, with 9% growth per annum in revenues (up to 21 billion pesos, approximately $382 million) and 51% growth per annum in profits (2 billion pesos in 2004). Total resources of the Land Bank have been increasing steadily at a yearly rate around 8%, capital funds stand at roughly 21 billion pesos, and deposits make up 72% of the liabilities. The Land Bank’s Return on Equity (ROE) in 2004 was close to 11%, better than the industry average. Net interest margin in 2004, reported at roughly 5%, was also slightly higher than the industry average. Meanwhile the Land Bank’s registered capital adequacy ratio has been at par with the industry standard of not less than 10% but still fell short of the industry average.

The major lessons learned from this study are the following:

  • A good policy environment was essential to the Land Bank’s success.
  • By changing its focus from solely ARBs to a more universal approach the Land Bank has increased its viability and diversified its risk.
  • Through a combination of strong leadership, rural orientation, and a board structure which balances competing interests, the Land Bank has managed to shield itself from the demands for loans by corrupt polticians.
  • The Land Bank has developed its own financial muscle through a combination of good performance, client support, and deposit mobilization.
  • The Land Bank maintains good risk management and internal audit and control practices.

The main challenge for the Land Bank in the future will be resolving the tension it has in its operations as both a retail and wholesale lender.

Author Vogel, R.C.; Llanto, G.M.
Publisher USAID
Number of Pages 72 pp.
Primary Language English (en)
Region / Country Global
Keywords Agricultural Development Banks, Governance
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Beyond Microfinance: Building Inclusive Rural Financial Markets in Central Asia Book 2006

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The foreword to this book notes that rural Asia presents a paradox: poverty in Asia retains a markedly rural dimension but, at the same time, economic opportunities abound throughout rural areas of Asia. Robust, inclusive financial markets, it argues, can help people take advantage of economic opportunities, build assets, manage risks, and reduce their vulnerabilities to external shocks and, in so doing, help people living in rural areas improve their welfare.

The book presents findings from a recent research into the state of rural financial systems in six Central Asian republics: Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan. The book examines and analyzes the current status of rural financial markets in these countries and attempts to answer a fundamental question: what can be done to develop robust inclusive rural financial markets? It also highlights the need to go beyond microfinance to develop inclusive rural financial markets within the context of overall financial sector development.

The book includes the following chapters after the introduction:

  1. From Agricultural Credit to Rural Finance: In Search of a New Paradigm
  2. Rural Finance in Azerbaijan
  3. Rural Finance in Kazakhstan
  4. Rural Finance in the Kyrgyz Republic
  5. Rural Finance in Mongolia
  6. Rural Finance in Tajikistan
  7. Rural Finance in Uzbekistan
  8. Moving Toward Inclusive Rural Financial Markets in Central Asia

Drawing from the evidence of the case studies the book finds its central conclusion that the challenge in developing inclusive financial markets in Central Asian Republics goes well beyond simply providing microfinance services in rural areas. In particular this chapter points to a number of issues that it deems deserves special importance and further elaboration. These include:

  • Role of Government
  • Population density
  • Land distribution patterns
  • Role of Government-owned banks in rural finance
  • Role of Nonbank financial institutions
  • Role of savings and credit unions
  • Deposit mobilisation and deposit insurance
  • Informal finance and rural financial markets
  • The importance of business culture
  • Role of foreign investment
  • The limits of microfinance
  • Addressing the needs of rural SMEs
  • What about equity capital?
Author Lamberte, M, Vogel, RC, Moyes, RT and Fernando, NA
Publisher Asian Development Bank
Number of Pages 251 pp.
Primary Language English (en)
Region / Country Global, Asia, Central Asia
Keywords Rural Finance, Agricultural Microfinance, Financial Services
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Providing Financial Services to Poor Farmers through a Local Trader: An Indonesian Case Study 2006

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This case study presents an agricultural microfinance model developed by Koperasi Serba Usaha – Swadaya Dian Khatulistiwa (KSU-SDK) in the Regency of Pontianak (West Kalimantan, Indonesia). KSU-SDK relies heavily on local traders to select borrowers, set loan terms and enforce loan repayments at the community level. Analysis of KSU-SDK’s approach is based on 10 Best Practices in Agricultural Microfinance formulated by Christen and Pearce (2005). This study shows that while local traders seem to be successful in managing loan portfolios since they do not default on their loans, many questions remain regarding the way they interact with the farmers.

Commercial Banks and Microfinance: Evolving Models of Success Article 2005

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This article highlights recent research about the different ways in which commercial banks have successfully entered the microfinance market. It is meant to provide a conceptual starting point for those commercial banks considering entering this new and vast market. In order to illustrate its points, the article provides many examples of banks that are currently engaging the microfinance market.

It begins by dividing the current approaches into direct and indirect categories. The direct category provides microfinance services through internal service units, specialized financial institutions, or microfinance service companies. The indirect category enters the market by outsourcing retail operations, providing commercial loans to MFIs, or providing infrastructure and systems.

The articles concludes by advising potential market entrants to carefully evaluate the various entry points described above and conduct extensive market research as they would with any other business venture. Board and management vision and commitment are necessary but not sufficient for any venture into this new field. Also, entry should be seen as a long term business proposition—no bank should expect to make a “quick buck” from microfinance. However, with sound planning and market information, banks can successfully enter this extensive new arena.

Author Isern, Jennifer; Porteous, David
Publisher CGAP
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Banking, Agricultural Microfinance
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Rural Finance: Recent Advances and Emerging Lessons, Debates and Opportunities Report 2005

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Rural finance remains very challenging and in developing countries it is generally weak, despite the efforts of donors, governments and private investors to improve it. However, important lessons are emerging from these experiences that provide useful guidelines on how to expand and make more effective the provision of rural financial services.

This report examines these lessons about rural finance. It identifies the recent advances, current debates, major gaps, challenges and opportunities that confront efforts to expand and strengthen it. This review, conducted between June and November 2004, it is based on the latest literature available and on discussions with various donors, practitioners and researchers active in this field.

Throughout this review, the term ‘rural finance’ refers to the provision of financial services to a heterogeneous rural farm and non-farm population at all income levels. It includes a variety of formal, informal and semiformal institutional arrangements and diverse types of products and services including loans, deposits, insurance and remittances. Rural finance includes both agricultural finance and rural microfinance, and is a sub-sector of the larger financial sector.

The authors utilize a conceptual framework based on the new rural financial paradigm that considers rural populations as bankable through effective institutions. Twelve key issues in rural finance are analyzed and discussed within this framework:

Advances in Institutions

  • Reforming state-owned development banks
  • Member-owned institutions: SACCOs and credit unions; self-help groups
  • Expansion of microfinance institutions (MFIs) into rural areas
  • Informal finance provided through buyers and input dealers via value chains
  • Apex institutions

Advances in products

  • Savings: flexible savings products for smoothing incomes and asset creation
  • Term loan products: housing loans and leasing

Advances in services

  • Methods of risk reduction: crop, livestock, and health insurance for client protection; credit guarantee schemes for expanding outreach and institutional protection
  • Remittance and transfer services

Advances in processes

  • Technological advances to reduce transaction costs and improve information

Outreach and Sustainability

  • Reaching in a sustainable manner both economically active, very poor populations and remote areas with appropriate institutions, products, services, and technology

Enabling environment

  • Advances in regulation, supervision, and legal reforms

This report discusses these 12 issues in detail in order to identify recent advances, emerging lessons and remaining gaps in knowledge. Finally, the report provides general suggestions for donors in subjects such as knowledge generation and dissemination, operations and advocacy, emphasizing that more rigorous longer-term studies are necessary, in order to advance knowledge and develop new ideas for extending the financial frontier.

Author Nagarajan, G.; Meyer, R.L.
Publisher Ohio State University
Number of Pages 90 pp.
Primary Language English (en)
Region / Country Global
Keywords Financial Institutions, Financial Products, Technologies, Rural Outreach
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Banking the Underserved: New Opportunities for Commercial Banks Paper 2005

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This paper, from April 2005, focuses on banks rather than microfinancial institutions as providers of financial services to the poor. It asks whether banks have a commercial interest to enhance the quantity, quality, and range of financial services provided to clients who had previously not been considered a profitable market, the “unbanked” poor. The answer, according to this study, is a qualified “yes”. The paper is based on six case studies of institutions: Sogebank/Sogesol in Haiti, Banco Wiese Sudameris in Peru, Hatton National Bank in Sri Lanka, Stanbic Bank in Uganda, Khan Bank in Mongolia, and Capitec Bank of South Africa. The paper would be most useful for commercial bankers looking for arguments in favour of expanding into the unbanked market, though on another level it would also serve policy-makers in governments and international organisations.

The purpose of the study was the document the actual financial experience of a diverse sample of commercial banks that have opted to expand into microfinance as a new line of business. Received wisdom regarding commercial banks in microfinance suggests that they tend to enter the market for social reasons, either as good citizens or under pressure from government, and have stayed because they did find a profitable market. This is only part of the story, as the study shows: other spurs to “downscaling” (marketing to micro rather than macro customers) include a poor macroeconomic environment, as in Haiti, or even a new regulatory environment, as in Mongolia. The study was not able to give an unequivocal answer as to the profitability of microfinance for the banks under consideration, due in some cases to the banks’ own refusal to provide the necessary data, or due, indeed, to such data never having been collected. However, five of the six banks examined in the study show a favourable result with microfinance. Some banks created a new subsidiary company to enter the microfinance sector, while others simply traded on their pre-existing network of local branches to offer a diversified range of financial products to rural and poor clients.

The conclusions of this study are that the most successful bank ventures into microfinance are the ones that the bank takes most seriously and to which it applies the most attention. Banks are often in an excellent position to develop a presence in the microfinance market as they already have the necessary systems (though information systems, it must be stressed, should be modified to incorporate microfinance products), branches, and staff. In all the cases studied, the microfinance product being offered covered the direct financial and operational costs and effectively paid for part of the overhead. Banks that created subsidiary companies like Sogesol in Haiti benefited most from this, as the service company paid explicit rents and other fees to its parent. Of the case studies, that of the Khan Bank of Mongolia provided a particularly interesting example of a former state bank serving a rural clientele, which through changes to regulation and an energetic leadership managed to step back from the brink of disaster and turn itself around, making significant profit from microfinance.

Trade Finance Infrastructure Development Handbook for Economies in Transition Book 2005

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This Handbook is one of the products developed under a three-year project funded through the United Nations Development Account and aimed at building the capacity of selected ESCAP member countries with economies in transition in the area of trade and investment, with a view to enabling them to respond more effectively to the challenges and opportunities emerging from the globalization process.

The Handbook is targeted mainly at officials from ministries in charge of trade who need to acquire a basic understanding of trade finance and the importance of trade finance infrastructure development. Information provided in the Handbook may help to strengthen the trade finance aspects of national trade development strategies and to foster a better understanding of the issues and mechanisms that may need to be discussed with officials in charge of financial sector regulation and supervision.

On the other hand, the Handbook may also provide a platform for financial system regulators to better understand the point of view of trade officials and traders and their needs. Selected chapters may also be of interest to officials from ministries or agencies in charge of information and communication technology with the main responsibilities of developing e-commerce, online banking and e-payment systems.

The first a chapter provides a general introduction to trade finance and trade finance infrastructure development, and an overview of trade finance methods and instruments is given in chapter II. Legal issues and conventions related to the main trade finance instruments are discussed in chapter III, and chapter IV is dedicated to structured trade and commodity finance. The relationship between trade finance and the macroeconomic environment is examined in chapter V and the importance of institutions for trade finance development is highlighted in chapters VI. Issues related to international payment systems and e-trade finance development are addressed in chapters VII and VIII. The Handbook concludes with a proposed trade finance infrastructure development framework based on ITC trade finance pointers methodology and inspired by the ESCAP Trade Facilitation Framework.

Why the Bank Rakyat Indonesia has the World's Largest Sustainable Microbanking System Case Study 2005

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This paper, which was first presented at BRI’s International Seminar in December 2004, outlines the Bank Rakyat Indonesia’s journey from failed credit provider to successful microbanking institution, a passage of over three decades. It provides an overview that will be of interest to other finance institutions, and especially those which have their roots in government initiatives.

BRI began in 1970 as part of an Indonesian government plan to intensify rice cultivation. Composed of 3,600 units which acted as branches under a supervising branch, they provided subsidized credit to rice farmers and other agricultural enterprises. While the rice intensification program succeeded, the credit component failed: this was due to bad planning and poor thinking, mingling government-mandated loan terms and ceilings with inefficiency, a high loan default rate, a badly trained and uninterested staff, and a system prone to abuse and corruption. Calls to shut BRI down were not heeded by the government, which instead transformed BRI into a commercial microbanker. Various preconditions aided this transformation. First, Indonesia had enjoyed two decades of economic and political stability, second, oil wealth had been spread around in rural areas in the 1970s, leading to increasing demands for banking for the rural population, and third, the economics team of the Ministry of Finance began to acknowledge the importance of microfinance. Perhaps a more important precondition, however, was the government’s correct forecast of a decline in oil prices in the early 1980s, which set the stage for a greater private-sector role in savings and investment. In 1983, these factors came together to produce a new strategy for BRI which would transform it into a large-scale microbanking institution: recognising that its 3,600 units could form the nucleus of a banking system if properly managed and with skilled and committed management, with a commercial loan portfolio funded by public savings whose profits would built BRI’s longterm viability as a microbanker. By 1986 commercial microbanking (loans and savings services) were being offered at all units throughout Indonesia, with increased outreach and growing profits. The government spurred this change in part with a wide-ranging financial deregulation in 1983, which permitted state banks to set their own interest rates, and in part by guaranteeing unit funding for only two years, after which, if the unit had not become profitable, it would be closed. Units were given a fresh start, with some new cash equity and unburdened with liabilities, which were transferred to the supervising branches. A new corporate culture was introduced, emphasising cooperation among staff members, good staff training, and performance-based incentives. Strong leadership from the chief administrative figures was a key element in the successful transition.

The over twenty-year-long life of BRI as a microbanking institution receives the bulk of the author’s remaining attention. She stresses that the institution continued to grow, even during the difficult years following the start of the east Asian financial crisis in 1997. As many of BRI’s clients did no business abroad, they were only indirectly affected by the massive devaluation of the Indonesian rupiah. Moreover, the almost fifteen years of BRI’s successful functioning as a microbanker gave it such client confidence that new clients actually deserted their failing banks during the crisis, to transfer their money to BRI. Another reason for this institution’s success is its emphasis on savings rather than on loans, which ensures it has a strong basis upon which to mobilise funds. From here the author then speculates about the emerging global microfinance industry, and compares BRI favourably with Bangladesh’s famous Grameen Bank. This history of the BRI provides salutary lessons for successfully reforming a financial institution:

  • give strong leadership;
  • cultivate an awareness of the importance of microfinance;
  • train staff and encourage them to get involved in the spirit of the enterprise;
  • when appropriate, stress savings so as to provide stability for loans; and
  • strive to migrate from government financial support to viable economic independence as soon as possible.
Financing Microfinance Institutions: Context for Transitions to Private Capital Paper 2004 English (en)

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This resource is a narrated, online presentation that explores the reason for the existence of a gap between microfinance institutions' demand for finance and the current supply of private sector funds, which are controlled by investors who remain cool to invest in MFIs despite the microfinance industry’s demonstrated profit potential.

It explores specific challenges for the industry to mobilize commercial capital, including savings, debt and equity (both foreign and domestic), as well as the impact that continued donor subsidies have on microfinance commercialization.

It concludes with suggestions to donors and other stakeholders on how to move the industry toward this vision as the best way to significantly expand outreach to the poor.

View Resource  -  English (en)

Author de Sousa-Shields, M.
Publisher USAID
Number of Pages 78 pp.
Primary Language English (en)
Region / Country Global
Keywords Microfinance Institutions, Outreach, Agricultural Finance
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What Matters in Rural and Micro Finance 2004

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This paper is a brilliant resumé of ...well, what matters in rural and microfinance. It is full of wise advice for donors and policy-makers. Dieter Seibel starts by providing historical perspective, reminding readers about the two worlds of development finance - the old needs-driven approach and the new institution-building approach. He provides an excellent tabulated summary of how these two worlds differ in terms of a whole variety of factors, e.g. policy environment, legal framework, institutional focus, selection of clients, agricultural banks, rural banks, remote areas, sustainability and many more. He reviews the rural and micro finance market, noting that one might conclude from the CGAP Micro Banking Bulletin that there are relatively few viable MFIs in the world but also pointing out that when you take into account rural credit cooperatives in China, rural and village banks in Indonesia, rural banks and savings and credit cooperatives in the Philippines, community and rural banks in Nigeria and Ghana, and the vast numbers of banks, cooperatives and self help groups in India, the numbers don't look quite so small. Worldwide the number of informal financial institutions probably runs into the tens of millions.

In the next part of the paper, Dieter pursues the theme of what matters. He deals with each of the following topics in turn:

  • Client experience matters – illustrated with some wonderful anecdotes.
  • Origins matter – poverty matters, informal finance matters, history matters, crisis matters, development matters and culture matters.
  • Financial systems matter – capital matters but capital transfer has undermined rural finance and development, savings matter but only in conditions of macroeconomic stability, savings and credit matter but which one comes first, financial intermediation matters, financial sector policy matters, the legal framework matters, interest rates matter, institutions matter (projects don't), competition matters, prudential regulation and effective supervision matters, knowledge matters.
  • Institutions matter – including all these aspects: ownership, autonomy, viability, efficiency, sustainability, self-reliance, outreach, portfolio diversification, lending technology, innovation and flexibility, reform and more.
  • Operational aspects matter – good practices matter (not best practices, just good ones), institutional size matters but not absolutely, profits, incentives, repayment, information, delivery systems, financial products and loan protection all matter.
  • What matters to the poor? Access to savings and credit, rural enterprise viability, household portfolio diversification, market segments and differentiated financial products all matter, the non-poor matter, as does autonomy and the culture of labour division.
  • Donor policy and coordination matter.

And so to a succinct conclusion with advice on what sustainable development and sustainable rural micro finance require, what governments have to provide and donors might contribute. If you haven't time to read it all, there is an executive summary and even the contents page has useful asides. You should read it all though.

Author Seibel, H.D.
Publisher University of Cologne
Number of Pages 61 pp.
Primary Language English (en)
Region / Country Global
Keywords Development Finance, Rural Finance, Policy-Making
Related Resources
The Service Company Model: A New Strategy for Commercial Banks in Microfinance Paper 2003

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This paper highlights that commercial banks have been increasingly important players in the development of microfinance services in Latin America over the last few years. It suggests that commercial bank "downscaling" to the microfinance market is good news for microfinance customers because banks can offer them a full range of financial services, including credit, savings and fee-based services. It suggests too that it is important for microfinance as a whole, because with their extensive physical, financial and human resources, banks can launch and expand microfinance services relatively inexpensively. As such, if commercial banks become serious players in microfinance, they may offer strong competition to traditional MFIs.

The paper also believes that there is a perception within the microfinance community that commercial bank entry into microfinance will be short-lived or shallow. It points out, however, that ACCION International has developed relationships with several commercial banks to launch and expand microfinance operations. It has used an approach known as the "service company model" in an attempt to overcome the obstacles to commercial bank entry and to establish long-term microfinance operations through a commercial bank.

The paper highlights four distinct advantages that it believes well-established commercial banks offer the field of microfinance:

  • Physical and human infrastructure
  • Market presence and brand recognition
  • Access to plentiful and low-cost funds
  • Low cost structure

Yet it also acknowledges several factors that tend to keep banks from significant entry into microenterprise lending.

  • Market knowledge
  • Credit methodology
  • Trend towards automation
  • Conservative corporate culture
  • Human resources

This paper describes the service company model and how it aims to address the key issues in commercial bank entry into microfinance and aims to identify success factors for a well-functioning microfinance service company. In addition, it presents results from two microfinance service companies:

  • SOGEBANK/SOGESOL in Haiti
  • Banco del Pichincha in Ecuador
Eight Questions about the Relationship between Finance and Economic Development Paper 2003

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This paper is a useful literature review of the key material on financial systems analysis since the 1960s, pointing out the key debates and arguments, as well as gaps in the research. This is commendable given the sheer mass of empirical research on this subject in recent years. Meyer also, importantly, identifies the limitations and omissions in his work. The paper draws a few key conclusions based on the literature, and identifies several main policy implications.

These are eight questions that Richard Meyer asks, and reviews one by one:

  1. How have economists’ views evolved over time regarding the relationship between the financial system and growth?
  2. What does the empirical evidence reveal about the connection between financial development and growth?
  3. Does the structure of the financial market make a difference?
  4. How does the legal and regulatory environment affect the performance of the finance system and its impact on economic growth?
  5. Does the impact of finance vary by size or type of firm or industry?
  6. What is the paradigm shift that has occurred concerning the appropriate methods to increase the supply of financial services, especially credit, to small and medium enterprises (SMEs) and to agriculture?
  7. What is the objective of microfinance, and what are the differences between the successes of some microfinance development projects and the failures of most SME and agricultural credit programs?
  8. What has been the impact of providing the agricultural sector and microentrepreneurs with greater access to formal finance?

The most significant conclusion of this paper is that indeed ‘finance matters’ and financial intermediaries are important for economic growth. The reasons behind this are that they influence total factor productivity growth rather than increase savings or grow the level of the capital stock.

Other significant findings are that government ownership of banks can stifle the growth of the financial sector, and in turn the overall economy; outside investment can be beneficial; and adequate legal systems are needed, to protect the rights of outside investors, as this contributes to the development of the financial system and the wider economy.

This presents a clear policy signal that governments should move away from financial sector ownership to focus on creating a sound regulatory environment, and a strong financial infrastructure that supports an efficient financial system. In addition, governments need to place greater emphasis on financial institution building that serves agriculture and the poor, even though these can be slow and expensive processes.

Another key conclusion is that the directed credit paradigm when used in SME and agricultural credit projects, has been largely a categorical failure, compared to that of microfinance, despite its limitations and sustainability problems. While there may be cases where the expansion in credit supplies contributed to agricultural growth, this growth may instead be due to the improved access to finance rather than subsidized interest rates. Subsidies have simply created distortions, which have not aided the development of strong financial systems, particularly in agricultural areas.

Author Meyer, R.
Publisher Ohio State University
Number of Pages 18 pp.
Primary Language English (en)
Region / Country Global
Keywords Financial System, Subsidies, Regulatory Environment, Economic Growth
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Going Postal to Deliver Financial Services to Microclients Article 2003

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This article, directed toward microfinance theorists, discusses the role of post-office savings banks (POSBs), which function as microfinance institutions in many developing countries, particularly Asian countries, which form the basis for this short study. POSBs have many attractive aspects: they are accessible even in remote areas, they accept even tiny deposits, and have longer hours than most microfinance institutions (MFIs). Moreover, they generally have a good relationship within their neighbourhoods (everyone knows their mailman or mailwoman), their deposits are protected by the government and can even provide tax benefits. Despite these and other benefits, major issues restrict the use of POSBs as a viable alternative to expand microfinancial services to the unbankable. First, as POSBs are generally owned by governments, bad governance means a poorly-functioning POSB, and political issues may affect the POSB more than other MFIs. Second, POSBs are generally passive receivers of deposits, and do not offer a wide range of financial services, and are often heavily subsidised by governments, both of which tend to de-emphasise the goal of POSB self-sufficiency and viability as a microfinance institution.

The author discusses ways of helping POSBs to provide an expanded series of effective services. One suggestion is to create an autonomous board of directors from the private sector, so the POSB is able to act independently of government financial policy. Financial services and products need to be diversified; the author suggests that POSBs join forces with other local MFIs to offer more services cost-effectively. Staff need to be better trained in financial services rather than just as postal workers. In the end, the article poses some questions that should be asked before development of POSBs should begin, all concerned with viability and the need for expanded services in the regions under consideration. This article comes complete with fact boxes comparing the experience of POSBs in different Asian countries, and though sketchy, it is both interesting and thought-provoking.

Author Nagarajan, G.
Publisher ADB
Primary Language English (en)
Region / Country Global
Keywords Post Office Savings Bank, Postal Banking
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Making Rural Financial Institutions Sustainable Guideline 2003

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The provision of financial services in rural communities is a very challenging task, especially in developing countries. This guide has been developed as part of a project assisting the development and replication of financial service cooperatives in rural areas of South Africa. It is a “how to” manual on designing and establishing a framework of best practice rules that will help to ensure sound, sustainable operations in a rural financial institution (RFI).

The guide first stresses the need for a regulatory framework which enables RFIs to operate within a constructive set of rules, with independent oversight. The writers observe that a regulatory framework can be structured in many ways and still be effective. The important factor is to involve all the key stakeholders in the formulation of the rules to ensure that they are acceptable and likely to work.

The guide then sets about defining supportive rules and standards that encompass best practices of banking and will help RFIs to be sustainable. Following the discussion of each rule are questions to consider and illustrations of generic operating rules. The issues covered include:

  • business purpose and scope of business
  • ownership, customers and members
  • profit distribution
  • governance – Board of Directors and conflicts of interest
  • capital adequacy
  • safekeeping of deposits
  • credit policies and procedures, and managing the loan portfolio
  • asset/liability management
  • interest rates on deposits and loans
  • accounting standards, reporting and auditing issues
  • compliance with other laws

The guide also provides a useful list of reports for monitoring compliance and advice on the use of enforcement or corrective methods when unsafe, unsound and illegal banking activities are identified. Another topic covered is that of RFIs forming relationships with one another and also developing affiliations with commercial banks, funding sources or community interest groups. The guide closes with a ‘sustainability checklist’, which can be used by those interested to assess the completeness and adequacy of their particular RFI rules and standards.

This interesting guide provides a comprehensive introduction to the most important rules and standards that any organization involved in providing financial services to small farmers, village entrepreneurs, pensioners and others should follow. It is useful resource for government officials working in the Ministry of Agriculture or Finance and staff of a central bank. It is also invaluable for people who are working to establish new financial services in rural communities or who are concerned with overcoming known weaknesses in a group of existing RFIs, as well as advisers in technical assistance programmes aimed at improving the well being of the rural poor.

Author Fries, R.J. et al.
Publisher US-Republic of South Africa Bi-national Commission
Number of Pages 36 pp.
Primary Language English (en)
Region / Country Global
Keywords Rural Finance, Regulation, Financial Management, Cooperative, Governance
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Credit Rationing in Rural India Paper 2002

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The view that households are credit rationed by the formal sector, rests on the assumptions that all households have a positive demand for formal credit and it is a cheaper source for borrowing. To empirically verify formal credit rationing three different models are estimated in this paper. The first model is a conventional credit-rationing model. The second model assumes that the probability to borrow from the formal sector is jointly determined by the demand for credit and the decision of the bank on access. Finally, the third model relaxes both these assumptions and the household chooses between borrowing from the formal or the informal sector. Empirical results using recently collected data from Puri, India, confirm that the access to the formal sector in the rural credit markets is limited and there exists a high demand for credit. This suggests a high degree of effective credit rationing by the formal sector in Puri.

Author Ranjula Bali Swain
Number of Pages 20 pp.
Primary Language English (en)
Region / Country Global
Keywords Access To Credit, Credit Rationing, Rural Credit Markets
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The Economic, Legal and Regulatory Environment: Deepening Rural Financial Markets Book Chapter 2002

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This paper notes that one of the explicit goals of recent development strategies in Latin America and the Caribbean has been to promote more competitive, efficient and stable rural financial markets with broader and deeper outreach. The main objective was to improve outreach and quality of services by reducing the cost of rural financial intermediation, and widening the range of financial services provided, above and beyond loan services.

This paper suggests that even though, all in all, the behaviour of suppliers and demanders is what determines the depth of rural financial markets, the ‘environment’ does create opportunities and impose restrictions that shape these behaviours. The ‘environment’ itself is understood to mean all the conditions external to demanders and suppliers, which affect the performance of rural financial markets. Some of these conditions are noted to be inherent to the natural environment or the results of human effort to modify the natural environment. Other conditions are inherent to the institutional environment created to facilitate transactions, to modify the results of market forces, or to promote certain activities, and to prevent instability, which could lead to opportunistic behaviour on the part of financial intermediaries and other market agents.

This paper examines the elements of the environment that typically effect rural populations’ capacity to save and to take on debt, transaction costs incurred by all who take part in rural financial markets, and the risks they face. Considered amongst the factors that determine transaction costs are market size and typical amounts transacted, distances, deficient information, and the weakness of the procedures in place to force compliance with intertemporal contracts.

This paper presents a comparative analysis of the rural financial markets of Costa Rica and El Salvador, based on studies by the Central American Academy and the Salvadoran Foundation for Economic and Social Development. Following this, the environments of Bolivia, Chile and Peru are examined, based on research conducted by the Peruvian Centre for Social Studies.

The paper concludes with a comparative analysis of Central and South American countries involved and lessons of general interest that were drawn from the analyses.

Author Gonzalez-Vega C., Larde de Palomo A., Loria M., Jimenez R., Quiros R., Alvarado J., Galarza F., Cajavilca J.
Publisher Banco Interamericano de Desarrollo
Number of Pages 113 pp.
Primary Language English (en)
Region / Country Global
Keywords Legal Environment, Economic Environment
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Estrategia para la Profundización de los Mercados Financieros Rurales en los Países Andinos y del Caribe Paper 2001

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En este documento el autor explora y analiza elementos para la formación de una estrategia de profundización de los mercados financieros rurales (MFRs) en los países andinos y del Caribe. El marco conceptual de esta estrategia se basa en la visión contemporánea de las finanzas rurales que considera nuevos conceptos teóricos, lecciones aprendidas de experiencias del pasado, oportunidades tecnológicas y una diagnosis mejorada del funcionamiento de los MFRs.

Dentro de una estrategia de promoción y apoyo a los MFRs bajo el mencionado marco conceptual, se considera el reconocimiento de los servicios financieros como insumos intermedios, necesarios para desarrollar las demás actividades productivas y hacer un mejor manejo de los riesgos de los hogares-empresas rurales. De esa manera el sector financiero es considerado un sector productivo, donde la reducción de los costos de transacción y el mejoramiento de la calidad de los servicios, contribuyen a la profundización financiera. Asimismo, se reconoce un nuevo rol del estado en la promoción y apoyo de dicha profundización, proveyendo de una adecuada infraestructura física e institucional para que los MFRs funcionen eficientemente.

Esta estrategia busca superar los obstáculos de profundización financiera en las áreas rurales y al mismo tiempo integrar dichas áreas al sistema financiero global. En ese sentido, de acuerdo al autor, la estrategia busca completar la tarea del desarrollo financiero del país, ya que un mejor funcionamiento del sistema financiero nacional es una condición necesaria, pero no suficiente, para la profundización de los MFRs. También se requieren acciones específicas (no aisladas) que partan de una visión de sistema del sector financiero y que propicien la integración del segmento rural con este sector.

De acuerdo al autor, esta estrategia debe ser de largo plazo, de tal manera que promueva políticas coherentes, mecanismos institucionales sólidos y la sostenibilidad de las organizaciones; así como tecnologías y productos financieros apropiados que evolucionen con la demanda. En resumen, crear MFRs eficientes que contribuyan a un desarrollo rural ‘dinamico, sostenible y equitativo’. De otro lado, la estrategia propuesta considera ‘lo rural’ en un sentido amplio sin asumir distinciones propias de cada contexto. En ese sentido la población rural se asume sólo como aquella que no habita y desarrolla sus actividades socioeconómicas en los principales centros urbanos de cada país.

Asimismo, la estrategia no distingue entre diversos tipos de empresa, tamaño de clientes ni naturaleza de las actividades que realizan. La idea es incrementar el dinamismo de la economía local brindando servicios financieros simultáneamente a unidades productivas de todo tamaño y tipo, que por su ubicación no tengan acceso a los mismos. De esa manera, una diversificación de cartera hace que las instituciones financieras también diversifiquen su gama de productos, reduzcan sus costos de transacción, diversifiquen sus riesgos, desarrollen economías de escala y de ámbito, y sean más sostenibles.

La estrategia también considera la ampliación del espectro de productos y servicios financieros a ofrecer, salir del esquema de la oferta de crédito al reconocimiento de la importancia de los servicios financieros en general (depósitos, servicios de pagos, remesas, prestamos a largo plazo, entre otros). Asimismo, es importante, pero aún debatible, que la oferta diversificada de servicios sea hecha por un mismo tipo de intermediario (banca múltiple), ya que ello también permite la creación de economías de escala y de ámbito, así como la reducción de los costos fijos.

Finalmente, en la estrategia se sugiere un mejor entendimiento de, la naturaleza de las dificultades, las limitaciones de la intervención estatal, el verdadero rol de los servicios financieros; así como, a operar en entornos mas favorables, aprender de las lecciones exitosas y reconocer de manera correcta a las amenazas.

Si bien es cierto, este documento ha sido elaborado para diseñar una estrategia de profundización de MFRs en América Latina, ésta también es aplicable a economías similares. La lectura de este documento es recomendada a agentes del gobierno, agencias donantes, organismos de desarrollo rural, bancos y otras instituciones financieras, entre otros.

Author Claudio Gonzalez-Vega
Publisher Banco Interamericano de Desarrollo
Number of Pages 61 pp.
Primary Language Spanish (es)
Region / Country Global
Keywords Environment, Rural Financial Policy, Financial Institutions
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Postal Savings and the Provision of Financial Services: Policy Issues and Asian Experiences Paper 2001

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The postal system is one of the institutions that can be used to mobilise and allocate financial resources. Postal financial services can include postal savings, postal remittances, postal checking and "giro" services. Such financial services can be made available through the broad network of postal facilities and may be provided as a public service, which includes the possibility of the post acting as an agent on behalf of another institution, or also when the postal system is privately owned.

This paper examines the policy and management issues confronting postal financial services along with reviews of the experiences of various countries (including 13 Asian countries).

The paper begins by introducing postal financial services and the factors that contribute to its success. It then seeks to address the impact of market liberalisation upon the changing economics of the posts. A review of both the current state of postal savings and the different types of governance regimes of the posts, in developed and developing countries, is also provided and followed by a review of changes in recent decades in policy approaches to postbanks and privatisation. The latter review considers in turn, the effect these changes have on the loss of postal financial services and the problem of financial exclusion.

The penultimate section reviews the experiences of a number of Asian countries with respect to management and organisational issues, including savings product development, investment policy on funds, building overseas remittances, and the introduction of appropriate financial technology. The paper then concludes by setting out policy proposals on postal financial services in developing countries, focusing on the delivery of services to underserved populations, strengthening savings mobilisation and overseas remittances, and the investment of funds for development.

The poor and their money Book 2001

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This book illustrates the many ways by which poor people in developing countries manage their money, from keeping notes under floorboards and using moneylenders and savings collectors to devising and running sophisticated savings, loans and insurance clubs. All these devices are, essentially, ways to turn small savings into large enough lump sums. The author emphasises the pivotal role of savings in the life of the poor, contradicting the misconception that they are too poor to save. The book describes the recent attempts of pro-poor banks and microfinance institutions to study how the poor manage their own money in order to that they may design better financial services. Based on twenty-five years of experience, Rutherford's work is grounded in the real lives of people in Asia, Africa, and Latin America.

"Poor people can save and want to save, and when they do not save it is because of lack of opportunity rather than lack of capacity. During their lives there are many occasions when they need sums of cash greater than they have to hand, and the only reliable way of getting hold of such sums is by finding some way to build them from their savings. They need these lump sums to meet lifecycle needs, to cope with emergencies, and to grasp opportunities to acquire assets or develop businesses. The job of financial services for the poor, then, is to provide them with mechanisms to turn savings into lump sums for a wide variety of uses (and not just to run microenterprises). Good financial services for the poor are those that do this job in the safest, most convenient, most flexible and most affordable way.

The poor seek to turn their savings into lump sums by finding reliable deposit takers, by seeking advances against future savings (loans), or by setting up devices like savings clubs and ROSCAs. A study of these traditional methods reveals the importance of the frequency and regularity of deposits, of the time-scale over which the deposit/lump-sum swap is made, and of the relative merits of systems that offer just one kind of swap as against those that offer multiple swap types. It also shows how interest rates have been used to manage the risks faced by savings club members.

Some, but not all, of these lessons have been learned by the two new sets of players that have emerged recently to form the new 'microfinance industry'. There are 'promoters' - organisations that seek to help the poor set up financial services devices owned by themselves or their communities - and 'providers' - new financial intermediaries which sell financial products to the poor. Providers, it is found, are better able to reach large numbers of poor people with innovative products that build on the experience of the informal sector. To develop good financial services for the poor we need products that suit the poors’ capacity to save and their needs for lump sums, and product delivery systems that are convenient for the poor. The essay ends by discussing how the process of establishing such products and institutions can be accelerated.

The essay is not an academic paper. It is aimed at microfinance practitioners and their backers, and is intended to stimulate them to invent and test financial products for the poor and to develop suitable institutions to deliver the products." (Rutherford, 1999)

Getting the Recipe Right: The Experience and Challenges of Commercial Bank Downscalers Paper 2001

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This Working Draft notes that commercial banks and other regulated actors continue to enter the microfinance world - in a process it calls downscaling. In theory downscaling is a good solution to microentrepreneurs’ lack of access to credit. Banks have plentiful resources and a large infrastructure to reach out to thousands of clients. Surveys and anecdotal evidence collected for paper chapter, however, indicate that downscaling is a difficult endeavour.

It suggests that the experience of these new entrants in microfinance has been mixed. A few commercial actors have succeeded, others are struggling and some have simply given up. This parallels the experience of microcredit non-governmental organizations (NGOs). But unlike the NGOs which are buttressed by a strong sense of mission as well as donor funds, most commercial banks usually make their decision to exit the market quickly. For this reason, there are already a number of well-known cases of bank exit.

However, the paper goes on to argue that looking across the range of commercial experiences, there are at least four reasons to be cautiously optimistic:

  • Today more commercial banks are using “microfinance best practices” than ever before.
  • Some commercial actors have expanded their client base very quickly to the tens of thousands, faster than many of the leading microcredit NGOs, and at minimal cost to donors.
  • New types of commercial actors have emerged. There is no single downscaler profile, but instead, commercial institutions of all shapes, sizes and orientations have entered the market.
  • Some of these commercial actors are showing important profits in their microlending operations, in some cases, these returns exceed those of other bank departments.

This paper contains the following five sections:

  1. What happened to the 18 pioneering banks offers an update of the 18 banks featured in the 1997 Commercial Banks in Microfinance paper. The experience of these banks has been quite mixed.
  2. 2001 survey results presents the results of a bank survey conducted for purposes of this chapter in early 2001 to which 42 banks responded. It divides the banks into four peer groups and presents survey findings, among them the use of best practices, the types of methodologies used, loan sizes, and their technical assistance needs.
  3. Hurdles of downscaling, draws from the original paper, the 2001 survey and interviews, and overall trends. It analyzes some of the challenges banks face in developing a microcredit portfolio and explores why banks exit.
  4. Role of donors discusses which types of commercial institutions are the best partners for donors as well as the most appropriate interventions for donors.

The paper ends with a summary of the most important findings, remarks regarding the ingredients for downscaler success and some future challenges.

Financial Services Association (FSA): Concept and Some Lessons Learnt Paper 2000

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The FSA is an approach to rural finance which combines aspects of an investment company focusing on risk capital, financial returns, and shareholder value with aspects of community finance, focusing on local accessibility, user ownership, and outreach to the poor. The FSA model offers the attractive prospect of high returns for investors providing risk capital, through high-demand loans, the application of commercial interest rates, and an intelligent mode of capping expenditure relative to earnings. At the same time, the FSA offers cost-effective and accessible financial services to the local community: the FSA model allows for local ownership, allowing the FSA to be highly responsive to community needs and elevating user trust and commitment. This article provides a useful overview of the FSA model which will be helpful to those considering alternatives to more traditional financial institutions.

The FSA is well-designed to overcome many of the problems besetting rural financial institutions. To avoid the usual gulf that exists between primarily urban commercial banks and a rural clientele, the FSA is locally-owned and locally-run, making it highly responsive to the specific needs of the community it serves. Users are compelled to be shareholders. This guarantees a closer relationship between the user and the institution, with a consequent decline in loan default rates. As it is owned and run by its users, though day-to-day management is in the hands of third parties, the FSA is a particularly flexible and sensitive institution at a local level. Payment of the very pared-down staff is based on a proportion of profits, thereby providing an incentive for good performance.

Perhaps the primary attraction of the FSA is that it functions as a profit-driven business rather than a donor-driven NGO or a credit union, thus avoiding many of the problems affecting those institutions. It is conceived as a “money shop”, not merely a community service, and shareholders can reasonably expect a return on their investment. The model has been tried with success in sub-Saharan Africa and the author postulates that it could find success in central Asia, where he has done preliminary fieldwork. However, there is no clear reason why this model could not be universally applicable in any community where cash is circling and where a demand for business loans exists.

There are problems with the FSA model, particularly in the area of regulation and supervision. This article mentions several methods of addressing this problem, including external bank supervision, a rating agency, and franchising/licensing. All these solutions create problems of their own and the author does not satisfactorily address them, suggesting instead the possible solution of a voluntary regulatory association formed of groups of FSAs, an idea that needs more development. Individual case studies from a sample country, Uganda, show the variety of successes and the spectrum of problems facing the FSA model. The next decade will show how successfully the FSA can educate its members in good financial practices, and what regulatory solutions work best. Until it stabilises, the FSA model must still be considered a work in progress, but its achievements in bringing financial services to the rural poor so far are encouraging. This report gives a balanced and thoughtful summary of the institution and its functioning: particularly useful is its last section, “Lessons Learnt”, which offers a quick survey of the institution’s ups and downs so far.

Informal Finance: Origins, Evolutionary Trends and Donor Options Paper 2000

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Informal financial institutions (IFIs), among them the ubiquitous rotating savings and credit associations, are of ancient origin. Owned and self-managed by local people, poor and non-poor, they are self-help organizations which mobilize their own resources, cover their costs and finance their growth from their profits. With the expansion of the money economy, they have spread into new areas and grown in numbers, size and diversity; but ultimately, most have remained restricted in size, outreach and duration. Are they best left alone, or should they be helped to upgrade their operations and integrate into the wider financial market?

Under conducive policy conditions, some IFIs have spontaneously taken the opportunity of evolving into semiformal or formal microfinance institutions (MFIs). This has usually yielded great benefits in terms of financial deepening, sustainability and outreach. Donors may be able to build on these indigenous foundations and provide support for various options of institutional development, among them, e.g. incentives-driven mainstreaming through networking; encouraging the establishment of new IFIs in areas devoid of financial services; linking IFIs/MFIs to banks; strengthening NGOs as promoters of good practices; and, in a non-repressive policy environment, promoting appropriate legal forms, prudential regulation and delegated supervision.

This paper is illustrated throughout with examples drawn from the author's experience and gives a useful introduction to the concept of Financial Services Associations (FSAs) which was pioneered by IFAD. FSAs provide a flexible model for the delivery of low cost financial services in rural areas by establishing village level financial structures that are initiated, owned and operated by villagers themselves. At the end of the paper there is a useful summary of the objectives donors may pursue in order to mainstream IFIs, together with a checklist of possible key results and outputs.

This paper was first presented at the conference on Advancing Microfinance in Rural West Africa held in Bamako, Mali in February 2000 and later published in the Journal of Developmental Entrpreneurship, Vol. 6, No. 1 (April 2001)

Author Seibel, H.D.
Publisher IFAD
Number of Pages 12 pp.
Primary Language English (en)
Region / Country Global
Keywords Member Owned Institutions, Informal Finance, Financial Service Associations
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BANCOSOL The Challenge of Growth for Microfinance Organizations Article 1996

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This paper focuses on the difficulties inherent in the prudent management of growth of microfinance organizations and on potential limits to the increased efficiency, profitability, and sustainability expected from growth and large size. The paper addresses both positive and negative implications of rapid growth for microfinance organizations.

The experience of BancoSol in Bolivia is used to illustrate these questions. Building upon the successful experience of PRODEM, BancoSol was chartered as a private commercial bank in 1992. The paper discusses the intangible assets inherited from PRODEM that gave BancoSol a head start and the additional advantages that resulted from formalization as a bank, in particular from the authorization to mobilize deposits. BancoSol shows outstanding success in terms of breadth, depth, and quality of outreach and in terms of sustainability. It is the microfinance organization with the largest number of clients in Latin America and it reaches poor clients who could never expect to gain access to conventional financial institutions.

The paper discusses the incentive structure associated with a lending technology that has resulted in low loan arrears and the cost-effective supply of small loans. Success is explained by a strong concern with financial viability, development of a lending technology appropriate for the market niche, a long learning period, and upgrading into a formal intermediary. As it grew, BancoSol had to face a reduction of revenues as a proportion of productive assets and an increase in the average cost of funds, which combined reduced its operating margin by 13 percentage points. This challenge was fully met by reducing operating expenses as a proportion of productive assets.

While growth of PRODEM had been mostly constrained by too rigid access to donor funds, growth of BancoSol has been constrained by threats on asset quality and by diminishing marginal economies of size. Portfolio efficiency has grown steadily. This growth has been the net outcome, however, of reductions in transactions efficiency after transformation into BancoSol and of increases in average loan size.

The paper explores the sources of increases in loan size and concludes that mission drift has not occurred at BancoSol. The evolution in transactions efficiency is related, in turn, to sources of extensive (installed capacity) and intensive (productivity) growth. Extensive growth has been rapid at BancoSol and it tends to dampen productivity increases. Finally, the paper reviews the pressures from growth on the original informal culture of the organization and the gradual establishment of more formal structures.

Author C. Gonzales-vega, M. Schreiner, R. L. Meyer, J.Rodríguez, S. Navajas
Publisher Department of Agricultural Economics, Ohio State University
Number of Pages 41 pp.
Primary Language English (en)
Region / Country Global
Keywords Commercial Banks, Microfinance Institutions, Agricultural Credit
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A Critical Typology of Financial Services for the Poor Paper 1996

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This resource appears in: Rural Financial Services: General

This paper explores the range of indigenous systems of financial service provision for the poor and demonstrates the diverse, ingenious and sometimes complex ways that have been devised to enable poor people to better manage their finances. Each example includes a boxed description of a real case and they are organised into categories, e.g.

  • Informal user owned devices - neighbours, ROSCAs and savings clubs
  • User owned devices - popular insurance, building societies and cooperative business finance
  • Informal services for profit - deposit takers and lenders

The author also describes some NGO assisted schemes and a selection of formal services. Altogether almost 60 financial service devices are described in this paper, mostly from Asia, and it is an extremely revealing account. It highlights the need for practitioners to learn from financial services that already exist before designing new interventions, and to innovate and experiment with a wider range of services than savings and credit.

Author Rutherford, S.
Publisher ActionAid
Number of Pages 52 pp.
Primary Language English (en)
Region / Country Global
Keywords Informal Financial Services
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The Role of Financial Regulators in Promoting Access to Financing for MSMEs Paper

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This resource appears in: Rural Financial Services: General

This Guideline Note was developed by the AFI SME Finance (SMEF) Working Group. The information presented here is based on evidence and findings from two surveys conducted with over 25 SMEFWG member institutions in seven regions, as well as secondary research. The purpose of the Guideline Note is to share the experiences and practices of member countries that have implemented various policy initiatives to increase access to financing for SMEs. The initiatives are organized by the overarching objectives the member countries aimed to achieve.

The Guideline Note does not provide assessments or recommendations on whether these policy initiatives are suitable or effective. Rather, in line with the key objectives of the SMEFWG, we aim to create a deeper understanding of the various policies and interventions.

Publisher Alliance for Financial Inclusion (AFI)
Kuala Lumpur, Malaysia
Number of Pages 12 pp.
Primary Language English (en)
Region / Country Global
Keywords Access To Finance
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