Rural finance - The key to development in rural regions
The overwhelming majority of the world's poor live in rural regions. The economic development of such regions is one of the keys to reducing global poverty. One of the main criteria in this regard are financial services that take account of the needs of farmers and small agricultural businesses as well as non-agricultural occupations such as traders and manufacturers.
|•||Three-quarters of the 1.2 billion people living in extreme poverty on less than 1 US dollar a day live in rural regions.|
|•||Savings options, access to credit and insurance services are essential requirements for virtually all rural population groups. They support the ability to manage risks, take advantage of new income opportunities and accumulate assets.|
|•||As a result of deficient infrastructures, low education levels and high costs, it is often more difficult and expensive to establish financial systems in rural regions than in urban areas, and as such requires longer-term support.|
|•||Measures to develop non-agricultural activities in rural regions are just as important as efforts to promote farming.|
Despite the important economic role played by rural regions, they generally suffer from a distinct lack of financial services. Financial services for farmers, agricultural and non-agricultural
operations are either non-existent or inappropriate and very expensive.
Rural finance differs from urban finance in terms of the demand characteristics. Credit requirements are of a medium to long-term nature; loans carry more risk and frequently entail significantly higher transaction costs. This calls for credit mechanisms which are generally more complex than for short-term credit. In addition to the interest structure and risk assessment for loans, the medium to long-term procurement of funds poses a key challenge. Long-term refinancing, time deposits and appropriate equity structures are therefore particularly important for rural finance. The mobilisation of savings and the diversification of the credit portfolio by including loans for non-agricultural activities and home construction support the economic sustainability of rural financial institutions.
The development of rural financial systems entails a range of specific challenges. These include low population density and low economic activity, high transaction costs due to deficient infrastructures (roads, telecommunications) or insufficient population and ownership records, a lack of qualified personnel in financial institutions as a result of the low education level, special agricultural risks, such as fluctuating precipitation, plagues of pests and disease, and price fluctuations. In addition, there is the risk of independent financial institutions being driven out by state-imposed restrictions on interest or interest subsidies by banks or development projects.
|The SDC focus
SDC promotes innovative approaches and projects for the development of an inclusive rural finance system that supports both agricultural and non-agricultural activities with appropriate financial services, such as savings, credit, payment transactions and insurance etc. SDC capitalises synergies with other rural development measures which promote quality, productivity and the marketing of agricultural produce. The main focus is on:
Specific themes in this area:
Financial services for poor segments of the population and micro enterprises who have no regular access to the services offered by classical financial institutions.
Small enterprise finance
Small enterprises are of major importance in achieving broad-based development and employment. Yet often such enterprises have no access to services tailored to their needs.
People in developing countries and transition countries tend to be exposed to a wide range of risks such as disease, harvest failure, loss of income and theft, yet they have virtually no formal insurance protection.
Additional Information and DocumentsDocuments
- Policy for Financial Sector Development
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- Two Rural Finance and Employment Programmes in India «SERI 2000» and «SIDBI» - Evaluation 2009/3
Download (PDF, 7443 KB) : [en]
Articles and Press releases