• Home
• Site map
• Contact
• Glossary
• Events
• Publications

• Deutsch
• Français
• Italiano
• English
• Español

• Rural development / Food security
• Climate change and Environment
• Water
• Health
• Education
• Migration
• Rule of Law, Democracy
• Conflict prevention and transformation
• Emergency aid and reconstruction
• Employment and income
  • Private Sector Development
  • Financial sector development
    • Microfinance
    • Rural finance
    • Small enterprise finance
    • Micro-insurance
  • Vocational skills development
  • Youth employment
• Governance
• Gender
• Research
• Learning and Networking
• Culture

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.

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.

Current challenges
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: Support for economically viable, demand-driven financial institutions and structures in rural regions, including savings and loan unions or co-operatives, alliances between informal or semi-formal and formal financial institutions, universal banks with a presence in rural areas, or new types of rural development banks etc. Promotion of education and self-help in finance at all levels, viz. clients, employers, management as well as control and supervisory bodies. Promotion of innovation, such as new financial products and services, for farmers as well as agricultural and non-agricultural businesses; measures to reduce and diversify risks and transaction costs etc. Promotion of favourable political and legal frameworks and the use of synergies with general rural development policies and strategies.

---

Specific themes in this area:

Microfinance
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.

Micro-insurance
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.