Rural Finance Innovations: Topics and Case Studies

This study of innovations in agricultural finance seeks to educate policy makers, task managers, and practitioners by highlighting major themes in agricultural finance from around the world and giving examples of cases where these themes are being applied.The study looks at two of the major constraints that limit the supply of agricultural credit in developing countries:

• High levels of risk and limited risk management techniques;
• High transaction and supervisory costs.

The study attempts to contribute ideas based on recent experiences with innovation from developing countries in order to spur more innovations in rural finance. It focuses on four key areas where innovation could lead to greater access to agricultural finance:

• Warehouse receipts and collateral securitization mechanisms;
• Risk management products;
• Supply chain finance;
• Technology.

The study:

• Describes how innovative techniques can overcome traditional barriers to agriculture finance by reducing either the risks/costs associated with lending;
• Presents key lessons regarding the role of government in lowering costs and risks in the rural finance space.

The study recommends:

• A commercial basis for government interventions that allow free functioning of markets;
• The enforceability of contracts and the timeliness of dispute settlements;
• Public sector support for infrastructure investments;
• Capacity building and a dynamic organizational structure;
• World Bank and donor support in the areas of policy dialogue and technical assistance.