A Review of the Prospects for Rural Financial Development in Bolivia
This paper presents summary findings of a study on the opportunities for developing viable, self-sustaining financial institutions to meet the needs of entrepreneurs in the rural areas of Bolivia.
It focuses on the issue of potential replicability of key elements of the highly successful village banking system (Unit Desa) of the Bank of Rakayat in Indonesia (BRI).
The Unit Desa system is one of the few examples worldwide of a successful, profitable financial institutions that makes small loans and serves small savers. The differences between Bolivia and Indonesia are enormous, but the principles of rural finance successfully demonstrated in BRI Unit Desa system may have relevance far beyond the borders of the archipelago.
The author concludes that, although direct replication of the BRI Unit Desa system is not a viable option for Bolivia, considerable potential exists for stimulating the development of a more institutionally diverse rural financial landscape. Commercial banks, credit unions and NGOs can all expand services in rural Bolivia. The greatest growth potential is to move more rapidly into rural markets. The key ingredient of such programs is technical assistance, and not capital.
The paper further suggests that the following barriers must be overcome:
- Uncertainty concerning the profitability of providing financial services to small savers and borrowers;
- Perceived high cost and high risk of rural lending;
- Perceived low saving potential of small savers;
- Attitudes discouraging differentiated instrument pricing, even in the face of widely different cost structures;
- Fears of competition from subsidized lenders;
- High start up costs resulting from the absence of tested operational structures and methodologies.
