Promoting Efficient Rural Financial Intermediation
The paper states that the BRI example shows that losses are not inevitable and that substantial and consistently increasing outreach can be achieved in rural financial markets in a self-sustaining manner. It explores traditional and new approaches to rural finance
- Dsigning and justifying direct interventions in rural financial markets;
- Measuring the performance of rural financial intermediaries;
- Success of the village banks program.
Paper says that traditionally subsidised credit programs aimed at promoting agricultural growth, which failed to improve incomes and alleviate poverty in rural areas, led to the mistaken belief that rural credit programs cannot be profitable. New approaches show evidence of success:
- Raise standards of living in rural areas by ensuring that government sets a favorable legal and policy environment for rural financial markets;
- Address specific market failures cost effectively through well-designed and self-sustaining interventions.
The paper concludes that rural finance can be highly profitable, even when it serves low-income clients. However, there are the challenges of strengthening the policy environment, improving the legal and regulatory frame-work, and adopting appropriate governance arrangements, management principles and operating procedures for interventions that reflect a new and more promising approach to rural finance.
