Equity Participation in Financial Intermediaries: A New Donor Instrument in Rural Finance?
This paper discusses various parameters that would be taken into consideration for equity investments.International Fund for Agricultural Development (IFAD), while introducing a new instrument for rural financing, would finance apex institutions. The arrangement provides necessary capital to the sector and strengthens the capital base of apex institutions.
The author elaborates on the requirements for commercially operating financial apex institutions and other financial intermediaries. There is need for favorable political environment, regulatory framework and efficient banking system to make equity participation a viable alternative for transforming non-formal financial institutions into formal entities.
The paper mentions the following points as areas of intervention for IFAD in the order of magnitude of engagement:
- Equity participation in financial intermediaries;
- Investment in existing or new funds;
- Agency line with development finance institution;
- Subsidiary agreement or trust deed with a development finance institution;
- Establishment of an investment fund.
