Making Rural Finance Work
The paper states that there are problems of risk, imperfect information, and high transaction costs in rural finance. Concerted and sustained actions will be needed in policy, institutional, and product development. Governments and international development organizations should lay a sound foundation of policy and institutional reforms. The paper identifies problems of rural finance and says that rural finance faces the same general set of challenges as urban finance.
- How to cope with imperfect client information;
- How to manage and mitigate risk;
- How to minimize transaction costs.
Paper acknowledges that for a number of reasons, these problems are significantly more severe in rural areas. There is a renewed interest in rural finance as institutions have managed to overcome or neutralize some of the difficult challenges characterizing rural markets and rural finance is getting a fresh look. Concludes that:
- While much progress has been made in overall macroeconomic and financial market policies in the last decade, much work is needed in improving the legal, regulatory, and information environments and in building stronger rural finance retail institutions;
- Laissez-faire notion of "getting prices right" is not enough; it must be complemented by the idea of "getting institutions and technologies right", particularly once basic financial and economic liberalization has occurred.
