The environment for rural financial intermediation has changed significantly in recent years with an enhancement of the role of markets and
increased privatization in most developing countries. However, an
immediate result of most of these reforms has been that fewer small
farmers and other rural households qualify for credit or that those who
do qualify will have to pay more for loans. At the same time, in view of
the high proportion of the population engaged in agriculture in developing countries and the strategic importance of (in particular) basic food
production, policy makers are highly sensitive to public interventions in
favour of the farmer population. It is vital, however, that financial institutions are not “misused” to fulfil social equity purposes and that public interventions in this direction, while fully justified, are obtained
through alternative mechanisms.
Reforms will continue in the current context of economic deregulation
and market development. A principal aim of financial sector reform is
to ensure that market-based and a varied supply of financial services
(financial widening) are available to an increasing number of both commercial farmers and farm households, agriprocessors, traders and other
rural non-farm entrepreneurs (financial deepening). To achieve these
objectives will require a good understanding of rural economics, the
existence of an appropriate policy and legal framework for rural finance
and access to financial as well as to non-financial support services.
Together with the need for an appropriate policy and legal framework
and appropriate rural financial structures, this chapter discusses the
unique features and special needs of agricultural production and agricultural finance and recommends that government policy makers, international development agencies and bankers focus on the following specific agriculture-related issues
The environment for rural financial intermediation has changed significantly in recent years with an enhancement of the role of markets andincreased privatization in most developing countries. However, animmediate result of most of these reforms has been that fewer smallfarmers and other rural households qualify for credit or that those whodo qualify will have to pay more for loans. At the same time, in view ofthe high proportion of the population engaged in agriculture in developing countries and the strategic importance of (in particular) basic foodproduction, policy makers are highly sensitive to public interventions infavour of the farmer population. It is vital, however, that financial institutions are not “misused” to fulfil social equity purposes and that public interventions in this direction, while fully justified, are obtainedthrough alternative mechanisms.Reforms will continue in the current context of economic deregulationand market development. A principal aim of financial sector reform isto ensure that market-based and a varied supply of financial services(financial widening) are available to an increasing number of both commercial farmers and farm households, agriprocessors, traders and otherrural non-farm entrepreneurs (financial deepening). To achieve theseobjectives will require a good understanding of rural economics, theexistence of an appropriate policy and legal framework for rural financeand access to financial as well as to non-financial support services.Together with the need for an appropriate policy and legal frameworkand appropriate rural financial structures, this chapter discusses theunique features and special needs of agricultural production and agricultural finance and recommends that government policy makers, international development agencies and bankers focus on the following specific agriculture-related issues
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