A comprehensive financial system ap

A comprehensive financial system approach towards institutions, instruments and procedures at all levels and in all segments of financial markets is required, that includes: the macro level (central bank, exchange
rate, national savings mobilization and legal, regulatory and supervisory framework); the financial sector level (formal, semiformal and informal financial sector); the institutional level (intermediation efficiency,
financial viability and financial services); and the demand side (characteristics, bankability and financial behaviour of different clientele).
Further, more recently, terms of trade for agriculture have improved as
many governments are shifting from import-substitution and punitive
policies toward a more positive economic policy framework for agriculture, within the context of structural adjustment.
These changes are expected to continue, and with a gradual movement
toward freer agricultural markets through GATT and regional free trade
agreements, many market restrictions to the adoption of output increasing technology in agricultural production are being removed. However,
within this new improved financial and market framework, many donor
agencies are increasingly focusing on micro enterprise financing of the
poor, with a strong tendency to work with urban-oriented NGOs as
intermediary institutions. Agriculture, for a number of reasons, continues to be under-served relative to earlier years. For example, the World
Bank volume of agricultural lending in the 1990s is only one third of the
level of ten years earlier. There is little evidence that governments and/or
private commercial banks are compensating for the reduction in international agency funding.
While there is nowadays a better understanding of the importance of the
financial sector for agricultural development, a strong disagreement
exists about how to operationalize this role. Traditionally, directed public provision of credit to target groups was predominant, while in the
more recent financial system development approach, the effective operation and viability of the financial institutions is considered essential for
the continued provision of financial services.
Most changes have, or will result, in improved fiscal performance of
financial institutions, more rational allocation of loanable funds with
the inclusion of financing off-farm needs of farm households and rural