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Innovations in rural and agriculture finance

Most rural households lack access to reliable and affordable finance for agriculture and other livelihood activities. Many small farmers live in remote areas where retail banking is limited and production risks are high. The recent financial crisis has made the provision of credit even tighter and the need to explore innovative approaches to rural and agricultural finance even more urgent.

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This set of 14 briefs clearly points out the importance of business realities faced by small farmers, including low education levels, the dominance of subsistence farming, and the lack of access to modern financial instruments. These conditions mean that new and innovative institutions are required to reach small farmers. Emerging communication technologies provide new opportunities for rural banking by reducing business costs and alleviating information asymmetries. New financing instruments, such as weather index-based insurance and microinsurance, also have great potential for managing the risks faced by small farmers. In addition, bundling financial services with nonfinancial services like marketing and extension services offers new opportunities for small farmers to increase their productivity and incomes. Finally, an enabling policy environment and legal framework, enforcement of rules and regulations, and a supportive rural infrastructure all contribute immensely to making sustainable access to finance a reality.

The findings and recommendations presented here will contribute to policy changes that enhance poor people’s access to financial services in ways that increase their livelihoods and improve their lives.

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Author: 
Kloeppinger-Todd, Renate
Sharma, Manohar
Published date: 
2010
Publisher: 
International Food Policy Research Institute (IFPRI)
Series number: 
18
DOI: 
http://dx.doi.org/10.2499/0896296687
PDF file: 
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focus18.pdf(1.4MB)