This paper was one of the lead papers in the conference “Paving the Way Forward for Rural Finance” in June 2003. The paper reviews the characteristics of households and agricultural enterprises as well as the conditions for sustainable development of the financial institutions that serve them.

The paper presents the main innovations in lending procedures (such as warehouse receipt, long term loans for investment, credit bureaus and credit scoring, etc...), savings (such as outsourcing the collection of savings), remittances and technology used in the rural finance industry (such as ATMs and PDAs). Innovations are evaluated based on their contribution to expanding the frontier of rural finance.

The paper also presents an important section that deals with the issues of design and introduction of innovations in financial products. The author explains that there are two phases during the innovation process, these phases are: the discovery phase and the design and implementation phase. To be successful innovation requires support of the organization.

The paper also presents the main reasons that can cause failure of any innovation:

• lack of commitment of the institution
• lack of control over the process and its outcome
• faulty communication of the innovation
• wrong assessment of demand
• internal misunderstanding or resistance to new products
• unrealistic projections and;
• lack of internal control.

The paper ends with recommendations for institutions, governments and donors