The financial sector of a country is a mixture of wholesale, retail, formal and informal institutions offering financial services to consumers, businesses and other financial institutions. In its broadest definition, it includes everything from banks, stock exchanges and insurers, to credit unions, microfinance institutions and money lenders. Governments often intervene in financial markets, e.g. to protect depositors, ensure the solvency of financial intermediaries, promote competition, ensure macroeconomic stability and growth, and pursue social and political aims. To achieve these ends, governments use various instruments to regulate, direct, increase, complement and supplant the provision of financial services by privately owned financial intermediaries.
20-30 years ago many governments established agricultural development banks to extend financial services, mainly credit at subsidized interest rates, to rural customers not considered creditworthy by commercial banks. They were largely state owned and funded by governments and international donor agencies. This has meant that they have frequently been subject to repressive financial measures, such as controlled exchange and interest rates, as well as political manipulation. Interest rate regulation has prevented them from covering their costs and has restricted the access of the poor to financial services. These banks have also remained largely unsupervised, and their de facto exemption from prudential banking regulations and from effective monitoring and supervision of their activities has brought many of them close to insolvency.
Nevertheless, despite the difficulties that have beset agricultural development banks in most parts of the world, they have continued to provide important financial services through their branch networks. In regions where these banks have been closed, their market share has generally not been filled by other financial institutions. In addition, after several decades of operation, these banks have accumulated valuable customer information that would be expensive and time-consuming to replace. Any financial institution following sound practices can become sustainable and combine outreach and viability. There have been notable examples in recent years of agricultural development banks undergoing reform and becoming viable institutions offering a range of services to a wide range of customers.
In the interests of supporting this process the Rural Finance Learning Centre has decided to incorporate a database of information about key financial institutions in developing countries that offer financial services mainly to farmers and rural businesses.
AgriBank-Stat will only include financial institutions which:
- are involved in rural and agricultural finance
- have nation-wide relevance and
- are regulated (formal institutions).
For further reading on the topic of agricultural banks and agricultural bank reform, we have suggested some insightful reading below.