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| Title | Rural Financial Services for Poverty Alleviation: The Role of Public Policy |
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| Author | Sharma, M; Zeller, M. |
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| Content Language | English (en) |
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| Document Type | |
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| Date Of Publication | 2000 |
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| Description | This brief begins from the premise that access to credit and savings functions has the potential to make the difference between poverty and an economically secure life. Yet at the same time it notes that in most developing countries, rural financial services remain inadequate and largely provided through informal mechanisms and markets. It suggests that as innovative and useful as the informal sector may be, it frequently runs up against severe constraints. For example, informal credit markets, by their very nature, are segmented. Financial intermediation in the form of a clearinghouse for borrowers and lenders does not take place to the fullest extent possible, resulting in credit rationing or extremely high interest rates. The brief argues, therefore, that overall, the task of delivering financial services to the rural poor cannot be left entirely to market forces. Successful financial outreach to the rural poor requires institutional innovations that reduce the risks and costs of lending small amounts of money. Whilst noting that there is no single institutional blueprint for success, the brief suggests that just as public policy should play a role in promoting technological innovations that generate social benefits, it should help promote institutional innovations that assist the disadvantaged or address intrinsic market failures. The brief further argues that some experiments in institutional innovations will succeed and some fail but public policy will need to support and evaluate this experimentation process and nurture those designs or institutions that hold promise of future success. Governments, donors, practitioners, and research institutions must work together closely to pinpoint the costs, benefits, and future potential of emerging financial institutions. In the long run, the brief concludes, the payoff to public investments in institutional innovations will lie in the transformation of currently nascent microfinance institutions into fully-fledged, financial intermediaries that offer savings and credit services to smallholders, tenant farmers, and rural entrepreneurs, thus alleviating policy. Links have also been provided below to a fuller study on this topic conducted by the same authors, "Rural Finance and Poverty Alleviation", which cites evidence derived from nine countries in Asia and Africa. |
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| Publisher | IFPRI |
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| Number of Pages | 2 pp. |
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| Edition | Rural Financial Policies for Food Security of the Poor: Policy Brief |
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| Series ID | 200007 |
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| Keywords | RURAL FINANCE, FINANCIAL SERVICES, FINANCIAL POLICY, FINANCIAL INSTITUTIONS |
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brief (EN)
