Rural and Agricultural

Finance

Day 1: Block 1
What and Why of Rural Finance?
 Self Introduction – 7 Questions
1. Name, institution, and current job title.
2. What activity are you working on now
that is related to Rural and Agricultural
Finance (RAF)?
3. What was your previous experience in
rural areas and agricultural finance?
4. Other than your job, are there other
reasons that you interested in rural and
agricultural finance?
5. Is there a specific experience relating
to RAF that you could share with us
later in the course?
 Why is Rural and
Agricultural Finance
Important?
• Food security and MDGs are a priority
• Reduced government and donor support
slowed rural investment and growth
• Finance is important for agricultural and
economic growth
• Financial linkages are growing in
importance and recognition
MDG Challenge – Rural Development
Sub-Saharan Africa Middle East & North Africa
less than U$1 a day less than $2 & $1 a day

Source: World Bank Estimates

70% of the Extreme Poverty is in Rural Areas

 Share of People Living on Less
than $1 a Day (%)

70% of the Extreme Poverty is in Rural Areas

 The Many Faces of Poverty
Poverty is more than lack of income

Poverty is inequality
Poverty is vulnerability
Poverty is lack of infrastructure

Poverty is lack of capacity

Poverty is lack of human rights

Poverty is not static
The poor are often exploited, their ability to make
choices and to participate in normal activities in
society is limited
 Faces of Rural Poverty

70% of the Extreme Poverty is in Rural Areas

 There are Many Reasons for
Poverty

Drought
War &
conflicts
Lacking Infrastructure

and Capacity
Producing, But Lacking Scale

What other reasons are people poor?

 Rural and Agricultural Finance
and HIV-AIDS

• > 40 million people are living with HIV/AIDS

with 60% in sub-Saharan Africa
• 15,000 new infections each day
• Socially and financially affected – 40 million
• AIDS is not only a huge health and social
issue, it is an economic one!
• Affected households use financial services as
one way to protect and build assets
 How Do We Define These Terms?

• Agricultural finance
• Rural finance
• Microfinance
• Value chain
• Financial institution
• Financial intermediary
 Useful Definitions for Rural and
Agricultural Finance (RAF)
• Agricultural finance: A field of work in which people aim to improve
the access of the agriculture industry, including farmers and all related
enterprises, to efficient, sustainable financial services.
• Rural finance: A field of work in which people aim to improve the
access of rural communities to efficient, sustainable financial services.
• Microfinance: Financial services for lower-income households and
micro and small enterprises; a diverse range of financial institutions
offers microfinance services, including specialized microfinance
institutions (MFIs), commercial banks, and NGOs.
• Value chain: The series of transactions necessary to bring a product
from inputs to the final market, involving a process of adding value at
every stage.
• Financial institution: An entity – regulated or not – that specializes in
the provision of financial services
• Financial intermediary: A financial institution that collects, deposits,
and lends these deposits.
 Beyond Agricultural Credit:
RURAL FINANCE IN PERSPECTIVE
Financial Services

Rural Finance

Agricultural Finance

Microfinance
Financial Services
Agricultural Credit
 The Role of Finance in Rural
Development

Rural Finance has been:

A political game

• A welfare transfer system $

But rural finance is:
• A multi-purpose tool to
facilitate rural development
 The Role of Rural Finance in
Development
Rural Finance has been:
• Politically manipulated to gain votes
• Seen as a way to deliver subsidies - welfare
transfer system (e.g. cheap credit for fertilizer)

BUT RURAL FINANCE IS

A multi-purpose tool to facilitate rural

development
 Rural Finance and Poverty
Alleviation
• Majority of poor live in rural areas

• Improved financial markets

accelerate agricultural and rural
growth contributing to
poverty reduction

In most countries, economic growth in agriculture - is a

key precondition for overall economic growth and
poverty reduction (because it directly or indirectly benefits
smallholders, tenants and wage labourers)
 Rural Finance and Poverty
Alleviation cont.

• Rural Finance can provide access to savings, lending,

financing to the poor hence increasing the opportunities
to the poor and contributing to poverty reduction

• In many developing countries, the

rural production and distribution is
still a leading economic sector,
the main exporter, and the major
employer, especially for the poor
and women
Rural Finance – Investing for a
Better Future
Rural Finance Is Key to a Bright
Future

Informal Semi-Formal
 RF ... a catalyst for building
capacity

Formal Trader Finance

 Interventions to Improve
Rural Livelihoods
Support Disruptions of
systems former 1. Human & institutional
collapse livelihoods capacity building
Weak local
government 2. Marketing system
capacity development
Improve rural incomes
through market-oriented,
3. Policy & program
profitable and resilient
decision support
enterprises

4. Financial services
 Facilitating Capital Flows for Rural
Investment and Development

Saving

Borrowing

Saving Up

Saving Down