Improving rural financial networks

Strengthening rural financial markets

Description

Improving rural financial networks involves expanding access to affordable and reliable financial services in underserved rural areas. This strategy focuses on establishing local banking facilities, mobile banking, and microfinance institutions to address barriers such as geographic isolation and lack of collateral. By strengthening financial infrastructure and literacy, it enables rural populations to save, invest, and access credit, thereby fostering economic development, reducing poverty, and increasing resilience to financial shocks.

Context

Rural financial markets in developing countries have inherent problems that make investments risky and costly: clients are to scattered, rural clients all want to borrow at the same time (in the pre-harvest season) and to save immediately after the harvest, and the poor own few assets to secure loans. Private sector financial institutions are reluctant to take on these risks.

This strategy features in the framework of Agenda 21 as formulated at UNCED (Rio de Janeiro, 1992), now coordinated by the United Nations Commission on Sustainable Development and implemented through national and local authorities. Agenda 21 recommends promoting and improving rural financial networks that utilize investment capital resources raised locally.

Claim

In the long run, public investment in institutional innovations will pay off in efficient microfinance institutions that offer full-fledged savings and credit services to the rural poor. The cost of such services will also reduce.