Creating rural banking systems

Developing agricultural banks in support of rural communities

Description

Creating rural banking systems to facilitate access to credit for rural population, particularly women and indigenous groups, and to promote rural savings.

Context

Specialized agricultural banks have distinctive functions and requirements which include supervision of productive activities of their clients, a rigorous project appraisal exercise, different performance criteria and different skill requirements for their staff. They rely heavily on foreign loans and government contributions. They are financial intermediaries in a restricted sense, in that they extend credit but rarely mobilize savings.

Implementation

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 establishing and/or expanding favourable conditions for the provision of services, such as credit facilities and marketing outlets for rural populations.

Counter-claim

Specialized agricultural banks face a number of problems, starting with often non-performing loans. Moreover, their fixed interest rates barely cover their average operating costs and are rarely revised to allow for prevailing levels of inflation. As a result the purchasing power of their portfolios tends to diminish. Like the commercial banking system, agricultural banks do not appear to have had an appreciable impact on smallholder agriculture. Loans are usually channelled to big commercial farmers while small, unmechanized, rain-fed agricultural operations tend to be neglected.