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Handbook on Best Practices in Agri/Rural Finance

Notwithstanding a worldwide recognition of the fundamental importance of the rural sector in an economy, the state of rural financial markets in developing countries is characterized by low and decreasing availability of financing for both agricultural and non-agricultural activities. In developing countries and transitional economies, only a very few rural masses have access to financial services. Rural areas are often characterized by a paucity of viable financial institutions and a lack of variety of financial services available.

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Rural communities often do not have access to saving options, credit services, insurance, or transaction services. Besides, limited access to long-term financing needed for agriculture, land improvement, and other rural activities is also a hindering factor in the improvement of agri/rural sector. With these odd features, the agri/rural sector presents a real challenge to the design of sustainable financial intermediaries.

Since the emergence of financial inclusion as an effective tool for sustained economic growth, social stability and poverty reduction, it has become imperative to devise a result-oriented agri/rural finance strategy in developing economies. With the aim in mind, State Bank of Pakistan is striving to develop a sound and sustainable agri/rural financial sector in the country. It stands to reason that SBP has taken many initiatives to create an enabling environment for banks to adopt agri/ rural credit as a viable business line. These initiatives have resulted in substantial increase in agri. credit in the last 6-7 years; however, outreach remained almost stagnant.

This appears to be only one manifestation of banks’ reliance on traditional lending approaches and their lack of awareness regarding international best practices in agri/ rural finance. Therefore, for capacity building of financial institutions, this Handbook has been prepared consisting of some very important lessons that have been learnt from the experiences of different financial institutions, which can provide such useful guidelines to banks that could help them adopt agri/ rural finance as a viable business line.

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language

English

pages

37