There is one major area of study currently on-going within the Agricultural Management, Marketing and Finance group that concerns aspects of rural finance and will lead to new publications.

Rural people need access to financial services for many different reasons. They need production credit, be it in cash or in-kind. Rural people need a safe place to save their money so that they can build up financial assets accessible in times of need. They need money transfer and payment services that permit them to cost-effectively send and receive money. Farmers and non-farm entrepreneurs need medium and long term loans to invest in their business enterprises. Rural people also need emergency loans and a variety of insurance products (health, life and agricultural) to help weather the individual and systemic shocks they often face. However, the supply of rural financial services is extremely limited due to the high costs and risks associated with providing them.

The challenges of sustainable rural finance service provision seem daunting if not, in many countries, insurmountable. One way to address this difficult situation is through the linking of formal and mostly non-formal development finance institutions, which have natural complementarities in service provision. On the one hand, formal financial intermediaries (FFIs) often possess a wide range of financial services; they have extensive infrastructures and systems; they have access to capital and more opportunities to diversify their portfolio. However, FFIs are further removed from rural clients, lack the necessary skills to analyze credit risks of rural clients, are not familiar with local culture and market conditions, and their systems may be inflexible making it difficult to innovate. On the other hand, development finance intermediaries are closer to rural clients, are more flexible and innovative, and know local conditions well. Often however, they do not possess a wide range of financial services, lack the necessary infrastructure to serve a dispersed clientele, are faced with very concentrated portfolios, and have at best limited access to adequate capital. Hence there appears to be much scope for linking and strategic partnering of the formal and non-formal financial sectors that could result in expanded access to rural financial services.

FAO, with the financial support of the Ford Foundation, is undertaking a global study to examine 10-12 linkage cases that have been successful at surmounting many of the problems and improving rural financial services. The overall goal of this research is to increase the learning and understanding about innovative linkages between formal and nonformal sector finance that lead to expanded access of sustainable rural financial services. Financial linkages have been examined in a diverse set of contextual environments in Africa, Asia and Latin America.

To date cases have been reviewed in Kenya, Mali, Rwanda, Tanzania, India, Indonesia, Philippines, Bolivia, Costa Rica, Honduras and Peru. Initial findings and case studies from India, Philippines and Mali will be featured in the Small Enterprise Development Journal in March 2006. Final research publication is due out in December 2006.

For further information, please contact Maria Pagura.