Finance and Guarantees in Rural Development

In this brief paper, Zvi Galor explores the role of guarantees in credit policies and the potential for cooperation. He observes that the Grameen Bank became famous for the introduction of mutual guarantees to overcome the lack of security for lending to poor people. However, the Moshav in Israel relied on the mutual guarantee of its members to obtain credit back in the 1920s. While mutual guarantees are useful to facilitate access to credit, Mr Galor is of the view that many other factors are also important to ensure the success of rural investments. For example he commends the mixed farm approach which spreads employment and cash flow throughout the year and explains how this effect is enhanced by being part of a cooperative group as in a Moshav. The group is able to facilitate the movement of funds between members by providing a savings and credit service.

Mr Galor points out that farmers participating in a Moshav were further benefited by the marketing and input supply services. Thus members received competitive rates of interest on their savings, competitively priced inputs and good returns on their produce. He argues that these cooperative benefits would assist development projects today and an emphasis on credit alone is inadequate.

  • Resource type
  • Author Galor, Z.
  • Year of Publication2005
  • Region
  • LanguageEnglish
  • Number of pages5 pp.
  • Keywords

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