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Financial Services for the Rural Poor

This Brief sets out to distinguish between the terminology of microfinance, rural finance and agricultural finance. The common ground is found in need to ensure the provision of financial services for the rural poor. The Brief goes on to examine the constraints which make financial servies difficult to provide in rural areas and the challenges that donors face in supporting the development of such services.

Donors have traditionally equated rural finance with agricultural credit, seeing it as an input to achieve agricultural production targets or other project objectives. This supply driven approach has been largely discredited but donors are frustrated by the lack of alternative models, with the result that agricultural finance is virtually ignored in many agencies.

This Donor brief makes a number of suggestions of how donors can improve their contribution to rural financial service provision, e.g. building staff capacity, determining the appropriate role for subsidies, influencing governments, helping to reform existing institutions, promoting technical innovations and funding innovations in delivery mechanisms or products.