Reaching Rural Areas with Financial Services: Lessons from Financial Cooperatives in Brazil, Burkina Faso, Kenya and Sri Lanka
Access to financial services contributes to rural development and poverty reduction by promoting income-enhancing and vulnerability-reducing investments, enabling better management of cash flows and risk, and facilitating remittances. However, financial access is limited in most rural areas in developing countries because of high transaction costs and risks attributed to low levels of economic activity, poor infrastructure, high levels of production and price risks in agriculture, and poor public policies, such as interest-rate caps and debt write-offs.
In many developed economies, Financial Cooperatives (FCs) and their networks are well-developed and have large shares of the financial services market. However, FCs in most developing countries are underdeveloped and have negligible market shares. Financial cooperatives in developing countries are typically constrained by anachronistic legal frameworks, low capacity, lack of an appropriate regulatory framework, and poor supervision.
This paper presents four cases of financial cooperative networks in developing countries with significant rural outreach. The four cases are:
- SICREDI (Sistema de Cooperativa de Crédito) in Brazil
- SANASA in Sri Lanka
- RCPB (Réseau des Caisses Populaires du Burkina) in Burkina Faso
- KERUSSU (Kenya Rural Savings and Credit Cooperative Society Union) in Kenya
These cases represent examples of FC networks with significant outreach in rural areas, but operating in widely varying economic contexts. Through a case study approach, this paper attempts to answer such questions as: Can FCs provide financial services in rural areas in developing countries and still be profitable? Do FCs provide services to low-income clients? How does the regulatory environment affect FC performance? How does the business model of FC networks affect FC performance?