Restructuring of Agricultural Banks in the NENA Region

Agricultural banks have been in existence in the Near East and North Africa region for decades. Some of them have become so embedded in the local social and economic environment that the general public has become highly conscious of their existence and role. All walks of people, including ordinary citizens and politicians, believe that these banks are owned by the government and that their responsibility is purely a developmental one aimed at helping farmers to acquire funds for investment in their farms. To them, development banks are there to make cheap funds available for them to use when and in the amounts they want. They believe that these banks must not use commercial banking practices and market mechanism for pricing their services based on cost.

Against this background, exposure to rapid inflation and an inability to collect debts from borrowers led to some banks being closed down while others needed reviving from time to time to continue to operate, which often overtaxed government financial capabilities. NENARACA, as a regional association representing agricultural development banks, has, therefore, been at the forefront of efforts to introduce reform by providing training and other policy-oriented activities. This extract from the book “Some Features of Rural Finance in the Near East and North Africa Region” outlines the type of actions that are needed to restructure these banks, e.g.

  • Partial privatization of their capital
  • Acting as a financial intermediary for attracting savings
  • Conversion to universal rural development banks
  • Restructuring interest rates
  • Moving towards commercial banking services
  • Adopting innovations and banking technology

The chapter continues by examining how far along the road restructuring has gone in the Region with tables showing sources of funds, the annual profitability of some of the banks and annual interest rates compared to market rates.

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