The demand for financial services by the rural poor

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This policy brief summarises lessons learned from IFPRI’s multicountry programme on rural finance and household food security. It points out that the notion that the poor are not creditworthy or cannot save has been laid to rest by the number of successful financial institutions that are providing savings, credit and insurance services to poor people in developing countries.

To satisfy the demand for financial services by the poor through institutional and product innovation is not possible without a thorough appreciation of the issue of food insecurity. For example, in poor households the spheres of consumption, production and investment are inseparable in the sense that consumption and nutrition are important to a household’s ability to earn income. Thus consumption loans should be regarded as working capital loans which maintain the production factor labour.

Research by IFPRI on the demand for financial services points out that product innovation that responds to the food security motives of rural households can lead to higher outreach and higher impact on the poor. However, policy makers also need to recognise that while the poor are creditworthy and able to save and insure, financial institutions may still fail to cover their costs, even with improved products.

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