The overwhelming majority of the world's poor live in rural regions. The economic development of such regions is one of the keys to reducing global poverty. One of the main criteria in this regard are financial services that take account of the needs of farmers and small agricultural businesses as well as non-agricultural occupations such as traders and manufacturers.
The SDC's focus
The SDC promotes innovative approaches and projects for the development of an inclusive rural finance system that supports both agricultural and non-agricultural activities with appropriate financial services, such as savings, credit, payment transactions and insurance. The SDC capitalises on synergies with other rural development measures which promote quality, productivity and the marketing of agricultural products, for example. The main focus is on:
- Support for economically viable, client-centric financial institutions and structures in rural regions, including savings and credit unions or co-operatives, alliances between informal and formal financial institutions, full-service banks with a presence in rural areas, or new types of rural development banks, etc.
- Promotion of education and training in finance at all levels – customers, employers, management as well as control and supervisory bodies of financial institutions
- Promotion of innovation, such as new financial products and services, for farmers as well as agricultural and non-agricultural businesses
- Promotion of favourable political and legal frameworks
Despite the important economic role played by rural regions, they generally suffer from a distinct lack of financial services. Financial services for farmers, agricultural and non-agricultural businesses are either non-existent or inadequate and very expensive.
Rural and urban regions need different financial services. In rural areas, credit requirements are of a medium to long-term nature; loans carry more risk for financial institutions and frequently entail significantly higher transaction costs.
The development of rural financial systems entails a range of specific challenges. These include low population density and low economic activity, high transaction costs due to deficient infrastructures (roads, telecommunications) or insufficient population and land tenure records, a lack of qualified personnel in financial institutions as a result of the low education level, specific agricultural risks, such as fluctuating precipitation, pest outbreaks and disease, and price fluctuations.