Characteristics of Rural Financial Markets

Rural populations in developing countries are inherently more difficult to provide with financial services than urban populations are. They are spatially dispersed and transportation costs are high relative to incomes, leading to problems of access. Loan sizes tend to be small on average, leading to higher unit costs of processing loans. Literacy rates are lower than in urban areas, sometimes generating suspicion of paperwork and creating problems of eligibility in signing contracts. Documented...

The Role of Donor and Government Finance

Where do the considerations presented in this chapter leave donors who wish to make cash contributions to the development of rural finance While there is clearly a role for funding technical assistance and advocacy efforts in developing rural financial intermediaries, do the lessons of experience suggest that no external funding should be contributed to them Not necessarily 152. See, for example, D. Villanueva and A. Mirakhor, 'Strategies for financial reforms interest rate policies,...

Objectives for Rural Financial Institutions

It is clear that in some measure financial institutions that function well can serve the two national policy objectives of generating more rural income and alleviating poverty. In order to fulfill this role, the institutions need to keep in focus their own objectives. Above all, they need to become sustainable, or otherwise their benefits to the rural population will be transitory, and perhaps their problems will damage the prospects of other emerging rural financial institutions....

The Contributions of Microfinance

In addition to their ability to reach the poor, including in some instances the very poor as commented upon above, microfinance institutions have opened up a new world of possibilities for small-scale entrepreneurs throughout the developing world. The approaches followed by these institutions and their capabilities have evolved rapidly in recent years, toward a broader base of clientele and improved lending technologies that increase the sustainability of the operations.45 By the same token,...

Land Market Mechanisms and the Rural Poor

The main barrier to increased land ownership on the part of the rural poor is imperfections in financial markets, i.e. lack of mortgage finance. A barrier to their retaining the land is the lack of adequate mechanisms for insuring against risk. Associated with the financing problem there is another barrier in the form of the price of land. It has been pointed out by Binswanger et al. (1995, pp. 2710-2711) that the price of land is always greater than its expected returns (in the form of a...

Regulatory and Institutional Challenges

Lending operations are intertemporal in nature and uncertain, based on a promise to pay in the future. Everything else being equal, the more certain lenders can be of repayment, then the greater will be the supply of loanable funds. The degree of certainty in turn depends on the institutional and legal environment, for example, on how rapidly and cheaply contractual agreements can be enforced. It also depends on the lending technologies utilized. The supply of funds also depends in part on the...

The Importance Of Land Tenure

Other than labor, land is the most important factor of agricultural production. Without clearly defined rights of access to land, or land tenure, production is more difficult to carry out and incentives are weakened for long-term investments in land to raise its productivity. Land tenure also is one of the organizing pillars of rural economies and societies that helps define economic and contractual relationships, forms of cooperation, and social relationships. Paul Munro-Faure, Paolo Groppo,...

Tariffs in Developing Countries

Although a tariff system confers economic protection, it can be a mixed blessing for domestic producers. In the first place, exporters generally suffer from a tariff regime, since it raises the costs of their inputs, directly and indirectly, but it does not allow their export price to rise correspondingly. This was well documented for the case of Colombia in a classic study by Jorge Garc a Garc a.14 Secondly, even an import-competing sub-sector can be hurt by a tariff regime, if tariff rates...

Financial Services in Rural Areas

Under the traditional policy conception, the only role of credit in agriculture was to increase output. Credit was viewed as a production input, one that is necessary in order to acquire other inputs, and it was thought it had to originate largely from outside the sector. The need for financial services for poor rural families was ignored.19 In light of the widespread failure of programs of directed credit in agriculture, that view is being abandoned in favor of a broader vision of the role of...

Rediscount Lines and Bond Financing

Second-tier institutions that are devoted exclusively to on-lending government and donor funds to retail financial intermediaries are known as rediscount lines. They have gone out of fashion in recent years but they still are used when weaknesses in financial systems constitute severe obstacles to development of certain sectors or areas of the country. For example, the World Bank has supported a rediscount line for investments outside of the Maputo area in Mozambique, since almost all bank...

Keys To The Sustainability And Efficiency Of Financial Intermediation

In light of the largely disappointing experiences with programs of agricultural credit in the past few decades, the objectives of institutional sus-tainability and efficiency have acquired overriding importance for rural financial institutions. Little benefit can be provided to rural households over the longer run from credit institutions that prove not to be sustainable, or self-sufficient. The operational efficiency of an institution contributes to its sustainability and it also permits the...

Irrigation As A Tool Of Rural Development

The discussion so far in this chapter has concentrated on two main themes (a) achieving efficient and equitable allocations of water, within and among sectors, in the face of increasing scarcity of that resource, and (b) making irrigation systems work better, and sustainably, through use of more appropriate technology, improvements in system management (including greater participation by users) and more appropriate economic and legal environments (including better incentives for more efficient...

The Pricing of Irrigation Water Conceptual Issues

To provide answers to the foregoing questions, it is useful to begin with a review of the motives for raising water prices and the logic of each institutional arrangement with respect to prices. The point of reference is that, for irrigation water, price does not play the normal role of equilibrating supply and demand, except in the case of markets for water rights, which so far have had limited applicability. Accordingly, in most cases, the justification for the level of this price must be...

Gender Approaches in Agricultural Research

Participatory approaches to agricultural research can be more beneficial if they give special emphasis to the involvement of women in the dialog. The case of Malawi is instructive about the benefits of taking into account the viewpoints of rural women in both research and extension throughout the 1980s and early 1990s uptake of . improved maize varieties was disappointing. . the vast numbers of farmers producing maize for home consumption were reluctant to adopt them for several reasons. They...

The Historical Development of Extension in LDCs

The approach to agricultural extension in developing countries has changed considerably over the past five decades and still is undergoing evolution. Cogent summaries of the historical development of extension in these countries have been provided by Antholt (1998) and Picciotto and Anderson (1997). In brief outline, that history runs as follows Fifty years ago agricultural extension organizations in developing countries mirrored the administrative traditions of former colonial powers. . Like...

Strategic Reserves and Grain Market Liberalization

Strategic reserves, almost always of grains, represent a response to the kind of concern felt by the Roman emperors mentioned at the beginning of this chapter that the population might be left without adequate supplies of a basic food, if severe droughts or other unexpected events were to occur. Clearly, no government is willing to incur that risk, hence the tendency to store up strategic reserves. The pressure to accumulate strategic reserves can be strong for products with thin international...

New Approaches To Agricultural Extension

Although bright and dedicated extension agents can be found in every agricultural area, the weaknesses of existing extension systems are all too familiar throughout the developing world extension messages that have little relevance, insufficient farming experience on the part of extension agents for them to be credible to farmers, lack of mechanisms for transmission of farmers' chief concerns to agricultural researchers, weak linkages between research and extension, poorly paid and poorly...

Gender And Agricultural Development

Gender issues receive considerable attention throughout this text, for two reasons, namely, (a) discrimination on the basis of gender is very widespread in developing agriculture, and (b) in addition to questions of justice and fairness, the evidence is now clear that gender biases against women hinder agricultural development and reduce the nutritional status of rural households. Gender bias is manifested in many different ways, including diminished access to land and credit, little attention...

Objectives Of Land Tenure Policies

The broad objectives of land tenure policies are not essentially different to those which guide the formulation of policies for any resource or sector, but historically the discussions of the subject have placed particular emphasis on the two overriding goals of economic efficiency and equity and poverty alleviation. In addition, environmental and institutional sustainability are concerns of increasing importance in developing such policies. In the context of land use, efficiency has short-run,...

The Pros and Cons of Subsidies

Given the central role of fiscal expenditures in agriculture, and the fact that many of them constitute subsidies to the sector, it is useful to develop guidelines to help decide when they are justified. One of the most universal justifications for a subsidy is poverty of the beneficiaries. However, before accepting this argument as a basis for programs and policies in the sector, it is necessary to ask how well the subsidies are targeted on poorer households. Normally, considerable efforts are...

Instruments of Grain Storage Policy

Traditionally, grain storage policy has been conceived as a program of building (State-owned) silos and collection points. Today, storage policy is more likely to emphasize adequate management of the facilities and the financing of storage costs incurred by farmers. Accordingly, its four main components are the following Privatization of storage facilities, optionally with at least some capital participation by farmers, as discussed in Chapter 3. Development of a program of certificates of...

Energy and cropland the decisive factors are the improvement in population quality and advances in knowledge27

A major constraint on technological improvement in many agricultural sectors is the low level of literacy of farmers and their lack of familiarity with basic concepts of cost accounting and business administration. In the context of a strategy, this issue merits review, along with options for increasing levels of schooling in rural areas and improving farmer literacy and numeracy. The Government of Mexico, for example, has recently decided that the human capital constraint is so dominant that...

Agricultural Growth And Poverty Reduction

In the past decade, solid empirical evidence has emerged that agricultural growth is not only effective in alleviating rural poverty, but it is more effective than industrial growth in reducing urban poverty. Researchers have begun to assemble and study richer data sets on rural and urban income distributions than were previously available. Martin Ravallion and Gaurav Datt analyzed data from 33 household surveys in India over the period from 1951 to 1991, and they came to the following...

Challenges and Risks of Participation

By its nature, a process of this type faces several challenges and risks. Although it may be carefully structured, the process represents an attempt to catalyze civil society's own response so that it will 21. In Guyana, consultations were used as an adjunct to the task force approach. After the first draft was completed, it was taken to many towns and villages throughout the country, usually by the Minister of Finance himself, to solicit comments. take on a more active role in national dialogs...

Gender in Agricultural Research

The relevance of much of existing agricultural research can also be questioned from a gender 35. J rgen Hagmann, Edward Chuma and Oliver Gundani, 'Integrating formal research into a participatory process', ILEIA Newsletter, Center for Research and Information on Low External Input and Sustainable Agriculture, Leusden, The Netherlands, 11(2), 1995, p. 13. See also Jean-Marie Diop, Marga de Jong, Peter Laban and Henk de Zeeuw, 'Building Capacity in Participatory Approaches,' PTD Working Paper 4,...

The Rationale for Public Extension Services

Agricultural extensionists are intermediaries between farmers, on the one hand, and researchers, input and credit suppliers, marketing agents and other agents that intervene in agriculture, on the other hand. Thus, fulfillment of their role requires management of two-way flows of information and communications skills as well as technical knowledge. Often, their main role is to stimulate a learning process in which both they and farmers participate. John Farrington has listed the four principal...

Privatization of Stateowned development banks

In carrying out privatization, governments can encourage the creation of agricultural commercial banks by selling some of the shares to farmers and farmers' associations. In the case of Banco Ganadero, a government holding of over 80 of the shares was reduced to less than 20 over a period of about a decade through the mechanism of an agreed levy per head of livestock that was invested in shares of the bank, in the name of the ranchers. In cases in which the financial wealth in the sector is not...

Inflation and Interest Rates

The injunctions presented throughout this chapter against ceilings or subsidies on loan interest rates are widely applicable in economies with low or moderate inflation. However, under conditions of high inflation, and when drastic stabilization programs are being implemented, other economists have argued persuasively that releasing controls on interest rates should follow, not precede, the strengthening of bank supervision capacity and the achievement of relative price stability. The principal...

Lessons from Long Term Models of Agricultural Development

As mentioned in Chapter 1, early theorizing about the role of agriculture in economic development was cast in very aggregate terms and tried to draw applicable inferences from the observation of international patterns. One of those strands of thought was the 'dualistic model' in which the industrial sector was expected to be the engine of growth and to pull resources out of agriculture for that purpose.47 However, strategic recommendations based on this model are based on a misinterpretation,...

Farm Prices and Agro Industries

For many processed agricultural products the domestic market is characterized by a concentration of buying power - monopsony or oligopsony - either nationally or in regions within the country. Invariably, these are products that are milled or otherwise processed before reaching the consumer. A few of the most common examples include cotton, sugar, milk, rice, wheat, coffee, rubber, palm oil, tea and jute. The high unit cost of transportation, relative to the value of the raw product, makes it...

Principles of Agricultural Policy

In addition to the identification of objectives and means of policy, a strategic framework should also be based on principles that guide policy actions. In other words, the objectives of policy will not be pursued at any cost. The principles represent conditions or limits on the kinds of actions - means - that will be employed in attempting the fulfill the strategic objectives. There are five basic principles for making an agricultural strategy sustainable over the long run, as follows 6...

Export Incentives

Export subsidies, as well as tariffs, are generally discouraged under WTO rules. They have been a major issue of contention among industrial trading nations, and the intent of international negotiations has been to reduce them over time. Nevertheless, in view of the above-mentioned bias against exports in the WTO regime, and their importance for developing countries, it is worth considering measures that would encourage them in the context of sound economic policy. Many countries have adopted a...

Discussion Points For Chapter

Strategies can provide useful frameworks for policy reforms. A strategy constitutes both a vision of the sector's future and a 'road map' for getting there. Public sector investments are one of the means for implementing strategies, but increasingly strategies concentrate on issues related to institutions, legal frameworks, the functioning of markets, and resource endowments. Both equity and efficiency objectives should be taken into account in a strategy. Sometimes, it is asked why an...

The Role Of Government

The consensus on the appropriate role of government in the agricultural economy has shifted over time toward less direct management of economic activities and fewer controls on prices and quantities of factors and outputs. Although the concept of 'market failure' in the private sector has long been recognized in economics, the awareness of 'government failure' is now much greater than before. Much of government failure can be attributed to inappropriate institutional incentives and weak fiscal...

Water In Yemens Development Process

Owing to the rapid depletion of aquifers in the most populated areas of the country, and the present inadequacy of water supply to some major urban areas, water has become the most limiting constraint on Yemen's development process. The nature of the water constraint varies by region within the country, in part as a function of the location of aquifers. Pumping water from the very large Mukalla aquifer in the east to some of the major cities, including the capital Sana'a and Ta'iz, is probably...

The Agricultural Sector And Economic Growth

Because higher productivity in farming can release labor for other sectors, for several decades of the twentieth century this relationship between agriculture and overall economic growth became distorted into a doctrine of pursuing industrialization even at the expense of agricultural development, with the result of undercutting agriculture's possibilities of contributing to overall development. The sector was viewed as playing a supporting role to industrial development, which was considered...

The State as Landowner

In almost all countries, the State is owner of significant amounts of rural lands, whether they be nature reserves, zones of commercial forestry, common grazing lands or agricultural lands. The worldwide trend, though, is for the State to reduce its holdings of agricultural lands. In most Asian countries, there has been a long tradition of private ownership of agricultural land. Latin America, except Cuba, emerged from an era of State ownership of land with a decisive shift in policies toward...

Trade Policy6 431 Basic Issues

Trade policy can confer powerful incentives or disincentives for production, through its influence on prices and quantities of competing products that are imported into the country and through its effects on domestic prices received for exports. Policies that make imports more expensive in the domestic market are said to provide economic protection. The main instruments of trade policy are tariffs and quotas on the side of imports and various kinds of incentives on the export side. In some...

Illustrations of New Trends in Agricultural Extension

In short, a wide range of approaches to extension, characterized by a greater role for non-governmental entities and greater emphasis on farmer participation, has proven to be effective in developing countries. In the case of Thailand, as another example, the private sector has been credited with the successful dissemination of new varieties of cassava. A microcosm of these new trends is found in the case of Bangladesh, as presented by Antholt, citing work by Chowdhury and Gilbert 138...

Acknowledgements

I am very indebted to the Food and Agriculture Organization FAO of the United Nations, whose staff conceived the idea of a book like this and invited me to draft it and provided information and many helpful comments throughout the process. Maurizio Garzia of the Agricultural Policy Support Service launched the project and assisted it in its early stages, and Maria Grazia Quieti gave support and wise counsel that were crucial to bringing it to conclusion. Many others in FAO contributed in their...

Land Rights Farm Size and Agricultural Productivity

Research on the relation between security of land tenure and agricultural productivity has not been extensive more results are available on the relation between farm size and productivity. The empirical evidence available regarding the role of tenure all has confirmed that the relationship between tenure security and measures of productivity is positive. Path-breaking work in this regard has been carried out by Gershon Feder and associates in Thailand. Feder and Tongroj Onchan analyzed data for...

Communal Lands

The area covered by communal lands common property resources has tended to shrink in recent decades, as the formalization of customary rights progresses, but these lands still exist in all parts of the world and in some countries are the dominant form of rural landholding. Normally, both their ownership and management are in the hands of the community, but Nadia Forni has commented that . resources can be considered as common property irrespective of whether ownership is legally bestowed on the...