For Agricultural and Rural Finance

7.1 The Role of Finance in Agricultural Development 277

7.1.1 The Nature of the Problem 277

7.1.2 Agricultural Credit and Rural

Savings 279

7.1.3 Financial Services in Rural Areas 284

7.1.4 Characteristics of Rural Financial Markets 286

7.2 Policy Objectives for Rural Finance 287

7.2.1 Policy Objectives: Production versus Income 287

7.2.2 The Objectives of Poverty Alleviation and Gender Outreach 289

7.2.3 Objectives for Rural Financial Institutions 293

7.2.4 The Contributions of Microfinance 293

7.3 Keys to the Sustainability and Efficiency of Financial Intermediation 295

7.4 The Regulatory Framework for Rural

Finance 300

7.4.1 Regulatory and Institutional Challenges 300

7.4.2 Collateral 302

7.4.3 Contractual Relationships 305

7.4.4 Interest Rate Regulations 306

7.4.5 Bank Regulation for the Rural

Sector 308

7.5 Structural Considerations for Rural

Financial Institutions 317

7.5.1 Local Institutional Structures 317

7.5.2 Credit Co-operatives 318

7.5.3 Rural Banks 322

7.5.4 Apex Organizations 324

7.5.5 Rediscount Lines and Bond

Financing 326

7.5.6 Governance Issues 328

7.5.7 Gender Issues in Rural Finance 329

7.6 Approaches to Managing Rural Financial Institutions 330

7.6.1 Autonomy 330

7.6.2 Interest Rates and Lending Policy 331

7.6.3 Other Incentives for Repayment 333

7.6.4 Techniques of Savings Mobilization 334

7.6.5 Prudential Management in Rural Financial Institutions 337

7.7 Macroeconomic Policy to Support Rural Financial Intermediation 340

7.7.1 The Problem of Directed and Subsidized Credit 340

7.7.2 Managed Deposit Rates 340

7.7.3 Inflation and Interest Rates 341

7.7.4 The Role of Donor and

Government Finance 342

7.8 Elements of a Strategy for Developing

Rural Finance 346

7.8.1 The Financing Gap 346

7.8.2 Elements of a New Approach 346

7.8.3 The Context of Gender Policy in Microfinance 348

7.8.4 Towards Banking for All Farmers 349 Discussion Points for Chapter 7 351

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