The Financing

Greater access to financial services of various kinds can be a crucial factor in catalyzing the efforts of rural households to break out of poverty and stagnation and place themselves on a self-sustaining path of improving incomes and well-being. Yet, the availability of formal rural finance has decreased relative to the demand for it in the last ten or fifteen years, as official rural lending institutions have seen their activities shrink drastically. However, even at their height of activity, when they were flush with government subsidies, they were not reaching a very significant share of the rural population:

In Mexico, notwithstanding a network of more than 500 agricultural bank branches and billions of US dollars in directed credit programs through both a State agricultural development bank and nationalized commercial banks, a recent World Bank study found that formal credit reached only 8 percent of rural enterprises, and direct government loans reached less than one percent of rural enterprises.168

The traditional approach hasn't worked. Channeling credit to agriculture proved not to be a sustainable solution. The concept of a State development bank for the sector has not proven durable. Nor have the accompanying monetary and regulatory policies been propitious for rural lending. 'The three most damaging interventions are excessive reserve requirements, a large volume of directed credit programs, and subsidized interest rates or interest rate ceilings'.169 In addition, as the work of Michael Fiebig has demonstrated, most of the main elements of frameworks for bank regulation are inappropriate for agricultural finance.

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