The needs of the rural poor deserve priority, but that concern should not detract from concomitant attempts to strengthen financial mechanisms for the many medium-scale farmers in the developing world. Although on grounds of social equity they may not have deserved the subsidies that were channeled largely to them through programs of directed credit in the past, their financing requirements are legitimate and they play a vital role in the growth of agriculture. Services to them as well as to many lower-income farmers can be provided by commercial banks that are oriented to agriculture. The examples of Bancafé in Honduras and the Banco Gandero in Colombia have been mentioned. Another example is the Caja de Crédito Agrícola-Gandero in Ecuador. The Banco del Occidente in Honduras has a long tradition of lending to small farmers, most of them without tangible collateral, in the western parts of Honduras. As noted, these banks do not, and should not, lend the largest portion of their portfolio to agriculture but nonetheless, at up to half of the portfolio, they are lending much more to the sector than the average commercial bank does.
To foster an agricultural orientation in a commercial bank, a special commitment is required by the board of directors and managers. Many commercial banks do not have the expertise to evaluate agricultural lending projects and clients, and given the riskiness of the sector, in contrast to more of the certain earnings from investments in government bonds and urban real estate, they often are not interested in acquiring that expertise. Nevertheless, the examples cited have demonstrated the potential for agriculturally oriented banks to be profitable and sustainable, given appropriate operating policies and a supportive regulatory framework.
A policy instrument that can be utilized to foster the development of such banks is the
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