Rural Financial Markets in Developing Countries

This review examines portions of the vast literature on rural financial markets and household behavior in the face of risk and uncertainty. We place particular emphasis on studying the important role of financial intermediaries, competition and regulation in shaping the changing structure and organization of rural markets, rather than on household strategies and bilateral contracting. Our goal is to provide a framework within which the evolution of financial intermediation in rural economies can be understood.Rural Finance, Financial Intermediation, Agricultural Credit

Trade finance in crisis : market adjustment or market failure ?

As world leaders have agreed to massively support trade finance, this paper discusses the singularity of the issues related to trade finance in the context of the global economic crisis. Why should international trade finance be a particular issue of concern in the current circumstances? Are there specific market or government failures associated with trade finance that justify a special and differential treatment of the issue by policymakers? If so, what would then be the most appropriate policy instruments to address those concerns? The paper cautions against the notion of a large trade finance"gap,"yet highlights the possible rationales and conditions for an effective intervention in support of trade finance.Debt Markets,Banks&Banking Reform,Access to Finance,Emerging Markets,

Joint logistics and financial services by a 3PL firm

Integrated logistics and financial services have been practiced by third party logistics (3PL) firms for years; however, the literature has been silent on the value of 3PL firms as credit providers in budget-constrained supply chains. This paper investigates an extended supply chain model with a supplier, a budget-constrained retailer, a bank, and a 3PL firm, in which the retailer has insufficient initial budget and may borrow or obtain trade credit from either a bank (traditional role) or a 3PL firm (control role). Our analysis indicates that the control role model yields higher profits not only for the 3PL firm but also for the supplier, the retailer, and the entire supply chain. In comparison with a supplier credit model where the supplier provides the trade credit, the control role model yields a better performance for the supply chain as long as the 3PL firm’s marginal profit is greater than that of the supplier. We further demonstrate that, for all players, both the control role and supplier credit models can outperform the classic newsvendor model without budget constraint

Revisiting the economy by taking into account the different dimensions of well-being

In standard economic models benevolent governments are the unique actors in charge to tackle the problem of reconciling individual with social wellbeing in presence of negative externalities and insufficient provision of public goods. Some promising practices of grassroot economics suggest however that, even a minoritarian share of concerned individuals and socially responsible corporations which internalise externalities, significantly enhance the opportunities of promoting "sustainable happiness" harmonising creation of economic, social and environmental value.well-being; sustainable happiness; role; ethical and solidarity initiatives

Using agriculture for development: Supply- and demand-side approaches

For most poor countries of today, using agriculture for development is widely recognized as a promising strategy. Yet, in these countries, investment in agriculture has mostly been lagging relative to international norms and recommendations. Current wisdom on how to use agriculture for development is that it requires asset building for smallholder farmers, productivity growth in staple foods, an agricultural transformation (diversification of farming systems toward high value crops), and a rural transformation (value addition through rural non-farm activities linked to agriculture). This sequence has too often been hampered by extensive market and government failures. We outline a theory of change where the removal of market and government failures to use this Agriculture for Development strategy can be addressed through two contrasted and complementary approaches. One is from the “supply-side” where public and social agents (governments, international and bilateral development agencies, NGOs, donors) intervene to help farmers overcome the major constraints to adoption: liquidity, risk, information, and access to markets. The other is from the “demand-side” where private agents (entrepreneurs, producer organizations) create incentives for smallholder farmers to modernize through contracting and vertical coordination in value chains. We review the extensive literature that has explored ways of using Agriculture for Development through these two approaches. We conclude by noting that the supply-side approach has benefited from extensive research but met with limited success. The demand-side approach has promise, but received insufficient attention and is in need of additional rigorous research which we outline

Fricciones crediticias y 'paradas repentinas' en pequeñas economías abiertas: un marco de equilibrio del ciclo económico para crisis en mercados emergentes

(Disponible en idioma inglés únicamente) Las fricciones financieras son un elemento central de la mayoría de los modelos que ha propuesto la obra publicada sobre los mercados emergentes para explicar el fenómeno de las paradas repentinas. A la fecha, son pocos los estudios que han procurado analizar las implicaciones cuantitativas de esos modelos e integrarlos a un marco de equilibrio del ciclo económico de las economías emergentes. En este trabajo se analizan esos estudios, considerándoselos variaciones de la capacidad de pago y de la disposición a pagar en un marco que ocasionalmente incorpora limitantes del endeudamiento al modelo del ciclo económico real de economías pequeñas que a veces resultan de obligatorio acatamiento. Una característica que tienen en común los diversos modelos es que los agentes toman en cuenta el riesgo de paradas repentinas futuras en sus planes óptimos, de modo que las asignaciones de equilibrio y los precios se distorsionan incluso cuando las limitantes crediticias no son obligatorias. Las paradas repentinas pertenecen al equilibrio competitivo de precios flexibles y únicos de esos modelos, que ocurren en una región determinada del espacio del Estado en el que sacudidas negativas hacen obligatorias las limitantes al endeudamiento. Los efectos resultantes no lineales implican que resolver los modelos requiere métodos numéricos no lineales, los cuales se describen en el sondeo. Los resultados demuestran que los modelos pueden arrojar paradas repentinas poco frecuentes con efectos negativos de la cuenta corriente y recesiones profundas enmarcadas en ciclos económicos más suaves. Aún así, las investigaciones en este campo se hallan en una etapa incipiente y este estudio procura estimular nuevos trabajos en esta área.

Managing Agricultural Price Risk in Developing Countries

We survey the experience of risk management in developing country agricultural supply chains. We focus on exposure, instruments, impediments to access and developing country futures markets. We draw on lessons from experience over the past two decades.Commodities, Risk Management, Developing Countries

Credit Frictions and 'Sudden Stops' in Small Open Economies: An Equilibrium Business Cycle Framework for Emerging Markets Crises

Financial frictions are a central element of most of the models that the literature on emerging markets crises has proposed for explaining the Sudden Stop' phenomenon. To date, few studies have aimed to examine the quantitative implications of these models and to integrate them with an equilibrium business cycle framework for emerging economies. This paper surveys these studies viewing them as ability-to-pay and willingness-to-pay variations of a framework that adds occasionally binding borrowing constraints to the small open economy real-business-cycle model. A common feature of the different models is that agents factor in the risk of future Sudden Stops in their optimal plans, so that equilibrium allocations and prices are distorted even when credit constraints do not bind. Sudden Stops are a property of the unique, flexible-price competitive equilibrium of these models that occurs in a particular region of the state space in which negative shocks make borrowing constraints bind. The resulting nonlinear effects imply that solving the models requires non-linear numerical methods, which are described in the survey. The results show that the models can yield relatively infrequent Sudden Stops with large current account reversals and deep recessions nested within smoother business cycles. Still, research in this area is at an early stage and this survey aims to stimulate further work.

Innovations in rural and agriculture finance

Most rural households lack access to reliable and affordable finance for agriculture and other livelihood activities. Many small farmers live in remote areas where retail banking is limited and production risks are high. The recent financial crisis has made the provision of credit even tighter and the need to explore innovative approaches to rural and agricultural finance even more urgent. This set of 14 briefs clearly points out the importance of business realities faced by small farmers, including low education levels, the dominance of subsistence farming, and the lack of access to modern financial instruments. These conditions mean that new and innovative institutions are required to reach small farmers. Emerging communication technologies provide new opportunities for rural banking by reducing business costs and alleviating information asymmetries. New financing instruments, such as weather index-based insurance and microinsurance, also have great potential for managing the risks faced by small farmers. In addition, bundling financial services with nonfinancial services like marketing and extension services offers new opportunities for small farmers to increase their productivity and incomes. Finally, an enabling policy environment and legal framework, enforcement of rules and regulations, and a supportive rural infrastructure all contribute immensely to making sustainable access to finance a reality. Table of Contents: •Innovations in rural and agriculture finance: Overview by Renate Kloeppinger-Todd and Manohar Sharma •Financial literacy by Monique Cohen •Community-based financial organizations: Access to Finance for the Poorest by Anne Ritchie •Rural banking in Africa: The Rabobank approach by Gerard van Empel •Rural banking: The case of rural and community banks in Ghana by Ajai Nair and Azeb Fissha •Rural leasing: An alternative to loans in financing income-producing assets by Ajai Nair •Determinants of microcredit repayment in federations of Indian self-help groups by Yanyan Liu and Klaus Deininger •M-PESA: Finding new ways to serve the unbanked in Kenya by Susie Lonie •Biometric technology in rural credit markets: The case of Malawi by Xavier Giné •Credit risk management in financing agriculture by Mark D. Wenner •New approaches for index insurance: ENSO insurance in Peru by Jerry R. Skees and Benjamin Collier •Microinsurance innovations in rural finance by Martina Wiedmaier-Pfister and Brigitte Klein •Combining extension services with agricultural credit: The experience of BASIX India by Vijay Mahajan and K. Vasumathi •Bundling development services with agricultural finance: The experience of DrumNet by Jonathan Campaigne and Tom RauschAgricultural innovations -- Developing countries, agriculture finance, Financial crisis, microinsurance, Poverty reduction, rural banking, Rural finance, Rural households, Small farmers,