RURAL FINANCE

Rural financial intermediation faces several challenges, including, shortcomings and systematic weaknesses of rural financial markets, urban biased policies and poorly designed interventions not based on the realities of rural markets. Against this background the purpose of this chapter is to provide an overview of some concepts of financial theory, the history of conventional approaches in rural financial markets, informal finance, the role of savings mobilization and a discussion on the new approach to rural financial markets. The aim is to present the building blocks essential to the understanding of rural financial markets. The roles of information, transaction costs and measurement of success are emphasized.Financial Economics,

RETAIL RURAL FINANCE IN SOUTH AFRICA: FROM POLICIES TO PRACTICE

In South Africa a recent government study laid the foundations for improving access to financial services for rural people. More is however needed than simply stating the policies. It is argued that policies do not differentiate target groups adequately. This can result in inefficient implementation of policies. The concept of a broad range of institutional possibilities to improve access to financial services, none of which specifically provides a conclusive model, is considered to be realistic. The idea is to muster this range of possible forms into a co-ordinated effort to increase access to financial services for rural people in all rural areas. This paper emphasises the reality of the situation when choosing policy directions. NGOs, commercial banks and the Post Bank do not hold the primary key to improving access to financial services in rural areas in South Africa. Several studies discussed the broad range of possible institutional forms in the rural areas of South Africa. The role of decentralised financial systems has not been the focus point of any of these studies. It is argued that fertile ground exists in South Africa for decentralised financial systems to address access problems at the local level. Decentralised systems also cannot be the solution to all intermediation problems. A multipronged approach is proposed, harnessing all institutional forms into a comprehensive strategy.Agricultural Finance, Community/Rural/Urban Development,

The effects of the interest rate ceilings on the micro lending market in South Africa

Interest rates are a topical subject in the micro lending industry in South Africa. The micro lending industry has been accused of charging usurious interest and exploiting the consumers. This has led to the Department of Trade and Industry passing a Usury Act with an aim of protecting the consumers. The Act imposes interest rate ceilings on loan finance provided by money lending institutions. These ceilings are proposed to be linked to the prime rate. Given this, it is not possible for micro lenders to charge full-cost recovery interest rates. This paper tries to highlight the effects of interest rate ceilings on the micro finance market. It argues that the biggest cost component of microlenders is administration costs and not the cost of capital, thus linking ceilings to the prime rate is illogic.Financial Economics, Marketing,

THE FINANCIAL POSITION OF SOUTH AFRICAN AGRICULTURE

The agricultural sector in South Africa is subjected to major changes due to a simultaneous influence of external and internal forces after the political changes in South Africa and its opening to the rest of the world. The external forces are mostly linked to increasing globalisation including a changing internal trade regime. Internal forces have to do with the liberalisation of agriculture and for example the changing role of government with respect to the provision of financial services. This paper indicates the effect of these influences on the financial position of the farming sector and provides a point of departure for the monitoring of future trends. It further indicates the strategies followed by farmers to counter the negative trends experienced. It is a component of a much broader study on the agricultural finance situation in South Africa.Agricultural Finance,

THE EFFECTS OF THE INTEREST RATE CEILINGS ON THE MICRO LENDING MARKET IN SOUTH AFRICA

Interest rates are a topical subject in the micro lending industry in South Africa. The micro lending industry has been accused of charging usurious interest and exploitating the consumers. This has led to the Department of Trade and Industry passing a Usury Act with an aim of protecting the consumers. The Act imposes interest rate ceilings on loan finance provided by money lending institutions. These ceilings are proposed to be linked to the prime rate. Given this, it is not possible for micro lenders to charge full-cost recovery interest rates. This paper tries to highlight the effects of interest rate ceilings on the micro finance market. It argues that the biggest cost component of microlenders is administration costs and not the cost of capital, thus linking ceilings to the prime rate is illogic.Financial Economics,

FINANCING LOCAL DEVELOPMENT

Community/Rural/Urban Development,

Rural Finance and the Role of Development Banks: Recent Experience in South Africa

Exact date of working paper unknown.In the quest to expand access to financial services in rural areas the agricultural development bank is reexamined. Four issues that need to be addressed in the restructuring of these institutions are discussed, viz. the arguments for intervention, the rules that need to be applied in the context of the new approach to development finance, the management of the restructuring process and the politics of change. These issues or rules are applied to the restructuring process of retail development banks at the provincial level in South Africa. It is illustrated that for successful transformation political will and a shared vision are also necessities. The impact of appropriate transformation is quantitatively illustrated by the impact on financial self-sustainability in one such bank when these aspects have been adequately addressed in the transformation process and the failure in the remaining institutions when they are not

RACIAL DISCRIMINATION IN HIRE/PURCHASE LENDING IN APARTHEID SOUTH AFRICA

A partial-observability model finds evidence of racial discrimination by retailers of consumer durables in apartheid South Africa. In particular, black households are 13 percentage points more likely to demand a hire/purchase loan but not to have one supplied than are other households, all else equal.Consumer finance, disequilibrium models, racial discrimination, truncated and censored models, South Africa, Financial Economics,

Discrimination by Formal Lenders in South Africa

Censored (Tobit) regression is used to estimate the effects of race, location of residence, and sex of the household head on formal debt held by South African households. The magnitude of the effects suggests that lenders discriminate and that formal financial markets could be improved even without technical innovation

Determinants of Cost to Client in Accessing Rural Financial Services – A Case of Zambia's Chongwe District

Providing affordable access to appropriate financial services for the low-income population has been an on-going challenge for most developing nations, Zambia included. On this premise, this paper seeks to empirically investigate and quantify costs to clients in accessing financial services in the rural areas of Zambia, based on cross-sectional primary data collected in the Chongwe district from 236 households, documentation and key informant interviews. This study used the Probit and Heckman selection models to analyse cost to the client factors affecting the likelihood of accessing financial services (credit) by rural households in Zambia. Results revealed that households’ costs incurred by clients in accessing financial services are not limited to financial costs such interest, fees, transport and savings, etc., but equally other hidden costs such regulatory and compliance costs, economic costs, psychological costs, and social and cultural costs. The study recommends that policy formulation in the areas of financial inclusion, rural and agricultural finance should be based on reducing cost-to-client attributes such as the regulatory and compliance costs, economic costs and psychological costs identified above. Keywords: costs to client, financial services, access to finance, Heckman two-stage model