Institutional finance for agricultural development

Abstract

The authors review the literature to see at how rural financial institutions (RFIs) are organized, how they can improve their financial viability, and how real interest rates affect the demand for rural loans, the supply of rural deposits, and rural savings. Their purpose is to make the findings of the extensive literature on agricultural credit policy accessible to developing-country policymakers. The review addresses six major questions: Why promote formal RFIs? How should RFIs be organized? What are the transaction costs of RFIs and how should they be measured? What effects do real interest rates and other factors have on rural loans, deposits, and savings? What determines whether an RFI system is a net contributor to or a drain on public resources? And, what policy conclusions can be drawn from this analysis? To answer these questions, Desai and Mellor look at the literature on RFIs in high-, middle-, and low-income countries, both developed and developing. They include countries in four developing regions Sub-Saharan Africa, Asia, the Near East and Mediterranean Basin, and Latin America and the Caribbean as well as Western Europe and North America.Rural credit Developing countries. ,Financial institutions. ,