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Promoting Efficient Rural Financial Intermediation

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Author Info
Yaron, Jacob
Benjamin, McDonald
Charitonenko, Stephanie
Abstract

Although governments have traditionally used subsidized credit programs to promote agricultural growth, this approach has generally failed to improve incomes and alleviate poverty in rural areas. It has also led to the mistaken belief that rural credit programs cannot be profitable. A new approach seeks to raise standards of living in rural areas by casting the government in a very different role--one of setting a favorable legal and policy environment for rural financial markets and addressing specific market failures cost effectively through well-designed and self-sustaining interventions. There is evidence that this approach can be highly successful. The Village Bank system of Bank Rakyat Indonesia has shown that financial services can be extended to millions of low-income rural clients without relying on subsidies. Indeed, the program has generated enormous profits/or the bank by using simple, innovative, and largely replicable techniques. Copyright 1998 by Oxford University Press.

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Article provided by Oxford University Press in its journal World Bank Research Observer.

Volume (Year): 13 (1998)
Issue (Month): 2 (August)
Pages: 147-70
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Handle: RePEc:oup:wbrobs:v:13:y:1998:i:2:p:147-70

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chaves, Rodrigo A. & Gonzalez-Vega, Claudio, 1996. "The design of successful rural financial intermediaries: Evidence from Indonesia," World Development, Elsevier, vol. 24(1), pages 65-78, January. [Downloadable!] (restricted)
  2. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank. [Downloadable!]
  3. Besley, Timothy, 1994. "How Do Market Failures Justify Interventions in Rural Credit Markets?," World Bank Research Observer, Oxford University Press, vol. 9(1), pages 27-47, January.
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  4. Ravicz, R. Marisol, 1998. "Searching for sustainable microfinance : a review of five Indonesian initiatives," Policy Research Working Paper Series 1878, The World Bank. [Downloadable!]
  5. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August. [Downloadable!] (restricted)
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  6. Yaron, J., 1992. "Successful Rural Finance Institutions," World Bank - Discussion Papers 150, World Bank.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul Gertler & David I. Levine & Enrico Moretti, 2003. "Do Microfinance Programs Help Families Insure Consumption Against Illness?," Development and Comp Systems 0303004, EconWPA. [Downloadable!]
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