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Promoting Efficient Rural Financial Intermediation

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  • Yaron, Jacob
  • Benjamin, McDonald
  • Charitonenko, Stephanie
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    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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    Bibliographic Info

    Article provided by World Bank Group 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.:
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    1. Ravicz, R. Marisol, 1998. "Searching for sustainable microfinance : a review of five Indonesian initiatives," Policy Research Working Paper Series 1878, The World Bank.
    2. Maurice Schiff & Alberto Valdes, 1994. "The Plundering of Agriculture in Developing Countries," Reports _013, World Bank Latin America and the Caribean Region Department.
    3. Yaron, J., 1992. "Successful Rural Finance Institutions," World Bank - Discussion Papers 150, World Bank.
    4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    5. 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.
    6. Besley, Timothy, 1994. "How Do Market Failures Justify Interventions in Rural Credit Markets?," World Bank Research Observer, World Bank Group, vol. 9(1), pages 27-47, January.
    7. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    8. 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.
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    Cited by:
    1. Paul Gertler & David I. Levine & Enrico Moretti, 2009. "Do microfinance programs help families insure consumption against illness?," Health Economics, John Wiley & Sons, Ltd., vol. 18(3), pages 257-273.
    2. Dorward, Andrew & Poulton, Colin & Kydd, Jonathan, 2001. "Rural And Farmer Finance: An International Perspective," ADU Working Papers 10924, Imperial College at Wye, Department of Agricultural Sciences.
    3. Honohan, P. & Beck, T.H.L., 2007. "Making finance work for Africa," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125420, Tilburg University.
    4. Ang, James B., 2009. "Private Investment and Financial Sector Policies in India and Malaysia," World Development, Elsevier, vol. 37(7), pages 1261-1273, July.
    5. Francisco, Manuela & Mascaro, Yira & Mendoza, Juan Carlos & Yaron, Jacob, 2008. "Measuring the performance and achievement of social objectives of development finance institutions," Policy Research Working Paper Series 4506, The World Bank.
    6. Rodrigo A. Chaves & Susana Sanchez & Saul Schor & Emil Tesliuc, 2001. "Financial Markets, Credit Constraints, and Investment in Rural Romania," World Bank Publications, The World Bank, number 13893, February.
    7. World Bank, 2005. "Mexico : Broadening Access to Financial Services Among the Urban Population, Mexico City's Unbanked, Volume 2, Annexes," World Bank Other Operational Studies 8359, The World Bank.
    8. Thorsten Beck & Samuel Munzele Maimbo, 2013. "Financial Sector Development in Africa : Opportunities and Challenges," World Bank Publications, The World Bank, number 11881, February.

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