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Rural banking in Africa

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  • van Empel, Gerard

Abstract

Many people in the vast rural areas of Africa lack access to financial services, and most commercial banks are not interested in moving into these areas due to their low income levels, lack of scale economies, and poor infrastructure. Also, few banks actually understand the most common economic activity in rural areas: agriculture. Consequently, the absence of financial institutions in rural Africa has often enticed governments to step in, particularly with state-dominated banks focused on agriculture. Many of these initiatives have failed, however, because they were too bureaucratic, too policy oriented, too concentrated on risk to only one segment of the population, or too weak in customer focus. In addition, clients considered these government-sponsored institutions to be instruments that provided grants; hence, the banks suffered from poor loan-recovery rates. While microfinance institutions have made some inroads into rural Africa with the financial backing of international nongovernmental organizations and other sponsors, their sustainability is questionable. They tend to lack banking licenses and therefore have a very limited product range, and they cannot afford modern technology-based distribution systems.

Suggested Citation

  • van Empel, Gerard, 2010. "Rural banking in Africa," 2020 vision briefs 18(4), International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:2020br:18(4)
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    Keywords

    Agricultural development -- Africa; agriculture finance; Farmers; Rabobank; rural banking; supply chain;

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