Meeting the Needs of the Rural Poor through Post-Reform Financial Markets

How can the poor better accumulate assets in the post-liberalisation scenario?

This paper presents the context of BASIS CRSP project, "The Structure and Performance of Rural Financial Markets and the Welfare of the Rural Poor," which seeks to evaluate the performance of Mexico's and Peru's liberalized financial markets. The authors identify important characteristics of financial sector liberalization in these countries:

Elimination of price controls and state control over inputs;
Elimination of development banks and controls on interest rates;
Creation of private property rights.

These reforms were meant to accelerate growth by enhancing the efficiency of resource allocation. Specifically, land titling was expected to augment the potential supply of collateral and boost investment demand. However, the reforms have been only moderately successful and "information asymmetries", inherent in credit markets, have prevented efficiency enhancement.

The authors state that research will track the performance of credit markets for different types of households over time and will explore questions such as:

Why do households that can obtain a loan, choose not to?
What are the regional and household characteristics that contribute to keeping households from the financial marketplace altogether?

The author concludes that the lessons learned from this research project will have immediate effect on the policy environment in Peru and Mexico.