Examining Design and Innovations in Rural Finance For Addressing Current and Future Challenges

This paper lists twelve key challenges to rural finance service provision. They include:

Vulnerability constraints:

• Systemic risks such as fluctuations in the weather, diseases, etc;
• Market risks such as seasonal and cyclical price fluctuations of agricultural commodities;
• Credit risk like the lack of collateral as well as other support services and information networks.

Operational constraints:

• Investment returns are slow and have low profit margins;
• Low investment and assets, a result of poverty, reduce borrowings and savings capacity;
• Geographical dispersion and the low density of population make access and communication difficult resulting in an increase in costs.

Capacity constraints:

• Lack of infrastructure, which includes poor communication, bad roads, unequipped schools and lack of health and social services;
• Lack of technical capacity and training, preventing the rural population from being able to access and adapt to new technology and employment;
• Social exclusion such as cultural, linguistic, gender, racial, religious and educational constraints that affect market and financial integration;
• Lack of institutional capacity, including lack of management and technical capacity, competitive viability, economic integration and risk-bearing capacity.

Political and regulatory constraints:

• Political and social interference that cause uncertainty;
• Lack of regulations and a lack of their enforcement, which hinder development.

The paper concludes by stressing the importance of finding appropriate responses to these challenges.