A Fresh Look at Rural & Agricultural Finance
This paper discusses the renewed commitment of USAID to agriculture. It identifies improving access to demand-driven and sustainable rural and agricultural financial (RAF) services as a vital component of USAID's strategy.
Agriculture remains the most important economic sector, especially for the poor, in many developing countries. Improved financial markets accelerate rural growth, leading to economic growth and less poverty. Donors are demonstrating renewed interest in RAF. The paper discusses key assumptions of the USAID initiative, challenges and the demand and supply of RAF.
The paper explores two approaches to RAF. The financial sector approach emphasizes the role of financial institutions in facilitating access to financial services. The value chain approach takes the production chain as the starting point, emphasizing the financing that is supplied within the agricultural value chain. The paper finds both approaches useful in designing interventions to increase supply of RAF. It suggests a complementary approach that:
- Builds on different actors in the value chain, while highlighting roles that financial institutions play;
- Begins with existing relationships and finance flows;
- Incorporates a clear understanding of all actors in the agricultural sector;
- Recognizes importance of long-term financial intermediation.
