Rural and agricultural financial services

The complexity of designing accessible financial services for rural areas is not simply due to their remoteness and, in many countries, their relative poverty. The very nature of the agricultural economy is also a factor – and must be understood for appropriately designed services to emerge.

In most developing countries, rural areas remain partially or largely dependent on agriculture. Incomes are typically low – even relative to the urban areas – and unpredictable: instead of salaried jobs, many rely on agriculture, vulnerable to the vagaries of weather and of commodity markets, or on casual labour. This makes traditional banking models difficult to apply.

Effective rural financial services therefore involve a range of channels and products adapted to the agricultural economy, enabling farmers to finance agricultural inputs, to sell their produce at the optimal time and to invest in equipment to increase productivity. In many countries, encouraging advances are being made through the adoption of approaches such as contract farming, warehouse receipts, crop and livestock insurance and leasing.

However, delivering financial services efficiently remains a significant challenge: transaction costs can quickly become unsustainably high for both provider and user. That’s why service design needs to be based on robust analysis of demand, mapping of existing systems – such as co-operatives and microfinance networks – and an understanding of socio-cultural factors that can influence customer behaviour.

For example, OPM’s analysis of rural microfinance in Tanzania demonstrated the vital role that Savings and Credit Co-operatives (SACCOs) could play in bringing financial services to remote and poor rural areas. The resulting strategy therefore placed these SACCOs at the heart of future development, and sought to build the links between banks, microfinance institutions and SACCOs to bring savings and credit services to rural customers.