Rural finance success factors
A strategic review of rural finance in Zambia by OPM has highlighted six key ingredients for success that can be applied to similar initiatives in other countries. Commissioned by the Government of Zambia’s Ministry of Finance, the main aim of the study was to help the Government design a national policy and strategy for rural finance that accommodated a broad range of players. The six key insights from the study, included:

1. Understand the context-specific structural factors that constrain access to finance and influence potential paths to financial inclusion. To overcome these obstacles, there is a real need and great opportunity in the short and medium term for strengthening informal mechanisms such as village savings and loan associations. Over time, users value access to multiple services to meet their diverse and dynamic financial needs.

2. Acknowledge that certain rural finance issues are best addressed by government. A clear signal of government policy priority and a coherent strategy to rapidly expand sustainable financial services in rural areas can help address a number of overlapping policy areas including economic development, agriculture diversification and social protection.

3. Seize opportunities to provide financial services in difficult environments, using coalitions to drive initiatives forward. As in the rest of world, these opportunities include new mobile payment systems, the re-emergence of a dynamic MFI sector, and the emergence of innovative models of agricultural value chain finance.

4. Use a ‘making markets work for the poor’ (M4P) methodology to design a market development strategy: In Zambia, this proved an effective and receptive tool for all stakeholders. In particular greater focus on reducing risks and costs for the providers and users of financial services and better understanding the linkages in the market at the macro, meso and micro levels provides a key link for better understanding the constraints and triggering informed analysis and dialogue amongst public and private actors.

5. Recognise the importance of politics in rural finance. There are many different incentives in the sector ranging from the macro need to ensure food security to more micro incentives in specific value chains. Identifying key motivations, challenges and trade-offs not only allows different actors to assess the risks and feasibility of their actions but also ensures a more in-depth and nuanced dialogue around reform options.

6. Develop appropriate monitoring and evaluation (M&E) frameworks. These are needed to determine whether the use of subsidies are leading to market development and ensure that data on rural finance is up to date, accessible and appropriate for decision making.