A Technical Guide to Rural Finance: Exploring Products

Financial products are at the heart of a financial service provider's business - they are what is "sold" to clients. Like any other business, therefore, a financial service provider must be market-driven and aim to identify and meet customers' needs on a profitable basis. Customers may be private individuals or businesses and their financial service needs will range from needing somewhere safe to keep surplus money to being able to borrow to meet a cash shortfall or being able to send money to a relative in a rural area. Someone providing financial services, therefore, has to decide whether to offer their customers one product or several products and how much to charge in order to make a sustainable business.

1. A Technical Guide to Rural Finance: Exploring Products

Traditionally, policies towards rural finance have been centered on the extension of credit, often subsidized and directed, to rural areas, and have ignored the reality that rural people demand a diverse array of financial services, including savings, money transfers, insurance and credit. Today’s financial systems approach to rural finance recognizes that a wide menu of financial services (priced to cover costs) is needed, as part of a broader farmer support package, in order to reach out to the greatest number of people in rural areas. Successful microfinance organizations have had to tackle, not only the problems of delivering products and services to low-population rural areas, but also to take into account the wide diversity and seasonality of their client’s income sources (beyond simply agricultural production and on-field labour).

This guide by the World Council of Credit Unions (WOCCU), draw on cases of innovative practices in rural finance in Central America, Brazil, Ecuador, Kenya, Uganda, Rwanda, and the Philippines, and makes a number of recommendations relating to the successful operation of sustainable rural finance institutions. Recommendations include the need to:

• Assess the demand of rural clients for multiple financial services;
• Identify and examine all income sources and expenses of their clients at the household level; and
• Assess environmental credit risks associated with production and market cycles.

The guide also reviews a range of rural finance products and delivery mechanisms including:

• Long-term agricultural investment loans, short-term rural enterprise and farm loans;
• Lending against warehouse receipts and group-based lending;
• Buyer and supplier credit;
• Savings;
• Leasing;
• Insurance – including credit, savings, funeral and crop insurance options;
• Remittances – exploring how to best to link remittance receivers to formal financial institutions.

This is a short document which provides a useful introduction to the subject of financial products that meet the needs of rural populations.
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