Despite urbanisation, a large proportion of the population of developing and transition economy countries and three-quarters of the developing world's poor people live in rural areas. Sustainable livelihood development in rural communities is, thus, an important process and requires efforts to help people improve their social and financial assets.

Financial assets enable households to make better use of other assets, such as their land, labour and skills. Financial services help people to build their financial assets and can also help to facilitate their transactions, solve cash flow problems and manage risk.

Rural finance is, therefore, about the development of financial services in rural areas. The rural environment does have a number of particular problems, e.g.

A lower spatial density of clients, compared with urban areas, and therefore higher transaction costs; A mix of economic activities in which agriculture (including livestock and fisheries) is often very important, with consequent higher levels of risk from uncontrollable factors and irregular cash flows from seasonal production; A tendency towards lower levels of human capital, especially literacy and numeracy, with women often being disadvantaged; A history of poorly conceived, sometimes politically-driven, rural lending that has left a residue of bad debts, weak portfolios and borrowers unaccustomed to strict interest and repayment practices; Poor infrastructure and long distances from markets, which limits economic opportunities and debt capacity.

These issues require close attention to policies, to the operations of financial institutions, to improving the design of projects and to finding ways of improving capacity building so that best practices are followed wherever possible. Information relating to many of these topics can be found here and in the publications of the FAO Rural Finance Group.