WHAT MAKES RURAL FINANCE INSTITUTIONS SUCCESSFUL?

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Abstract
Providing affordable credit to the rural population has long been a prime component of development strategy. Governments and donors have sponsored and supported supply-led rural finance institutions both to improve growth and equity and to neutralize or mitigate urban-biased macroeconomic policies. But because of high risks, heavy transaction costs, and mounting loan losses, many of the programs have drained state resources to little purpose, reaching only a small part of the rural population and making little progress toward self-sustainability. There are, however, a few success stories. This article reviews the policies, modes of operation, incentives, and financial performance of four publicly sponsored programs in Asia that are widely perceived to be successful, to find out what economic, social, and institutional factors contributed to their success.

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