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No. 15, October 2003
Helping to Improve Donor Effectiveness in Microfinance
FINANCIAL SERVICES FOR THE RURAL POOR
The majority of the world’s poor live in rural areas.Yet most lack access to the range of financial services they
need.Financial services available to them are relatively costly or rigid, whether from formal or informal
financial providers or traders and agricultural processors offering input credit. Financial institutions seeking
to work in rural areas face numerous constraints, such as poor infrastructure and low education levels.
Moreover, the main products of many microfinance institutions—short-term working capital loans with
frequent expected repayments—are not well-suited to seasonal or longer-term agricultural activities.
The recent introduction by some donors of the financial systems approach in micro and rural finance—which
emphasizes favorable policy environment and institution-building—has improved the overall effectiveness of
rural finance interventions. But numerous challenges remain, especially in agricultural finance.
Financial services in rural areas—the terminology
Microfinance means financial services (savings, credit, payment transfers,
insurance) for poor and low-income people. Rural finance refers to
financial services offered and used in rural areas by people of all
income levels. Agricultural finance is a sub-set of rural finance
dedicated to financing agriculture-related activities, such as input
supply, production, distribution and wholesaling, and marketing.
Financial services for the rural poor are represented by the shaded overlap of
microfinance with rural and agricultural finance on the diagram. It includes
financial services for all purposes and from diverse sources tailored to the needs of poor pe