Finance and Development

Finance and Development

Surveys of Theory, Evidence and Policy

Edited by Christopher J. Green, Colin Kirkpatrick and Victor Murinde

In this valuable new book, a distinguished group of authors takes stock of the existing state of knowledge in the field of finance and the development process. Each chapter offers a comprehensive survey and synthesis of current issues. These include such critical subjects as savings, financial markets and the macroeconomy, stock market development, financial regulation, foreign investment and aid, financing livelihoods, microfinance, rural financial markets, small and medium enterprises, corporate finance and banking.

Chapter 10: Rural Financial Markets

Susan Johnson

Subjects: development studies, development economics, economics and finance, development economics, financial economics and regulation


Political economy analyses of moneylender exploitation were a strong rationale for past state-subsidized credit provision. The objectives of credit projects, especially those in South Asia, have often involved reducing the dependence of borrowers on moneylenders and the power relationships they represent. Rural financial markets 327 The approach to building self-sustaining MFIs that charge interest rates to cover costs has challenged this rationale and many credit providers have accepted the view that access rather than price is the critical factor for poor people. Notwithstanding this development, an indicator that is often used to assess impact is moneylender dependence. But such an indicator, if it is to be useful, needs to reflect the wider context of the financial market and the underlying power relations which money lending represents, as well as the circumstances of poor people’s livelihoods. Questions must be asked about whether the market niche of moneylenders is really being eroded, or simply being converted or channelled into other types of production and exchange relationship. Is it as easy as shifting dependence from the moneylender to the MFI, who act as new patrons? Evidence has been presented from Bangladesh demonstrating that households participating in MFI programmes borrow as much from informal sources (moneylenders) as other households and crossfinance their debt repayments to either source (Sinha and Matin, 1998). As was explained above, the idea of building sustainable microfinance institutions converged with financial repression thinking. The Ohio School had earlier criticized subsidized lending both through the state in the...

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