Surveys of Theory, Evidence and Policy
Edited by Christopher J. Green, Colin Kirkpatrick and Victor Murinde
Chapter 10: Rural Financial Markets
10. Rural ﬁnancial markets Susan Johnson 1. INTRODUCTION The term ‘rural ﬁnancial market’ was adopted in the early 1980s to reﬂect the changing analysis of the context of rural credit (Von Pischke et al., 1983). The term refers to ‘relationships between buyers and sellers of ﬁnancial assets who are active in rural economies’ (p. 4) and to the ﬁnancial intermediation process involved in the transferring of ﬁnancial claims using both formal and informal organizations. It was the outcome of the convergence of ﬁnancial repression thinking with an improved understanding of informal ﬁnancial markets and the ﬁnancial intermediation needs of rural households. Financial sector reform policies have been in operation since the 1980s and a considerable body of work has developed in theorizing and investigating their consequences. The thinking on rural ﬁnancial markets supported the analysis of reform for rural credit policy. Nevertheless, the analysis of the operation and consequences of reform has still mainly focused on the formal ﬁnancial sector. While the majority of economic actors in low-income countries do not directly or signiﬁcantly participate in the formal ﬁnancial sector, the ﬁnancial arrangements in which they do participate are generally regarded as irrelevant to the operation of formal ﬁnancial sector reform since the scale of individual transactions is small. Despite this, reform policy has considerably inﬂuenced the way in which interventions to provide ﬁnancial services for poor people are designed and implemented. Donor interest in the provision of ﬁnancial services through the development of self-sustaining microﬁnance...
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