12, February, 2013

Expanding Microfinance in Latin America’s Rural Areas

Rural finance has the potential to help poor people out of poverty, and Latin America has met that challenge in some unique ways.

The inclusion of rural people in financial markets has long been a social objective pursued in developing countries around the world. Indeed, microfinance’s pioneering work was first targeted at rural areas. This Brief begins by discussing microfinance’s impacts in rural areas, presenting evidence on rural poverty as well as on microfinance’s positive effects on consumption and investment in education. We then describe the evolution of rural microfinance in Latin America, before presenting some key Latin American experiences that aim to increase rural peoples’ access, not only to credit, but to a range of financial services and products. We provide a view on adaptations to credit technology used in urban areas for application in rural finance, and emphasise the importance of risk management in order to expand outreach. The Brief concludes with lessons learned from the region.

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Key Lessons:

  • Rural areas need financial services for all types of economic activities, and these services should encompass more than credit. Latin America has shown that this is possible, in part with proper risk management strategies.
  • Economies of scale and scope achieved by larger MFIs allow for better diversification of risk so that agricultural lending can be amplified. This likely indicates that prioritising growth and the diversification of these institutions should be an important task for governments and donors providing support for the sector.

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