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.This Brief by discusses impacts of microfinance’s in rural areas, presenting evidence on rural poverty as well as on microfinance’s positive effects on consumption and investment in education. It then describes 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. The author provides a view on adaptations to credit technology used in urban areas for application in rural finance, and emphasises the importance of risk management in order to expand outreach.
- 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