Finance and Guarantees in Rural Development

Paper
Date Published: 
Jan 2005
Author: 
Galor, Z.
Document TitlePagesSize
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Cooperatives and the essential triangle of production

There are a number of variables that determine the success of microfinance. Guarantee, the most important variable, forms the crux of microfinance. This paper:

  • Discusses the various manifestations of guarantee within a framework of a cooperative model;
  • Introduces the concept of the Essential Triangle of Production (ETP) for production-oriented entrepreneurs working in a cooperative model;
    • The ETP is essentially composed of 3 parts - supply of inputs, credit and marketing the produce.

The author draws on his experience in Moshav, Israel, to present the evolution of guarantees in a Producers Cooperative from 1920 to present times. The following forms of guarantee developed over the years in 3 phases:

  • Mutual guarantee under the Grameen Bank model;
  • Guarantees to ensure production and the Mixed Farm Approach;
  • Cooperative Marketing guarantee.

The concept of Competitive Rates of Interest and Guided Credit evolved along with the forms of guarantee within the Moshav context. The paper explains each of them in detail and the author reiterates the existence of ETP in every production related activity.

The author concludes by mentioning that the various microfinance players should broaden their interventions from just supplying credit to understanding and implementing the ETP to create a greater impact in the sustainable development of the poor.

Type: 
Paper
Country: 
Israel