Consumption Credit in Rural Financial Market Development

This paper includes:

• An examination of approaches to rural finance beginning with the observation that the supply-led approach to agricultural credit has failed;
• An argument that limiting credit to productive purposes is futile because of fungibility of financial resources, and that it is counterproductive to the sustainability of rural finance institutions;
• An arguemnt to develop, financial markets that also address consumption and saving needs at the micro level;
• Case studies and data from Benin and Cameroon are used to illustrate this point.

The author concludes that:

• Rural households form an integrated unit where production and consumption activities are intertwined and inseparable;
• Limiting credit options to productive or investment purposes means funds may be used for illegitimate purposes and may alienate current and potential clients;
• There is a substantial need for savings facilities and an untapped market for insurance products.

States that financial institutions that recognise and address the wider ranging needs of rural people are better accepted and will perform equally well or better in loan recovery.