Agricultural Development Bank Reform

The paper states that agricultural development banks (AgDBs), which are not viable, should either be closed, or transformed into self-reliant, sustainable financial intermediaries. It says the cases of Bank Rakyat Indonesia (BRI) and Bank for Agriculture and Agricultural Cooperatives (BAAC, Thailand) as well as ADB/Nepal show that reform is possible. ADB/Nepal has been transforming its small farmer credit program into financially self-reliant local financial intermediaries owned and managed by the poor show that reform is possible. It also says that in Africa, many AgDBs have gone into liquidation; but there are some promising cases of reform once the political will to reform has been generated. It argues that the successfully reformed institutions:

• Mobilize their resources domestically while providing positive real returns to their depositors;
• Have their loans repaid and their costs covered from the operational income;
• Produce sufficient retained earnings to offset the erosion of their resources from inflation and to finance their expansion
• Continually increase their saver and borrower outreach and the quality of their services to all segments of the rural population including the poor.

The paper concludes that many more AgDBs have the potential of contributing to poverty alleviation through sustainable financial services. Makes proposals for AgDB reform in other countries.