The Evolution of Institutional Issues in Rural Finance Outreach, Risk Management and Sustainability

Opportunities in donor-funded rural finance framework
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This paper provides an overview of the opportunities that have evolved in donor-funded rural finance. It presents the issue in institutional terms.The paper suggests the checking of institutional viability of rural finance organizations against the three elements represented by the microfinance triangle - financial sustainability, outreach to the poor, and impact. It further emphasizes on including transparency as a fourth element that is essential for risk management.

The paper presents, in five parts:

  • The past: reviews the costs of inappropriate technical efforts in a hostile political environment and provides cautionary measures;
  • The continuing: studies institutions based on donor grants and confronts possible areas of weakness as well as the risk management challenges they may pose;
  • The recent: discusses institutional changes in financial markets that facilitate the movement of the frontier of formal finance towards the poor. It also draws a hypothesis about how important institutions of microfinance might relate to the rural finance revival, and notes the rise of commercial financial service providers;
  • The open: addresses future possibilities and outlines new institutional forms and responses that could help more poor people through rural finance;
  • The annex: lists institutional features or attributes that may be helpful to donors in their searches for entities that would implement their interventions in rural finance.

About this Publication

By Pischke, J.D. Von