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

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.