Rural Finance Study

This study examines support practices in rural finance. It includes a quantitative portfolio analysis of rural MFIs, an overview of co-financing organization (CFO) policies, institutional setup and supporting instruments, and case studies. The support approaches that CFOs use include building financially sustainable MFIs, supporting member-owned MFIs and supporting the provision of financial services to value chain actors. They use a wide variety of support instruments including grants, seed capital packages, guarantees, loans, equity and technical assistance. CFOs are in an outstanding position to play a role in developing good practices for rural finance. The case studies suggest that:

• Building a close relationship with clients is essential for MFIs and private companies providing financial services;
• MFIs have more opportunities to de-link loan use and repayment sources, and to take all household income streams into consideration to define repayment capacity;
• Group liability and innovative borrower identification techniques can reduce loan defaults for private companies and MFIs.