Efficient Credit Market in the Rural Areas of Deveoping Countries

1628 WordsJan 26, 20187 Pages
Introduction: A great deal of attention has been paid to the establishment of an efficient credit market in the rural areas of developing countries over past few decades. This has been motivated by the fact that widespread shortage of finance can act as critical barrier to agricultural growth and development in rural areas. Lack of supply of credit can make adoption of new production technologies unaffordable to the farmers and delay the growth in agricultural sector. Accessing formal credit has always been difficult for farmers as small or no collateral, inadequate foreclosure capability along with weak reinforcement arrangement in the rural areas of developing countries make them very much unattractive for commercial banks to engage in any lending activity. This absence of formal credit market led to the rise of informal credit markets in many developed countries. This was an attempt to reduce the borrowing constraint that the poor farmers face and to improve the their access to small loans and deposits. The whole movement got an institutional structure in the beginning of 1980’s when micro-lending institutions such as Grameen Bank from Bangladesh and IRB from Indonesia showed that providing small loans to the poor individuals in large scale can turn out to be a profitable venture. In contrary to the donor or government driven subsidized rural credit programs, these institutions designed a less costly and more efficient monitoring procedure to ensure repayments and

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