Undermining Rural Development With Cheap Credit

Introduction

Originally published in 1985, twenty-three chapters are brought together in 4 parts dealing with, respectively, problems in rural finance, interest rate policies, politics and finance, and new directions for rural financial markets.

Discussion

In an introduction it is argued that cheap and abundant credit is often regarded as essential for rural development but that actions taken on the basis of this assumption have given disappointing results. Low-interest policies and the improper use of financial markets are seen as the principal reasons for this.

Recommendations

It is recommended that higher and more flexible interest rates are allowed and that little or no attention is given to target loans. Informal lenders are thought to offer valuable services therefore they should not be discouraged. More emphasis should be put on voluntary savings mobilization and access to formal loans by non-farm rural firms.

Conclusion

It is concluded that many traditional agricultural credit programmes are counterproductive and that attractive product and input prices together with higher yields would be more powerful in stimulating agricultural development.