ENHANCING THE ACCESS OF POOR RURAL PEOPLE TO SUSTAINABLE FINANCIAL
SERVICES THROUGH POLICY DIALOGUE, CAPACITY BUILDING AND
KNOWLEDGE SHARING IN RURAL FINANCE
There is a general consensus that access to rural finance is crucial for farm and non-farm growth in rural areas of developing countries where demand for financial services outstrips supply. In the past several decades, many rural finance policies and innovative approaches have been developed, replicated and shared in many countries of Asia and the Pacific region to improve access to and sustainability of rural financial services in order to have greater impact on the rural poor. However, despite some success in increasing outreach and impact of rural finance delivery as well as achieving viability of rural financial institutions (RFIs), many challenges still persist: high fixed and transaction costs, issues in combining financial and non-financial products, stringent lending requirements, seasonality and high exposure to risks inherent in agriculture.
In recent years, the rural poor have faced additional challenges due to the rising prices of food and fuel, and the effects of global financial crisis. In addition, many countries are experiencing increased incidence and intensity of natural disasters resulting from climate change. The rural finance system, including rural microfinance, has not been able to fully deal with the problem of financial access, which is now more pronouncedly compounded by the problems brought by the emerging challenges with an adverse effect on the income and resilience of the rural poor in most countries of the region.
On the other hand, the agricultural sector has undergone profound changes in the region including technological improvement (e.g., using renewable energy), value chain integration, changes in consumers’ preferences, and increased demand for high-value and quality food. These changes have the potential of opening up new opportunities and avenues for the rural poor, particularly smallholder farm households and agri-related entrepreneurs to benefit from new agriculture dominated by high value chains.
Increasing access of the rural poor to sustainable financial services will be crucial for the rural poor to meet the challenges of the changing global context and to benefit from new opportunities. This requires formulating enabling, pro-poor and client-centric rural finance policies; replicating appropriate approaches, technologies and best practices; building institutional and technical capacities; and establishing effective knowledge capture, integration, and sharing methodologies.
To enhance the access of the rural poorparticularly smallholder farm households and agri-related rural entrepreneurs, including women and rural youth- to sustainable financial services through policy dialogues, replication of best practices, capacity building of different stakeholders and knowledge sharing in rural finance.
The goal and objectives of the grant project are consistent with one of the thematic focuses of IFAD’s Strategic Framework (2011-1015)-- to make a broad range of financial services available for both agricultural and related non-farm activities, with attention to those services which enhance resilience and improve risk management at the farm and household levels so that small-scale agricultural producers and other rural poor can capture new opportunities in agriculture and related markets at reduced risk.The project focus is also in line with the goal of IFAD’s Rural Finance Policy (2009) of developing inclusive rural financial systems and fostering innovations to increase the access of poor and marginalized women and men to a wide range of financial services in a changing global economy and in the context of widening financial crisis, volatile food and agricultural commodity prices and the perils of climate change. Finally, the key focus areas relate well to the priority area identified in the Regional Grant Strategy of IFAD’s Asia and the Pacific Division, which is to promote innovations that improve effectiveness of institutions and policies and to build capacity of key players for improved delivery of services, including rural finance.
APRACA will implement this project by capitalizing on its strong comparative advantage in terms of wide membership network comprising diverse rural finance institutions with considerable capacity for knowledge sharing and policy dialogue. These strengths will help it implement activities related to policy dialogue, replication of best practices, capacity building and knowledge sharing effectively and efficiently.
The project will build on the experiences and lessons learned from the recently completed project. It will focus only on selected rural finance themes and core programme activities will be implemented in only four countries. Close links will be established with IFAD-supported investment projects so that they can benefit more directly from policy support, replication of best practices and capacity building activities. Other rural finance institutions for such support will be selected on the basis of need and strong interest.
Learning from the experience of FinPower project, this project will promote South-South cooperation among APRACA member institutions so that more mature rural finance institutions can support weaker institutions through exposure visits, training and knowledge sharing in addition to the support provided with project resources.
Although core project activities related to capacity building training and policy dialogue will be concentrated in the four project countries, knowledge sharing activities particularly at the regional level (regional policy forums, knowledge sharing through APRACA website, etc.) will benefit the wider APRACA membership. Knowledge products will also be translated into local languages so that the ultimate beneficiaries can benefit. The considerable volume of published and unpublished reports from the previous project will be more widely shared through different means.
Capacity building will focus on key personnel- at the managerial level to strengthen their managerial competence and at the technical level- operations, research and training- to strengthen service delivery designs, training and analytical research capabilities. APRACA will collaborate with training centres of selected member institutions such as NABARD’s Bankers Institute for Rural Development (BIRD) in organizing training programmes. In addition, the capacity of its agency, Centre for Training and Research in Agricultural Banking (CENTRAB), will be strengthened to provide such training. The project intends to further strengthen APRACA’s dissemination modes through the publication of studies, papers and compendiums, policy briefs, learning notes, technical advisory notes and occasional papers for CEOs and technical audience as well as conversion into easy-to-understand reading materials for a general non-technical audience.
Selected countries exhibiting best practices and approaches will be selected as venues of regional policy and dissemination forums. The APRACA members in the selected countries will act as activity hosts. Twinning arrangements will be made between more mature financial institutions and weaker financial institutions and projects. Memoranda of Understanding between strong RFIs and RFIs/ISIPs in the four project countries will be undertaken to enhance the knowledge transfer mechanism. Replication experts from the expertise-providing RFIs will be carefully selected. National policy forums, capacity building workshops, training courses and national dissemination forums will be held in the four project countries. The process of replication shall also contain exposure visits by project countries to expertise-providing countries to achieve a fast-track, accelerated learning process.
Where practicable, partnerships will be established with development agencies and other regional bodies particularly in conducting regional activities. The project will also link with non-governmental organizations and other grass roots organizations to improve and sustain the best practices and approaches to be replicated.
Project Target Countries
The main project countries are Bangladesh and Nepal in South Asia as well as Cambodia and Myanmar in Southeast Asia. India, Indonesia, the Philippines and Thailand will be the main sources of expertise and knowledge for testing and learning financial innovations. All APRACA-represented countries will benefit from participation in project activities and dissemination.
Component 1.Policy development and advocacy focusing on relevant rural finance areas- policy reforms and best practices and cross-cutting themes such as agricultural value chain finance, financial and other risk management strategies/tools such as index-based weather insurance and micro-insurance, renewable energy financing and microfinance for agriculture among others. The APRACA network is a valuable platform for policy dialogue and advocacy. The major activities will include:
Component 2.Replication of rural finance best practices and approaches, particularly in value chain financing, financial and other risk management strategies/tools and microfinance for agriculture. The project will support replication and promotion of the best practices in rural finance in four project countries by learning particularly from the experiences of other countries in the region. The project will also promote South-South cooperation among member institutions for the replication of best practices. The main activities will include:
Component 3.Capacity building of rural finance institutions and projects to provide innovative financial services addressing emerging income opportunities and challenges faced by smallholder farmers and agri-related entrepreneurs, with a focus on value chain financing, risk management strategies/tools and microfinance for agriculture. The major activities will include:
Component 4.Knowledge documentation and sharing among rural financial institutions on innovative financial methods and practices to enable rural men and women benefit from new income opportunities and become more resilient to risks and vulnerabilities. Rural financial innovations and best practices will be shared among APRACA members and IFAD-supported investment projects and likewise with other financial institutions, as well as with similar regional platforms operating in Africa (AFRACA) and in the Middle East (NENARACA). The major activities will include: