BAMAKO, December 24, 2008 – “Ah! If I had money, I could increase the yield of my plot of land and purchase equipment,” a farmer in Mali laments. “[But] the interest rates of the banks and decentralized financial services are too high. They ask for collateral that I don’t have.”
In response, a banker replies, “We cannot provide loans to farmers, as the risks are too high and interest rates have been capped. They don’t provide us with any information about themselves.”
This dialogue illustrates that producers and financiers are obviously not speaking the same language when it comes to providing financing in rural areas.
A study conducted by the World Bank in Mali on financing in rural areas, home to 80 percent of the country’s 13 million inhabitants, reveals a gap between these areas and their urban counterparts with respect to the financing of economic activities. The disparity comes despite efforts undertaken by the Government to promote rural development.Â
According to the study, which was released on November 12, less than two percent of rural households in Mali have access to institutional financing, as the banking sector is essentially concentrated in the capital city of Bamako. Similarly, a mere six of the country’s 52 networks of microfinance institutions provide rural financing.
However, it is impossible for these two institutions alone to meet all the financial needs of rural communities.
The low level of rural savings, extremely high interest rates causing borrowers to default, and a lack of mechanisms tailored for rural areas, such as the possibility of in-kind repayment, were some of the reasons cited by farmers to explain the low level of financing observed in rural areas.
“Preparation and training for stakeholders did not accompany the wind of liberalization that blew across the sector,” noted an agricultural trade union official. The World Bank study seeks to bridge the gap between the parties. Feedback workshops for the study were held in Niono and Bamako on November 19 and 21, respectively.
The study underscores the fact that this role is primarily the responsibility of the Government. Given that the poorest people live in rural areas and that economic activities in these regions are not always profitable, financial services provided in rural areas include an important “public goods” component requiring State and donor support, it said.
The State should design its strategy around the development of financial institutions in rural areas within an appropriate framework, including a liberal interest rate policy; the provision of nonfinancial services, including technical support to organize the farming sectors and farmers’ associations; rural infrastructure development; and the development of information systems on rural markets, the report found.
The results of this analytical study are intended to help the Government develop a strategy and action plan for reforms aimed at removing the main obstacles to the development of the rural financial sector and improving access to financial services in rural areas.
Among the recommendations cited in the study are the modernization of the regulatory framework, the adoption of measures aimed at enhancing the creditworthiness of the rural clientele, the provision of technical support to financial institutions serving rural communities, and the introduction of new financial instruments tailored for rural areas.
By adopting an approach that gives priority to the promotion of effective, private sector-led rural financial institutions within a suitable economic and legal framework, the Government can contribute to the development of rural areas.
This approach will be incorporated into the Agricultural Orientation Law (LOA) of September 5, 2006, which sets forth the Government’s long-term road map for the agricultural sector, which currently accounts for 40 percent of Mali’s GDP.
RSS