A significant portion of the agribusiness output in developing countries is produced by small and medium enterprises that lack dependable sources of credit. This tends to constrict their individual growth and hamper the growth of the agriculture sector with which they are interdependent.
Lack of access to credit is one of the most significant constraints to business formation and expansion for all but the largest firms and this constraint is exacerbated in rural areas where financial services are limited by rural physical and economic conditions. Rural enterprises often have limited access to formal financial services and appropriate financial products and services, because of high transaction costs associated with small transactions, highly segmented markets, and dispersed rural populations involved in risky economic activities.
Political interference in rural financial markets can also reduce the credibility of formal financial contracts and legacies of mismanagement of rural financial programs impede development of sustainable services.
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