Effects of Finance on Rural Development

Suspicion nurtures the regulation of financial markets, especially in rural areas, and clouds understanding of the effects that finance has on development. This chapter presents suggestions on improving the contributions of finance to rural development. It identifies the ways finance benefits individual firms and households and moves to a discussion of how finance affects rural service organizations. If all firms and households were alike, there would be little need for financial intermediation. Finance may have a substantial effect on the amount of resources available to various sectors in an economy as well as on income distributions. Few careful observers of formal rural financial markets in low-income countries are satisfied with their recent performance. These markets are highly fragmented, provide little or no service to many rural residents, and are riddled with politics, and official lenders are often on the edge of bankruptcy.