Sources of Rural Finance

Sources of Rural Finance

Fotolia.com”> Rural financing is conducted by governments, lenders or their partners. banking card in macro image by Alexey Klementiev from Fotolia.com

“Rural finance” is a term used to describe financial activities such as issuing loans and managing accounts for consumers located in rural settings. In the United States, this applies primarily to farmers. However, in developing nations and other parts of the world, rural finance refers to a much larger segment of the population.

Rural areas have two problems. The first is limited or no access to bank branches and/or the technology that would allow them to conduct financial transactions. The second is the absence of funds or income that would allow consumers to pursue traditional loans.

Government

Governments are often a primary source of rural finance for farmers.

Government agencies step in and control interest rates for rural settings, or they offer rural consumers loans through various government programs. Some government programs control rural finance the other way around–affecting prices for which crops are bought and sold, thereby placing controls on the consumer’s revenue.

Private Lenders

Private lenders are banks and other types of lenders that work in rural areas. Their representatives travel to farms or other areas in which people cannot easily get to a bank, and they offer a segment of loans designed specifically for rural consumers.

However, private lenders do not have access to the same array of funds as the government. As a result, they use their own resources to lend money. This money tends to come from two different sources: the money rural consumers and others deposit with the bank, and the money the bank receives from equity or selling shares to investors.

Partners

Partners are organizations and lenders that join forces with lenders that specialize in rural areas. These organizations lend their technology and experience to lenders so they can then provide necessary services for rural consumers.

Other partners are local banks in the area the lender supports so that these banks, in turn, can become a source for financial transactions. Some partners lend money to banks. These banks then have access to the necessary funds to use in rural settings.