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Rural and Agricultural Credit in ECA Countries

Paper presented at the BASIS Policy Conference "Agricultural Factor Markets in Transition Economies", Budapest Hungary, December 2-3 (2006)

The paper starts with highlighting the different roles of banks in the open economies compared to the command economies and further elaborates on issues and difficulties associated with providing rural and agricultural credit services in economies in transition. Aiming at providing an instrumental benchmark for successful rural microfinance intermediation the paper discusses the performance of BUD -a rural microfinance institution in Indonesia that is often coined as the flagship of the world, rural microfinance industry because it successfully introduced the microfinance’s ‘best practices’ and reached unprecedented achievements with respect to outreach to the target, rural clientele and subsidy independence. Many of these ’best practices’ were intended to be introduced in rural and agricultural credit projects that were launched in economies in transition by States and donors. The paper provides information on important features of credit unions, NGOs and microfinance banks operating in ECA countries and evaluates the performance of four rural and agricultural finance projects, two in Latvia and two in Albania that were financed by the World Bank. The paper proceeds with elaboration on general issues related to the assessment of performance of rural finance projects and eventually suggesting applying two primary assessment criteria in future evaluation, namely: outreach to the target clientele and subsidy dependence of the implementing financial institution.

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