Knowledge Bank

Many countries are searching for methods to facilitate the creation and expansion of rural nonfarm enterprises. Attention is being given to increased financial services because: l) entrepreneurs complain of financial constraints; 2) most funding for such enterprises comes from savings; and 3) what little credit is used is frequently obtained from informal sources which charge high interest rates compared to credit from formal sources. Several factors are given to explain why the supply of financial services to rural nonfarm enterprises may be reduced. An important reason may be the fragmented nature of rural financial markets. It is argued that increased attention is required by policy makers to open up these markets to a wider range of clientele by moving rules, regulations and requirements which fragment markets and offer incentives for broader service. Other methods to improve rural financial services are also discussed.