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PART I: The Big Picture: Global Trends Affecting Agricultural Finance

CHAPTER 1 Global Dynamics in Agricultural and Rural Economy, and Its Effects on Rural Finance

Renée Chao-Béroff[1]

1 What's New in Agricultural and Rural Environment?

Global developments have profoundly affected the lives of rural households in developing countries. They need to be understood in order to discuss the prospects of rural and agricultural finance.

Three-quarters of the world's 1.4 billion extremely poor people live in rural areas, leading to the conclusion that poverty is a rural phenomenon.[2]

Whenever development stakeholders and bankers talk about financing agriculture or economic activities in rural areas in developing countries, they inevitably express reservations about risks, constraints, unprofitability, costs, and bad repayment records. These shortcomings stem from poor performance, state-owned agricultural development banks, agricultural development projects delivering loans within their credit components, and some special governmental programs. They may also stem from days when governments and state-owned firms or public trade boards had the monopoly of extension services to farmers and of the commercialization of strategic crops (for national food security or for export). It may also date back to times when villages were still quite isolated from the rest of the country, and when people still lived in subsistence economies.

However, those days are now long gone. A number of major trends have emerged globally, including in developing countries, which have deeply modified the overall landscape of the agricultural and the rural environment.

It is important to have an overview of the seven major changes that have taken place, impacting agricultural and rural economies. Among these changes, some

could be considered as mega-trends since they are observed globally and have long-term effects:

x Liberalization of national trade in agricultural commodities;

x Demography and the place of youth;

x Migration as a way of life and an income/capital building strategy;

x Climate change – risks and opportunities;

x Economic growth in emerging countries;

x Emergence of a middle class in urban areas in developing economies with different consumption patterns;

x Technology and, in particular, the phenomena of cell phone and Internet.

  • [1] Director Microfinance Department CIDR & General Manager PAMIGA.
  • [2] See Alan Doran et al., “The Missing Middle in Agricultural Finance”, OXFAM GB Research Report (December 2009), p. 8.
 
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