Lessons Learned in Rural Finance The Experience of the Inter-American Development Bank

Lesson learned in rural finance : the experience of the Inter-American Development Bank. p.cm. (Sustainable Development Department Technical papers series ; RUR-109) Includes bibliographical references. This paper presents background research that supports the development of the Bank's formal strategy on rural finance (GN 2123-3). Mark D. Wenner is a financial specialist in the Rural Development Unit of the Sustainable Development Department. The author wishes to acknowledge the comments of Marguerite Berger and Glenn Westley of the Micro, Small and Medium Enterprise Division (SDS/MSM); Dale Adams, retired professor, Ohio State University; and Luis Ruben Zavaleta of the Social Programs Division, Region 2 (RE2/SO2) who served as reviewers. In addition, special recognition goes to Reinaldo Santos and Andrés Baquero of SDS/MSM for their assistance in retrieving data from the IDB operational records. All errors and omissions are the author's sole responsibility. Note that there are slight differences in the project values reported in the rural finance strategy published in December 2001 and those reported here. The numbers that appear in this report are deemed to be more accurate. No substantive changes in interpretation are implied by the revision in reported project values. Foreword The Inter-American Development Bank has been one of the major actors in funding rural finance projects over the last four decades in Latin America and the Caribbean. The legacy of the Bank is mixed. Some of the early interventions have been somewhat unsatisfactory. Some of the newer, more recent interventions show promise. This paper attempts to document the flows, chart the changes in thinking, extract lessons, and make recommendations on how to improve project design and monitoring. The focus is not on the impact of access to financial services on individual beneficiaries but more on the efficiency and sustainability of financial services delivery and the transformation of rural financial markets. After a hiatus of a decade or so, rural finance is receiving more attention. This paper will help policy makers, practitioners, academics, and consultants to better understand the history and types of interventions that the IDB has made in the past. The hope is that new operations will benefit from the lessons of the past and build on existing strengths. As we move into an era of increased market integration and globalization, the importance of well-functioning financial markets cannot be overemphasized. This paper shows how rural financing in Latin America and the Caribbean might be improved in the coming …