The Role of Innovatory Financial Technologies in Promoting Rural Development in Ldcs
Rivista Internazionale di Scienze Economiche e Commerciali, Vol. 32, pp. 989-1002, 1985
16 Pages Posted: 15 Apr 2005
Rural development of LDCs calls for an overall strategy aiming at an economic and social improvement of peasants. The advancement of this process relies on capital formation and on efficiency with which capital is used in agriculture. Domestic savings mobilization and resource allocation play a crucial role at the moment when inflow of foreign capital has dropped. Conventional views on rural finance of these countries underestimate the savings potential and concentrate on the need to supply farmers with funds at concessional terms through institutional channels. An empirical analysis shows, however, that rural areas of LDCs have a positive, and by no means negligible, saving capacity. Hoarding is a widespread phenomenon in African and Asian peasant societies. Hoarding is assumed to be a measure of the gap between savings and productive investments. Where the economy has attained a certain degree of monetization and cash crops are produced in addition to subsistence crops, a surplus in money may emerge. At this stage household savings may be mobilized. Efficient rural financial markets would greatly contribute to achieve the two objectives: savings mobilization and improvement of the quality of investments. The performance of these markets in LDCs is however poor. The development of rural financial markets requires specific measures and appropriate action. Financial innovation is the driving force behind financial development and may be defined as any qualitative change that has a decisive impact on the structure and the performance of the financial sector. A whole range of financial innovations, some of which may even seem banal, is required on both sides of the activity of financial intermediaries: the deposit taking and the lending functions. Institutional innovations as well as new financial technologies are recommended.
Keywords: Financial innovation, rural finance, savings mobilization, developing countries
JEL Classification: O16, O17
Suggested Citation: Suggested Citation