Roles of Governments (Central and Local), Donors and Private Players in Supporting the New Agricultural and Rural Finance
Having a conducive environment is absolutely essential to transform this opportunity into growth, economic development and impact on people. For once, all stakeholders seem to agree on what is needed for success.
Role for Governments
On the overall framework, governments at the central level should show strong support to entrepreneurship, as well as any form of economic initiative developed by the private sector, be it from the rural households, the migrants, farmers' groups, or from companies of all sizes, national or foreign. Incentives to invest in rural areas, add value to local products, and to serve the domestic food market should be put in place in the form of temporary tax exemptions, facilitation in getting licence to operate, reducing administrative burden, etc.
Specifically, a rural and agricultural finance policy could set a clear vision, the objectives that the country want to achieve, and define roles for all players. It will certainly specify the role that the government want to play and how it wants to promote and achieve public-private partnerships (PPP). Such a rural finance policy is either absent in many countries or is more of a agricultural and rural development policy rather than a financial sector policy that takes the specific needs of rural and agricultural finance in consideration.
Among others, governments can invest in IT infrastructure to lower costs for banks and MFIs using technology to further penetrate the rural markets. Local governments could very well be one of the major beneficiaries of the outcome of rural and agricultural value-chain financing, if investments are made in villages and secondary towns, if permanent jobs are created, and if tax for productive infrastructure is paid It could also play a promoting role by creating a attractive environment for entrepreneurs to invest and settle their business locally. Did I understand? This could be through the mobilization of research laboratories of universities to work with firms on new products, or usage of vocational training centers to provide adapted skills that firms may need or facilitate apprenticeship. In value chain financing, setting up a local or regional venture capital in joint venture with private sector and banks is emerging as an innovative funding vehicle to encourage entrepreneurship.
Role for Donors
The most important role for donors is building capacities at different levels. The financial intermediaries, banks, or large MFIs that want to expand in rural areas and/or finance value chains, will certainly need expertise in product development, as well as in designing the most cost-effective delivery mechanism. Reviewing the procedures including operation and internal control will be crucial to secure transactions. Adjusting existing management information systems and up scaling them may also be essential for efficiency and productivity. Training of staff and training of clients is another area where funding is needed. Finally, the financial institutions may want to set up a separate department or window dedicated to rural and agricultural finance: supporting it and assisting the institution in designing it properly is also a good investment for future growth.