| Abstract: |
Although governments have traditionally used subsidized creditprograms to promote agricultural growth, this approach has generallyfailed to improve incomes and alleviate poverty in rural areas.It has also led to the mistaken belief that rural credit programscannot be profitable. A new approach seeks to raise standardsof living in rural areas by casting the government in a veryd role—one of setting a favorable legal andpolicy environmentfor rural financial markets and addressing spec market failurescost effectively through well-designed and self-sustaining interventions.There is evidence that this approach can be highly successful.The Village Bank system of Bank Rakyat Indonesia has shown thatfinancial services can be extended to millions of low-incomerural clients without relying on subsidies. Indeed, the programhas generated enormous profits for the bank by using simple,innovative, and largely replicable techniques. |
