Abstract
This paper explores how microfinancial intermediation can be effectively promoted in rural areas to alleviate poverty and increase incomes for economic development. First, the inherent interdependencies in financial intermediation are addressed since they have historically inhibited the efficient functioning of rural financial markets. Second, the meaning of successful microfinancial intermediation is defined and applied to two case studies of the most widely recognized success stories - the Bank for Agriculture and Agricultural Cooperatives in Thailand, and the Bank Rakyat Indonesia's Village Unit system in Indonesia. Third, lessons from the case studies are drawn to identify minimum sufficient organizational (micro) and environmental (macro) conditions necessary for successful microfinancial intermediation in rural areas. Finally, the internal operational and external governmental policy implications of these minimum sufficient conditions are analyzed.
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