Policy rationing in rural credit markets

Abstract

PurposeThe purpose of this paper is to present a discussion on the idea of “policy rationing”. Policy rationing refers to constraining impacts on farm credit through policy action or inaction. To present the ideas the author discusses ten themes in policy rationing, ranging from macro‐finance policies to smart lending and financial inclusion.Design/methodology/approachThe paper is developed as a narrative on agricultural credit policies based largely on existing literature.FindingsThis paper argues that the various critiques of rural credit policy in favor of free market principles have generally not worked in developing economies. Large numbers of farmers do not have access to formal credit. It is argued that there is a role for government and credit programs.Research limitations/implicationsThe opinions expressed in this paper are based on existing literature and not all ideas hold with general agreement across researchers and practitioners. The discussion is not exhaustive and in some cases the ideas might have been parsed further.Practical implicationsIn this paper the author discusses ten themes that he thinks are relevant for a balanced discussion of farm credit in a development context. These themes illustrate a variety of complexities with respect to rural credit policy. The author ends by restating the themes in the form of ten questions that should be asked in whole, or in part, before any farm credit policy is field‐implemented.Social implicationsThis paper deals with a broad range of issues on rural credit policy. It is directed towards a reformation of ideas about credit policy, especially in developing economies. It is argued that, all things considered, on balance there is a role for government in rural credit policy.Originality/valueThere is much discourse amongst development economist about the role of government and credit policy in agricultural development. By thinking of government action or inaction as a form of policy rationing, some clarification is brought to the policy debate.