Rural and agricultural finance: emerging practices from Peruvian financial institutions

Abstract

The formal financial system in Peru provides very limited rural and agricultural finance services and most financial institutions focus uniquely on serving urban clients. If financial institutions lend to agriculture at all, it is primarily to large agro-processors or input suppliers, rather than to farmers directly. Even microfinance providers, which are more inclined to serve the needs of the rural poor, focus on the urban areas of Peru. Given the Peruvian microfinance industry's 20 per cent growth last year, microfinance providers are likely to continue to focus on unserved urban markets, which are easier to serve than rural markets. However, several financial institutions in Peru are making efforts to serve poor clients with a variety of rural and agricultural finance product and process innovations that reduce transaction costs and manage risks. This article captures some of the emerging products and processes of four Peruvian financial institutions, which may have applicability to other countries as well.