Dale W Adams - Undermining Rural Development With Cheap Credit

Undermining Rural Development with Cheap Credit edited by Dale W Adams, Douglas H. Graham, and J. D. Von Pischke

In the past several decades large amounts of money have gone into agricultural credit programs in low-income countries. The results of these efforts have often been disappointing: Serious loan-recovery problems persist, the rich get most of the cheap loans, low interest rates discourage local savings deposits, political intrusions are common, and many financial institutions in low-income countries are floundering. The contributors to this book cite ubiquitous low-interest-rate policies and improper use of financial markets as principal reasons for these problems, recommending that higher and more flexible interest-rate policies be allowed and that little or no attention be given to specifically targeted loans. They also argue that informal lenders provide more valuable services than is generally thought and that voluntary savings capacities in rural areas may be substantial. Less emphasis on discouraging the informal lender, more emphasis on voluntary savings mobilization, and more access to formal loans by nonfarm rural firms are other policy changes recommended in this comprehensive survey. The authors conclude that many traditional agricultural credit programs in fact undermine efficient, equitable rural development, whereas attractive product and input prices, along with higher yields, would be much more powerful ways of stimulating rural development.

Dale W Adams, a former staff economist with AID, is currently professor of agricultural economics at Ohio State University. Douglas H. Graham is professor of agricultural economics and director of the Latin American Studies Program at Ohio State University. J. D. Von Pischke is senior financial analyst in the Economics and Policy Division of the Agriculture and Rural Development Department of the World Bank.