Introduction

• To give participants an understanding of causes and effects of rural poverty
• To give participants an understanding of what rural finance is and what are the types of financial services

Rural poverty is caused by drought, severe weather conditions, growing HIV/AIDS pandemic, conflict, unfair trade competition, lack of adequate infrastructure and disparities in industrialization. In many developing countries the government and donor support has been reduced, worsening the position of the poor, especially those living in rural areas. The 2005 Human Development report shows progress in eradicating poverty and hunger in some parts of the world (e.g. East Asia, North Africa), however the situation has worsened for the poor living in rural areas, areas of conflict or major disasters, such as the recent Tsunami.

70% of extreme poverty is in rural areas.

The HIV/AIDS pandemic has greatly affected world's poor especially the rural households. As adults fall ill, families face declining productivity leading to loss of assets, knowledge and income. For example: In Zimbabwe 25% or rural workforce in farms are infected by HIV/AIDS. More information about the impact of HIV and AIDS can be found at Conflicts in Africa.

To understand the poverty situation and future trends let us examine the 2005 Human Development Report (sections one, two and three) Gapminder

Rural Finance is a set of financial services that are not limited to credit only. Financial services in rural finance include: loans, savings, investment, guarantee funds, remittance services, inventory credit, trader finance and insurance.

Rural finance comes in three major forms:

1. Informal financial institutions which are not regulated by banking sector such as rotating and savings groups, church groups or similar groupings of people


2. Semi formal institutions which are not regulated by banking sector but are usually licensed and supervised by another government agency such as self help groups, NGOs involved in provision of financial services and microfinance organizations (in some instances).


3. Formal institutions which are subject to banking regulations and supervision such as microfinance institutions, banks. In order to enhance the quality of rural livelihoods a more holistic approach to development is needed. Governments need to design and implement agriculture friendly polices that will encourage the development of financial sector and market oriented enterprises. Governments and donors need to invest into human and institutional development in rural areas.

For further resources and the latest information on Rural Finance development visit the resource area at the Food and Agriculture Organization of the United Nations website, or go to The Rural Finance Learning Centre.