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Economic and Financial Review

Authors

A. E. Akinlo

Publisher

Central Bank of Nigeria, Research Department.

Keywords

Rural finance, Financial institutions, Loans, Microfinance, Sustainability and growth.

Abstract

Rural finance is now recognised as an important tool in the fight to reduce poverty, increase growth and enhance donors‘ development effectiveness agenda. It encompasses all savings, lending, financing and risk-minimising opportunities (formal and informal) and related norms and institutions in rural areas. In addition to fostering rural development, rural finance is increasingly used as an incentive to promote sustainable use of natural resources, use of alternative energies, and environmentally-sound behaviour. However, despite the importance of rural finance for growth and the significant demand for financial services, financial service providers, such as banks, credit unions, microfinance institutions or insurance companies, are typically reluctant to serve rural areas. Consequently, majority of the country‘s rural population does not have access to the formal financial system. The reluctance of financial institutions to serve rural areas is not unconnected with the various challenges involved in such endeavour. These challenges include the weak infrastructure and low population density that characterized the rural subsector. The capacity of financial service providers and the level of client education in rural communities are quite limited. Moreover, financial institutions are tardy in granting loans to the agricultural sector given its seasonality and the inherent risks of farming. These challenges explain the high transaction costs and the risks inherent in serving the rural areas by the financial institutions. This study address these challenges so as to enhance rural dwellers‘ access to finance.

Issue

49

Volume

4

Recommended Citation

Akinlo, A. E. (2011). Policy choices and challenges in expanding access to finance for growth in rural Nigeria. Economic and Financial Review, 49(4), 77-89.

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