Academic journal article The Journal of Social, Political, and Economic Studies

Rural Development in Africa: The Role of Financial Markets

Academic journal article The Journal of Social, Political, and Economic Studies

Rural Development in Africa: The Role of Financial Markets

Article excerpt

The majority of the countries in Africa depend in large part on the rural sector. It is believed that the future development of these countries will depend in part on the successes or failures in nurturing, supporting and developing the rural areas and the rural economy, particularly in making more financial services available and accessible to rural sector inhabitants. The rural sector on the other hand, is served primarily by the rural financial markets (RFMs), a market often characterized as grossly inadequate, poorly developed, small and shallow. In this paper the rural economy and the financial markets are examined with emphasis on the role, experiences, constraints and prospects of these markets, in particular the informal financial markets, for promoting rural development.

Key Words: Africa, rural financial markets, rural development

The majority of countries in Africa, it is believed, depend for sustenance, in large part, on the rural sector. Future development of these countries, or the lack of it, it is also believed, will depend in part on the successes or failures in nurturing, supporting and developing the rural areas and the rural economy, particularly in improving the plight of rural households, including support for their activities. After all, the majority of the population in these countries live and work in the rural areas.

The rural sector is served primarily by the informal financial markets (IFMs), which together make up a market often characterized as grossly inadequate, poorly developed, small and shallow. Regrettably, the lack of access to financial services is considered one of the major constraints to rural development in Africa, particularly to increasing investments and productive activities in the rural sector of LDCs. It comes as no surprise, therefore, that there is an observed heightened interest and efforts on the part of governments of African countries and Development Assistance Agencies (DAAs)2 alike to explore avenues to strengthen and expand the rural financial markets.

This paper examines the rural economy and the informal financial markets in Africa, with particular emphasis on the role, experiences, constraints and prospects for promoting rural development. It also explores avenues for strengthening and expanding the rural financial markets.

The Structure of Rural Economy

The rural economy is characterized by the activities of rural inhabitants. The majority of these inhabitants in rural Africa are engaged in agriculture, often as smallholder farmers. Only a small number of rural inhabitants are engaged in non-agriculture, off-farm, income-generating activities (IGAs), often to supplement their agriculture-based income or are organized in these activities as the only earning activity and source of income. This latter group operate for the most part micro, small and medium scale enterprises (MSMEs)3.

Agriculture

Agriculture,in all but a few countries including the petroleum producing and exporting countries, represents the largest sector of the economy of most African countries, supporting 50% of the population and contributing substantially to the GDP and to export earnings.

The agricultural sector is often characterized as comprising twosub-sectors: the smallholders who often cultivate on traditional or customary land, and the estate operators who manage leasehold and/or freehold land. Within each category, other classifications are possible, based on the size of land or holdings. To provide a complete picture of the rural sector in these countries, one must add another category comprised of operators of small-scale non-agricultural enterprises. Reliable data on these categories for African countries as a whole, however, are not available. Available data for some countries for these categories often vary and are at times incomplete.

Smallholder Farmers

The family is the primary source of labor in the smallholder subsector. …

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