Institutional Sustainability in Agriculture and Rural Development: A Global Perspective

By Derick W. Brinkerhoff; Arthur A. Goldsmith | Go to book overview

6
Sustainable Credit for Rural Development: Learning from Indonesia

Melissa C. Brinkerhoff

Few rural development endeavors confront the issues and challenges of sustainability more directly than the provision of credit to agricultural and rural producers. Agriculture lending, particularly to small farmers, has a nearly three-decade history of pairing donor agencies with developing country governments to promote economic development by alleviating credit constraints. Despite the relatively large amounts of credit directed toward rural producers, results have often been disappointing (see Donald, 1976; Von Pischke et al., 1983; Adams et al., 1984).

Provision of agricultural credit has been pursued in the context of both production and equity objectives. The strategy generally employed is to increase the total supply and reduce the cost. By making cheap credit widely available to the rural poor it was thought that production would be increased, with the added benefit of improving the income distribution of the rural poor. Credit policies and programs have been based on a set of "heroic" assumptions about small rural producers and their access to financial services. These include, for example, that small producers must be induced to adopt agricultural innovations by offers of cheap credit; that they have no savings capacity; and that with limited access to commercial credit they must rely on "usurious" informal sources, such as money lenders or pawnbrokers ( Adams, 1989; Adams et al., 1984; Meyer, 1983; Snodgrass & Patten, 1989). 1

The lending landscape created by acting on these assumptions features convoluted regulations, special funds, complex rediscounting and reserve arrangements, loan guarantees, and other incentives to encourage

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