The vast majority of rural people do not have reliable, secure ways to save money, protect and build assets, or transfer funds. This is particularly true for vulnerable groups, such as women, youth, and displaced people.
Basic formal financial services still reach only 10 per cent of rural communities. Weak infrastructure, the limited capacity of financial service providers, and low levels of client education all contribute to this complex problem.
An engine of rural transformation
IFAD recognizes the vast potential of rural finance to improve the livelihoods of rural people.
Over the past 30 years, the development of financial systems has had an enormous impact on rural livelihoods. Ground-breaking institutions and new instruments have allowed financial services to grow and broaden their reach.
Technology has allowed clients in remote communities to access a wider range of financial products.
But there is still much to be done. In a changing global economy, amidst financial crises, volatile food and agricultural commodity prices, and the perils of climate change, inclusive rural finance remains a crucial element in rural transformation.
Managing risks and leveraging investments
There are many inherent risks affecting smallholder farmers that discourage the private sector from investing.
Financial institutions often perceive small-scale agriculture as being too risky and are reluctant to lend farmers money. An additional challenge is that farmers are reluctant to borrow and invest, because of their difficulty in managing risks such as weather shocks and livestock disease.
IFAD has worked on rural finance systems in more than 70 countries for over four decades, and has invested over US$3 billion in rural finance systems.
IFAD supports the Agricultural Risk Management (ARM) approach that matches supply and demand, and leverages rural financing and investment in smallholder farmers.
IFAD hosts the Platform for Agricultural Risk Management (PARM), a G20 initiative that brings a comprehensive risk management approach and process where risks in agriculture are assessed, prioritized, and tackled in a structured and well-coordinated way.
PARM promotes:
- rigorous risk assessments; and
- a holistic, demand-driven approach for integrating agricultural risk management into national agricultural policies and investment plans.
The power of microfinance and remittances
IFAD-supported projects increase access to financial services and loans, so that small-scale producers can invest in their businesses and increase their productivity.
As one of the leading microfinance funders worldwide, IFAD's ongoing investments in rural finance at 31 December 2017 was around US$1.14 billion. Approximately 13 per cent of our ongoing investment portfolio is dedicated to rural finance.
Remittances are a powerful instrument for fostering financial inclusion and livelihood development in rural communities. Our multi-donor Financing Facility for Remittances (FFR) aims to maximize the impact of remittances on development, and promotes migrants’ engagement in their countries of origin.
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Secure access to productive land is critical to the millions of poor people living in rural areas and depending on agriculture, livestock or forests for their livelihood.
It reduces their vulnerability to hunger and poverty; influences their capacity to invest in their productive activities and in the sustainable management of their resources; enhances their prospects for better livelihoods; and helps them develop more equitable relations with the rest of their society, thus contributing to justice, peace and sustainable development.
IFAD Policy on supervision and implementation support
Improving the quality of project implementation and achieving better results on the ground are priorities for IFAD, achieved largely through effective supervision and well-directed implementation support. In recognition of this, IFAD has made a series of efforts to examine, clarify and enhance the role of supervision and implementation support in its operations. These efforts acquired a new urgency in the context of the drive to achieve the Millennium Development Goals and the consequent changes in the international development architecture.
The Paris Declaration on Aid Effectiveness emphasizes systematic support for nationally owned strategies for attaining development results, the increased use of national administration systems, and more jointly coordinated and predictable actions among aid donors. As a signatory of the Paris Declaration, IFAD is responding to the challenges of harmonization and alignment by positioning itself fully within this new development context and seeking to provide optimal support to member countries in order to reduce rural poverty. Addressing the issues of project implementation through improved supervision and implementation support is part of that response.