I Fiance Apicultural

3
The Historical Record and
Organizational Structure of
Formal Rural Financial
Institutions
R ial financial market developiment is a complex process. Review
of tie literatue suggests ana;lysis of that developillelnt ill le-Ills of
lie followig six organizational iprinciples:
" More than olie formal RFI in al area should he promoted.
" A variety of forins of inst itut ions-pl lic, pi ivate, and cooperative-shoiild
be clicoliraged.
* Tihe organizational structure should be vertical, proceeding fiom
local to regional to national levels.
* High geograp)hic density of' field-level RFIs should be encouraged-that
is, a large ,iuin," of lranches, with a small area per
branch.
* A large p)rop)ortion of Iur1al people Should be coeed by these
institutiols.
* Diversified and iuhtltipe finctions should be promoted, that is,
finctions should be horizoltally ilitcgratd.
The first two of thesc orgallizaitional principles are analyzed in this
chapter and the remaining four :are discussed itn the next chaptct. Prior
to that the rationale for rural credit is hriefly prcscltd, and the crossnational
historical record of growth il tlic system of RIs is presenled.
Rationale for Rural Finance
Credit is essential for agricultural development. Circumstantial evidence
shows that where agriculture has grown rapidly, institutional credit has
expandcd more quickly. Although farniers as producers greatly prefer to
hold their savings in physical productive assets on their own farms, they
must also rely oil externiidl credit at various points in time, generally
beccause the realization of, income and tle act of expenditure (10 not
occur at tle saije ti ie. To cite a few illistratiiu s: A field-crop fanner
harvests his crop once or twice a year, whereias his constm)tion is
continuous. For a1daily fumier, the interval between the realization of
income and the act of ex)enditure is shorter :and his income is aliore or
less continuous, )rovi(e(l hli has two milk animals and readly access to
marketing facilities. For a tree-crop farmcr., there is a vast gap between
the times when expenditure is iicTIrred and when income is generated.
12