Developing the Rural Economy

through Financial Inclusion:

The Role of Access to Finance

DECENT WORK IN THE RURAL ECONOMY

POLICY GUIDANCE NOTES
While rural communities need financial services the most, they remain the largest
unserved market for financial services. Ensuring their financial inclusion can
unlock the considerable economic potential of rural areas, and benefit the rural
poor by increasing household income and decent work. The ILO can contribute
greatly to this goal through its technical capacity in financial inclusion and in
integrating access to finance strategies in its work that reaches out to the rural
economy, and leveraging the effects of this with ILO constituents.
 Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

1. Rationale and justification

The nexus between a sound financial system, economic infrastructure (communications, electricity, transport)
growth and development has been researched for a long and small average transaction amounts. This makes
time and numerous theoretical and empirical studies show financial services expensive. Prohibitive transaction
a positive relationship.1 This is no different for developing costs also discourage people from depositing savings,
the rural economy, and basing such development on decent thereby depriving households of an opportunity to build
work. However, rural communities are highly underserved by financial assets.
financial services. According to Global Findex data, 62 per cent
of the world’s adult population had an account at a formal • Legal systems that do not ensure marketable property rights
financial institution or had access to mobile money services contribute to weak collateral and contract enforcement
in 2014.2 The data shows a gap between women and men mechanisms that further limit access to finance. As a
with 58 per cent and 65 per cent respectively. The geographic consequence, products such as long-term financing hardly
regions with the lowest level of financial inclusion are the reach rural areas.
Middle East and North Africa, and Sub-Saharan Africa (14 per
cent and 34 per cent respectively). While the 2014 data does • Levels of financial literacy are often low in rural
not allow for a distinction between access in rural and urban communities. This prevents households and businesses
areas, earlier data from 2011 found a considerable difference alike from building effective risk management strategies
with only 46 per cent of adults in rural areas having access and, for example, understanding how insurance works
in contrast to 58 per cent in urban areas.3 and why premiums need to be paid regularly without a
timeline for pay-outs.
People living in rural areas need access to financial services
• Thus, informal or semi-formal financial institutions – as
for a range of productive (asset building, working capital)
well as alternative providers like traders or input suppliers,
and protective (mitigating risk exposure, including health
or delivery channels like mobile phone companies – have
issues) purposes: to purchase stock, equipment, agricultural
become major players in financial services provision.
inputs; to maintain infrastructure; to contract labour for
However, these informal providers often have weak
planting/harvesting; to transport goods to markets; to make/
institutional and managerial capacity and offer only a
receive payments; to manage peak season incomes to cover
narrow range of financial services, often without regulation.
expenses in the low season; to invest in education/shelter/
Moreover, operating in isolation from the financial system
health; or to deal with emergencies.
has let some of these providers charge steep and sometimes
even usurious interest rates.
Traditionally, formal financial institutions (e.g. commercial
banks, rural or agricultural development banks) have • Climate change is impacting the rural economy most
avoided or failed to offer sustainable services in rural areas. severely. Rural communities cannot cope with and adapt
This exclusion restrains rural communities from unleashing to growing incidences of drought, flooding or storms
their potential: without access to insurance or emergency loans to deal
with these sudden shocks, or to long-term finance for
• Transaction costs in rural areas, especially in remote venturing into less risk-exposed businesses.
areas, are high due to low population density, lack of
In light of these problems, many developments have taken
1 See R.W. Goldsmith: Financial structure and development, New Haven, Connecticut, Yale
place in rural areas (Box 1), bringing about new opportunities
University Press, 1969, R. McKinnon: Money and Capital in Economic Development Washington, for financial service provision.
DC, The Brookings Institution, 1973; R.G. King and R. Levine: “Finance and Growth: Schumpeter
might be right”, in The Quarterly Journal of Economics (1993, August), pp. 717-737; R. Levine:
“Financial Development and Economic Growth: Views and Agenda”, in: Journal of Economic
Development, (1997, Vol. XXXV), pp. 688-726; R. Levine, N. Loayza and T. Beck: “Financial
Intermediation and Growth: Causality and Causes”, in Journal of Monetary Economics (2000,
v. 16, n1), pp. 31-77; T. Beck,: The Role of Finance in Economic Development: Benefits, Risks,
and Politics, Tilburg, Netherlands, European Banking Centre Discussion Paper No. 38, 2011;
and others.
2 World Bank: Global Findex, www.worldbank.org/globalfindex [accessed 16 April 2015].
3 In addition to the difference in reporting rural vs. urban data, the 2011 and 2014 Global
Findex data define account ownership differently: the older data considers having an account
at a financial institution (bank or another type of financial institution, such as a credit union,
cooperative, or microfinance institution) while the newer data considers having an account
either at a financial institution or through a mobile money provider. This redefinition contributed
to a reported increase between the two waves of data.

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Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

BOX 1: Developments in financial service provision in rural areas

• Migration to urban or neighbouring rural areas increases • Insurance can help increase farmers’ asset base and
remittance flows among family members, and thus also productivity: evidence suggests that insurance against
the demand for efficient money transfer services. primary catastrophic risks enables farmers to increase
expenditure on their farms and make riskier choices (e.g.
• Post Office Savings Banks are emerging as significant purchasing high technology inputs).11,12
providers of deposit services in rural areas, for example in
Kenya, South Africa and the United Republic of Tanzania.4 • Use of electronic technology is revolutionizing the
provision of rural financial services, including insurance,
• Member-owned financial institutions such as Self-Help and is driving down costs of handling small transactions.13
Groups (SHGs), Village Savings and Loan Associations Branchless banking allows financial services to reach
(VSLAs), Savings and Credit Cooperatives (SACCOs), formerly untouched clients. Mobile phones or biometric
and Credit Unions are increasing in numbers. Cooperatives smart cards are helping agents enrol clients, while clients
can use cross-subsidization, and federations of SACCOs use them for money transfers. RFID devices injected
offer economies of scale to members, as in the case of behind the ears of animals help to identify the insured
Mixtlan SACCO and UNISAP Federation in Mexico.5 In animal at the time of a claim, and thus facilitate claims
Burundi, credit unions have recorded more deposit and procedures. Furthermore, the use of satellites makes
loan accounts than commercial banks.6 index insurance scalable.
• A number of microfinance institutions (MFIs) have increased • Financing through value chains can reduce risks of
their rural operations (e.g. ACLEDA Bank in Cambodia7), agricultural finance and enhance creditworthiness of
while market pressures have driven others to terminate small farmers, and has been successfully implemented
their rural operations. While microfinance has increased in countries such as Costa Rica, India, Malawi, Mexico,
the access to finance of poor rural households, it is facing Tanzania and Uganda.14
challenges for providing financial services to small farmers.8
• Under certain conditions, contract farming has proven to
• Major differences exist between high income and be effective in creating creditworthiness and helping raise
developing economies in insurance provision. In 2011, incomes of small farmers all over the world.15
developing countries counted 0.5 insurance policies per
adult while high income countries had 2.5.9 These figures • With more than 300 impact investment funds, impact
are far lower especially in rural areas of developing investment has gained momentum in recent years and
countries. At the same time, government-supported is expected to continue growing.16 Of the US$8.8 billion
schemes and Mutual Based Associations are increasing committed by impact investors in 2012, 6.6 per cent were
outreach. In India, 37 million families have been enrolled allocated to the agricultural sector.17
in the National Health Insurance Programme (RSYB)10 and
20 million farmers in the government’s crop insurance
scheme. In the Philippines, 80 per cent of health insurance
is offered by Mutual Based Associations.

4 G. Nagarajan and R. Meyer: “Rural Finance Today”, in Finance for the Poor (2006, Vol. 7, No. 4). 11 D. Karlan et al: Agricultural decisions after relaxing credit and risk constraints Geneva, ILO,
Microinsurance Innovation Facility Research Paper 23, 2012.
5 M. Hirschland et al.: “Financial Services in Remote Rural Areas: Findings from Seven Member-
Owned Institutions”, in Reaching the Hard to Reach: A comparative study of member-owned 12 Y. Liu et al: Borrowing from the insurer: An empirical analysis of demand and impact of
financial institutions in remote rural areas (Antigonish, Nova Scotia, Coady International insurance in China Geneva, ILO, Microinsurance Innovation Facility Research Paper 34, 2012.
Institute, 2008).
13 Nagarajan and Meyer, 2006, op. cit.
6 O.P. Ardic, K. Imboden and A. Latortue: Financial Access 2012: Getting a more comprehensive
picture (Washington, DC, CGAP, Reports by CGAP and its partners No 6, 2013). 14 Sharma and Zhang, 2012, op. cit.
7 Nagarajan and Meyer, 2006, op. cit. 15 M. Prowse: Contract Farming in Developing Countries - A Review Paris, Agence Française de
Développement, À Savoir No 12, 2012.
8 M.K. Sharma and J. Zhang: “Agricultural Finance for Sustainable Development, Expanding
Agricultural Market Opportunities & Promotion of disadvantaged small farmers and MSMEs”, 16 M. El-Zoghbi and H. Gonzalez: Where Do Impact Investing and Microfinance Meet?, Consultative
in Background paper for Workshop, Enhancing Exports’ Competitiveness Though Value Chain Group to Assist the Poor, 2013.
Finance South Africa, 15-16 Sep. 2012. 17 This figure corresponds to agricultural investment in both urban and rural areas.
9 Ardic et al., 2013, op. cit.
10 Government of India: Rashtriya Swasthya Bima Yojana Overview: Enrolment of Beneficiaries,
www.rsby.gov.in/overview.aspx [Accessed 17 April 2015].

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 Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

2. Scope and definitions

This document refers to Rural Finance as the provision of financial education, business development and agricultural
financial services in rural areas that support a wide range extension services, or linkages to local health organizations to
of economic activities and households of various income empower rural areas to benefit from access to finance. If not
levels. It includes financial services that support agricultural empowered, access to finance can put vulnerable populations
as well as non-agricultural activities. In contrast, Agricultural at even higher risk and lead to over-indebtedness.
Finance is the provision of financial services that support all
agriculture-related activities, including those of processors, Target groups
distributors and exporters who may be located in rural, urban
Access to finance can be a powerful tool to develop the rural
or peri-urban areas. Microfinance means the provision of
economy. It is especially important for the working poor –
small-scale financial services that include savings, insurance,
including migrant workers, home workers and smallholder
loans (productive, emergency, consumption), leasing products,
farmers – to protect against risk and to smooth variations in
money transfer services, or guarantees. Figure 1 summarizes
consumption in their households, to increase their income
where the above definitions overlap and shows the section
and to invest in their businesses. But farm enterprises and
relevant for the rural economy.
agriculture-based industry are also in need of working capital,
insurance coverage, leasing, factoring, loan guarantees,
Figure 1: Scope of finance in the rural economy
and venture capital or impact investments, just as are non-
farm enterprises who find it difficult to access financial
markets and resources that would allow them to secure
Financial Market
decent work. They are the ultimate beneficiaries of ILO work
Rural finance
aimed at enhancing access to finance.

Role of ILO constituents

Agricultural ILO constituents have a role to play in fostering access to
Microfinance
finance finance for rural communities. Governments have a crucial
role in providing enabling policies at the national level,
improving the financial infrastructure and promoting rural
finance through dialogue with financial service providers.
Source: IFAD (2010): Decision Tools for Rural Finance. Both workers’ and employers’ organizations can use their
networks to facilitate access to financial services especially
Within the above framework, value chain finance plays an for underserved members, recognizing their needs and how
important role in the rural economy, as distorting the flow to better satisfy them. At the same time, this could help
of financial products and services at any point in the value strengthen their institutional capacities.
chain can make the whole chain collapse. Directly related
to value chain finance is contract farming, as a form of Besides the constituents, the ILO needs to engage with
vertical integration in value chains in which a firm lends for financial sector players if it wants to unlock the potential
example agricultural inputs like seeds or fertilizer to a farmer of the rural economy. These players include Ministries of
in exchange for purchasing rights over the specified crop. Finance, of Labour and Agriculture, Central Banks, Bankers’
Similarly, impact investors that advance finance to lead firms and Insurers’ Associations, Associations of Microfinance
with the intention of improving the social and environmental Institutions, and financial service providers like commercial
impact while also obtaining a financial return are part of the banks, state-owned banks, finance companies, insurance
value chain finance universe. companies, postal financial service providers, microfinance
NGOs, community-based organizations or credit unions,
All financial services in the rural economy must be delivered but also alternative providers and delivery channels like
on a sustainable basis to ensure that services are available traders or mobile phone companies.
in the long term. However, financial services frequently
need to be accompanied by non-financial services such as

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Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

3. The ILO’s approach

The ILO works towards developing the rural economy by replicate successful innovations or to facilitate the process
improving access to finance through: to do so.

• capacity-building of constituents (governments, workers’ Acknowledging that insurance is vital to social and economic
and employers’ organizations) and financial sector players development, the ILO Impact Insurance Facility21 has been
as well as ILO staff, working since 2008 to increase the availability of quality
insurance for the developing world’s low-income families,
• functioning as a help desk for requests from constituents and the majority of whom live in rural areas, to help them guard
ILO staff, and for monitoring the quality of ILO interventions, against risk and overcome poverty. The Facility enables the
• promoting innovation through action-oriented research insurance industry, governments, and their partners to realize
and knowledge management, and the potential of insurance to reduce vulnerability, promote
stronger enterprises and facilitate better public policies.
• promoting the adoption of decent work standards in By building on past achievements and lessons learned,
impact investments in the rural economy. the Facility works to stimulate innovation and to transform
knowledge into practice (see examples in section 4).
To build the capacity of constituents and financial sector
players, the ILO has developed a range of training materials on Through its engagement in the Access to Insurance Initiative,
topics like financial education18, management of microfinance the ILO is active in policy dialogue and builds the capacity
institutions19, how to create awareness on insurance, among of policy-makers for promoting access to insurance for
others. The materials are available in different languages vulnerable groups.
including English, French, Arabic, Bahasa Indonesia, Khmer,
Nepali, Mongolian, Romanian and are adapted to particular Through the collaboration with the Africa Agriculture and
target groups like youth, women and migrants and to national Trade Investment Fund since 2012, ILO, together with
contexts. For example, financial education materials are UNEP, collects evidence on how large-scale financial service
available for Cambodia, Congo, Indonesia, Mauritania, providers can sustainably integrate social concerns – including
Mongolia, Nepal, Republic of Moldova, Senegal, and others. decent work considerations – into their funding decisions.
Upon request, the ILO can also engage in specific capacity- The lessons learned from this collaboration will enable other
building of constituents. financial service providers to improve assessing the social
and environmental impact of their investments.
Through the Microfinance for Decent Work action research
programme (MF4DW)20, the ILO studied the impact of
ILO comparative advantage
innovations in microfinance on poor households and their
businesses from 2008 to 2012. MF4DW worked with 16 While the ILO is a niche player in improving access to finance
microfinance institutions across the world on reducing child to help develop the rural economy, it is a recognized actor
labour, improving working conditions and risk management that is known to have strong services on offer:
strategies, encouraging formalization or increasing job
creation. The impact evaluations that accompanied the • Especially ILO’s knowledge management and dissemination
implementation of the innovations show that microfinance services for more inclusive expansion of insurance – be it
institutions can indeed contribute to improving the decent research, technology, product design, innovative delivery
work status of their clients (see example in section 4). Based channels, market development or client value – are at the
on the positive results, the programme intends to go into forefront of insurance development through the work of
its second phase, in building the capacity of stakeholders to the Impact Insurance Facility.
• Due to its tripartite structure, the ILO has unique entry
points to facilitate access to finance in rural areas (e.g. trade
18 Enterprises Department: Financial Education, ILO, 2015, www.ilo.org/empent/areas/social-finance/ unions, employers’ organizations) that other international
WCMS_206163/lang--en/index.htm [Accessed 17 April 2015].
organizations are not able to mobilize. This allows the ILO
19 International Training Centre – ILO: Making Microfinance Work, http://mmw.itcilo.org/en/
home/ [Accessed 17 April 2015].
20 ILO Social Finance Programme: Microfinance for Decent Work: Action Research, 2015,
www.ilo.org/employment/areas/social-finance/WCMS_168033/lang--en/index.htm [Accessed 21 ILO: Impact Insurance Facility, 2015, http://www.impactinsurance.org/es [Accessed 17 April
17 April 2015]. 2015].

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 Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

to leverage its outreach in rural areas without numerous • The ILO Microfinance for Decent Work action research
small-scale direct interventions. programme has established sound evidence of what
microfinance institutions can do to improve the decent
• The ILO’s management training programme for microfinance work status of clients, including in rural areas.
institutions is well established and well-known. While it
already addresses challenges of rural finance, there is • The ILO’s joint work with UNEP on supporting large-
scope to intensify discussion and enrich it with more scale financial institutions to improve their social and
in-depth research results. environmental management systems has proved to be
an area of high potential for future work.

4. The ILO’s experience to date

The ILO has been working on improving access to finance When the ILO project ended, NWTF continued to collaborate
since 1991, and has amassed many insights on developing with the research partner to modify the product and further
the rural economy during those 20+ years. Below are some increase its impact.22
recent examples.
Insurance Funds in Rural Mexico – AMUCSS
Microfinance for Decent Work: Experience of – Mexico
NWTF’s Individual Emergency Fund – Philippines Given the vulnerability and importance of the agricultural
In the frame of the Microfinance for Decent Work action sector, the Mexican government has been providing different
research programme, the Negros Women for Tomorrow forms of insurance mechanisms since the 1960s. In 1998,
Foundation (NWTF) in the Philippines set out to address through its national insurance institution (Agroasemex) the
vulnerability and risk management of their mostly rural government developed an agricultural insurance scheme
clients. NWTF did so through the introduction of an Individual called Fondos de Autoaseguramiento (self-insurance funds).
Emergency Fund, which essentially is a voluntary savings The scheme leveraged existing farmers’ groups. While small-
product that can be drawn on in emergency situations. scale farmers are not excluded from this scheme, their
The account could be augmented by an interest rebate participation is hindered by their organizations’ small size.
that clients receive if they repay outstanding loans on time.
Through the combination of these two features, NWTF hoped Seeing the difficulties faced by these farmers in accessing
i) to boost the availability of safety nets to clients in times of the existing government scheme, the Red Solidaria de
emergencies, and to lessen their tendency to borrow beyond Microseguros Rurales (RedSol), an insurance intermediary
their means, withdraw funds from business operations or created by the Asociación Mexicana de Uniones de Crédito
suspend essential household expenses, and ii) to decrease del Sector Social (AMUCSS)23, established a fund to aggregate
the overall portfolio at risk for the organization. a sufficient number of small-scale farmers to form a group
that could operate on a financially sustainable basis under
The evaluation of the product showed a strong positive the existing government scheme. For the season 2012-2013,
impact on reducing multiple borrowing and the risk of over- cover was extended to 1,985 smallholder farmers, insuring
indebtedness of clients. For example, the study observed a a total of 2,797 hectares that were primarily used for maize,
22 per cent reduction in clients borrowing to repay another coffee and peanut farming. The product included options
loan, a 7  per cent decrease in repayment difficulties, to cover droughts, floods, hail, low temperatures, frost,
and a 7 per cent decrease in borrowing from formal sources. hurricanes, cyclones, high winds and tornados.

22 ILO Social Finance Programme: Microfinance for Decent Work: Innovation Partners, Geneva,
2011, www.ilo.org/employment/WCMS_168044/lang--en/index.htm [Accessed 17 April 2015].
23 AMUCCS is a not-for-profit organization that serves a network of rural financial institutions in
the areas of treasury services, training, microcredit and savings methodologies, microinsurance,
remittances, food security and financial education.

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Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

Piloting Index-Based Livestock Insurance in Beitbridge and Ngundu, operating at two levels: i) providing
Marsabit - ILRI– Kenya HIV prevention and care services for transport workers and
populations operating along these corridors, including rural
In recent years, droughts in Kenya’s arid and semi-arid lands
communities; and ii) providing business-related services to
have become increasingly severe, with devastating effects on
vulnerable populations to start or improve their business,
the local population. To mitigate the effects, the ILO Impact
form cooperatives and provide access to financial services
Insurance Facility has supported the International Livestock
in order to improve their resilience against HIV’s impact.
Research Institute (ILRI) since 2010 in carrying out a project
on Index-Based Livestock Insurance (IBLI). The project has
As a result of the partnership, 10 Savings and Credit Cooperatives
covered activities around marketing and communication,
(SACCOs) were formed, involving more than 500 families and
training and extension, and insurance operations and delivery
more than 1,000 beneficiaries. 115 people living with HIV
channels. It also piloted an insurance product that provides
joined SACCOs, partly thanks to the community’s acceptance.
compensation in the event of drought-related livestock losses
in the Marsabit District of Northern Kenya.
Building capacity for responsible investments
A preliminary appraisal of the impact of the insurance on in agriculture - Collaboration with the Africa
household well-being suggests that there is a difference Agriculture and Trade Investment Fund (AATIF)
between the expectations of insured and uninsured households Since July 2012, the ILO has been collaborating with AATIF.
when dealing with drought. Since insured households expect The Fund invests in companies along the agricultural value
to receive a pay-out in the near future, and intend to use the chain, targeting small, medium and large-scale farms as
bulk of this money to buy food and livestock, most of them well as other agricultural businesses. Investments can be
anticipate not having to depend on stringent coping strategies direct (e.g. cooperatives, commercial farms and processing
(e.g. reducing their meals, selling livestock), as opposed to companies) or indirect (e.g.  intermediaries, financial
their uninsured counterparts.24 institutions). As of December 2014, AATIF’s portfolio consisted
of eight investments, for which the Fund is not only tracking
A Public-Private Partnership to economically its social and environmental impact but also a number of
empower HIV-vulnerable populations along development indicators like household income in the case
transport corridors in Zimbabwe of financing smallholder schemes. This innovative structure
is attracting private sector investments and leveraging the
The partnership between the ILO, the Ministry of Labour
initial public sector capitalization. Key milestones include
of Zimbabwe and SEDCO (Small Enterprise Development
developing a social and environmental risk assessment
Corporation) started in 2011. The ILO launched a programme
methodology, testing it in 10 organizations and providing
along the transport corridors in Chirundu, Kotwa, Nyamapanda,
small-scale technical assistance to investments.

5. Practical guidance and resources

Based on the identified gaps in rural finance, the ILO suggests rural areas and benefit rural populations. The choice of policy
focusing on supporting knowledge creation and innovation in options should be guided by the vision of a competitive
rural financial service delivery, increasing the managerial and financial market with a multitude of players that provide
technical capacity of financial service providers to serve rural appropriate and demand-driven products and services.
and remote areas, and providing an enabling environment,
in order to unlock the considerable economic potential of

24 ILO Impact Insurance Facility: Piloting IBLI in Marsabit – ILRI, 2013 http://www.impactinsurance.
org/es/projects/lessons/piloting-ibli-marsabit [Accessed 17 April 2015].

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 Developing the Rural Economy through Financial Inclusion:
The Role of Access to Finance

Box 2

Support knowledge creation and innovation in be linked to formal financial institutions, as this could help
rural finance them expand the range of services offered.
Research is needed to better understand demand for financial
Efforts should be focused on strengthening the knowledge
services in rural areas, as well as the barriers that affect users
and capacity of commercial banks to engage in value-chain
of financial services and products, in particular gender-related
finance beyond traditional collateral lending. Furthermore,
demand/barrier specificities, as well as those of remittance
facilitating portfolio diversification of financial institutions
users and recipients, and groups like youth, disabled persons,
can mitigate risks stemming from concentrated agricultural
indigenous populations and HIV-affected households.
portfolios. The risks in financial portfolios resulting from
climate change should be considered.
The impact of financial service provision on rural household
incomes, employment conditions and employment creation –
Capacity can also be increased through alliances among
as well as the potential contribution of financial institutions to
various types of institutions, for instance channelling insurance
improving decent work among rural households – should be
through financial institutions, retailers, mobile network
further explored. Moreover, research is needed on agricultural
operators or community-based organizations. Lastly, impact
value chains to identify the networks that value-chain actors
investors can contribute to increasing the lending capacity of
use to distribute inputs and collect produce from farmers,
financial institutions, traders and input suppliers.
and use those networks to channel financial services, improve
risk management, and support capacity-building measures.
Similarly, given that climate change is impacting agriculture Provide an enabling environment
all over the world, research is needed on how this is shaping The role of governments in ensuring an enabling environment
demand for financial services and how responding services is particularly important. Based on past experience,
can be delivered in a sustainable manner. governments should: i) abolish or avoid reinstating interest
rate ceilings that do not allow full cost recovery for financial
In relation to innovations, financial institutions need support service providers, especially those who service rural and
to innovate and adopt delivery models that reduce transaction remote populations; ii) abstain from direct credit schemes
costs e.g. deploy mobile banking units, as well as design or subsidized first-tier government lending programmes;
innovative financial products that meet demand in rural iii) support savings mobilization by prudential regulation of
and remote areas. The role of low-cost technology (such as deposit-taking financial intermediaries; iv) integrate rural
mobile phones) in expanding the delivery of financial services finance into the broader financial system development
to currently unserved people should also be explored. agenda; v) facilitate the link between formal, informal and
semi-formal financial institutions, instead of pressuring the
The goal should be to extend a range of financial services latter two to become large regulated formal institutions;
and vi) improve infrastructure to lower transaction costs
that are tailor-made for agricultural production (e.g. crop and
(e.g. in communications, electricity, transport).
livestock insurance), agricultural-based industry (e.g. leasing,
post-harvest use, warehouse receipt financing), non-farm More efforts should be put into increasing financial
enterprises (e.g. variety of loan products) and household literacy of rural communities through financial education
consumers (e.g. savings, health insurance, housing loans, in schools and training curricula, and promoting a savings
consumption loans). and insurance culture among rural populations through
awareness campaigns, financial education or experience/
Increase the capacity of a range of providers to testimony sharing among insured and uninsured people.
serve rural and remote areas
Specifically for insurance, index-based insurance products
The management capacity and governance of informal and (e.g. weather-based crop insurance) should be supported by
semi-formal financial service providers, like SACCOs, village providing accurate statistical data (e.g. on regional rainfall)
banks, informal savings groups, or alternative providers and infrastructure (e.g. weather stations) to collect data and
and delivery channels like input providers, organizers of make it available to insurers.25
out-grower schemes, or mobile phone companies, needs
to be strengthened. In addition, informal providers should 25 FAO, IFAD, Ford Foundation: An International Conference on Rural Finance Research: Moving
Results into Policies and Practice, Conference Proceedings, Rome 2007.

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Developing the Rural Economy through Financial Inclusion:
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Tools Publications
Churchill, C.; Liber, D.; McCord, M.; Roth, J. 2003. Making Churchill, C.; Dalal, A.; Ling, J. 2012. Pathways towards
insurance work for microfinance institutions: a technical greater impact: Better microinsurance models, products and
guide to developing microinsurance (Geneva, ILO). processes for MFIs (Geneva, ILO).
A guide for MFI managers on the design and operation Based on the experiences of MFIs, it is clear that they
of basic insurance products. Introduces fundamental can provide risk-management services that are valuable
insurance concepts, outlines the prerequisites needed for clients and institutions alike. The paper provides a
for an MFI and describes the key features of five types of comprehensive review of the challenges and successes
insurance products. of MFIs and offers ten key recommendations.

Deelen, L.; Majurinb, E. 2008. Village banking in Lao PDR: Churchill, C.; Matul, M. 2012: Protecting the Poor:
Handbook for village bank management committees and A Microinsurance compendium. Vol. II (Geneva, ILO).
support organizations (Bangkok, ILO). This knowledge product contains chapters on climate
Practical tool for strengthening village banks as a means change, next-generation index insurance for smallholder
of giving poor women and men in rural and often remote farmers and livestock insurance.
areas access to financial services (savings and credit), social
empowerment and a higher quality of life. There is also Frankiewicz, C.; Churchill, C. 2011. Making Microfinance Work:
an accompanying ledger guide available. Managing Product Diversification (Geneva, ILO).
A chapter on rural microfinance and a stand-alone course
ILO. Financial Education: Trainers’ Manuals. (in development) in the MFI management training
A series of training materials on financial knowledge and programme “Making Microfinance Work: Managing
management skills, designed to teach vulnerable groups Product Diversification”.
– including women and men in poverty, families with
working children, youth and migrant workers. Richter, P. 2011. Empowering rural communities through
financial inclusion (Geneva, ILO).
Policy brief on financial inclusion for rural communities.

10
Overview of Policy Guidance Notes
on the Promotion of Decent Work
in the Rural Economy
Supporting inclusive agricultural growth for improved livelihoods and food security
• Decent Work for Food Security and Resilient Rural Livelihoods
• Decent and Productive Work in Agriculture

Promoting economic diversification and triggering productive transformation for rural employment
• Economic Diversification of the Rural Economy
• Promoting Decent Work for Rural Workers at the Base of the Supply Chain
• The Role of Multinational Enterprises in the Promotion of Decent Work in Rural Areas
• Transitioning to Formality in the Rural Informal Economy
• Sustainable Tourism – A Catalyst for Inclusive Socio-economic Development and Poverty Reduction in Rural Areas

Promoting access to services, protection and employment-intensive investment

• Providing Access to Quality Services in the Rural Economy to Promote Growth and Social Development
• Extending Social Protection to the Rural Economy
• Developing the Rural Economy through Financial Inclusion: The Role of Access to Finance
• Employment-Intensive Investment in Rural Infrastructure for Economic Development, Social and Environmental Protection
and Inclusive Growth
Ensuring sustainability and harnessing the benefits of natural resources
• A Just Transition towards a Resilient and Sustainable Rural Economy
• Decent Work in Forestry
• Harnessing the Potential of Extractive Industries
• Water for Improved Rural Livelihoods

Increasing the voice of rural people through organization and the promotion of rights, standards and social
dialogue
• Rights at Work in the Rural Economy
• Promoting Social Dialogue in the Rural Economy
• Building Local Development in Rural Areas through Cooperatives and other Social and Solidarity Economy Enterprises
and Organizations
• Decent Work for Indigenous and Tribal Peoples in the Rural Economy
• Empowering Women in the Rural Economy
• Decent Work for Rural Youth
• Promoting Fair and Effective Labour Migration Policies in Agriculture and Rural Areas

Improving the knowledge base on decent work in the rural economy

• Enhancing the Knowledge Base to Support the Promotion of Decent Work in Rural Areas

For more information please visit www.ilo.org/rural or contact rural@ilo.org

Copyright © International Labour Organization 2019 – First published (2019)
This document is part of the Portfolio of Policy Guidance Notes https://www.ilo.org/global/topics/economic-and-social-development/rural-development/WCMS_436223/lang--en/index.htm