No single player can take the development of rural enterprise and microfinance fully into his own hands, as coordinated interventions are far more likely to be successful. Single players can sometimes achieve great things; but coordinated interventions are far more likely to be successful. Great care is to be taken that interventions do not do more harm than good. This can be the case with well-meaning interest subsidies which may undermine institutional viability; and grants which may discourage local resource mobilisation. The following recommendations therefore go beyond what the Syngenta Foundation can do by itself. But it may interact with other stakeholders in pushing a reform agenda, e.g., concerning the promotion of an adequate legal framework for local financial institutions, effective supervision or the restructuring of agricultural development banks.

1. Local resources mobilisation matters:

Donor-driven vs. local initiatives
The importance of local resource mobilisation vs. capital transfer for self-financing, self-reliance, and growth.
Source of funds: Internal (local savings, equity, retained earnings) vs. external.
Risks: Donor funds discourage local resource mobilisation & growth.
Opportunities: Savings mobilisation strengthens the self-reliance and self-financing capacity of rural entrepreneurs, at the same time freeing their credit absorptive capacity for larger loans and investments.
Proposal: Capacity building in savings-driven local financial institutions, with a focus on MFIs in semiarid areas

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2. Equity matters

Domestic resources can be effectively mobilised through equity instead of deposits by shareholder- driven RMFIs. Equity provided by external investors may bridge liquidity shortages and leverage own resources Equity-driven RMFIs resources mobilisation through equity mobilised by local shareholders motivated by profit sharing and access to credit.
Risks: Inadequate equity curtails growth
Opportunities:
1. Massive mobilisation of unequally distributed local capital in private hands
2. Donor equity leverages savings mobilisation and credit expansion
Proposal:
1. Support initiatives to build equity-driven local RMFIs
2. Invest in locally owned RMFIs

3. Legal framework for local financial institutions matters

A legal framework is important for establishing deposit-taking local financial institutions (microbanks) as self-reliant institutions which can grow dynamically on the basis of local resource mobilisation (savings, equity, retained earnings)
Such regulated financial institutions would be fully integrated within the formal financial sector.
Risks:
1. Non-formal: lack of deposit mobilisation and supervision
2. Formal: Inappropriate regulation and interference by rogue governments
Opportunities: Institutional sustainability and unlimited growth of saver and borrower outreach
Proposal: Support pilot projects in which RMFIs adopt an appropriate legal status

4. Effective supervision matters

The growth of sustainable RMFIs and sustainable financial services is contingent upon effective supervision
Supervision: Supervision of RMFIs, whether deposit-taking or equity-driven, is crucial; supervision must be effective, ie, able and willing to suspend or close non-performing RMFIs
Risks:
1. Ineffective supervision creates false confidence
2. Inappropriate supervision curtails the emergence of RMFIs
Opportunities: Appropriate and effective supervision is conducive to the emergence and growth of a healthy RMFI sector
Proposal: Support auditing of RMFIs by auditing apexes of RMF federations

5. Agricultural development banks (AgDBs) matter:

AgDBs are the largest providers of RMF services
Risks: Unreformed AgDBs waste public resources, lack growth and outreach, undermine rural finance.
Opportunities: Reform may lead to sustainable outreach to all segments of the rural population through retail or wholesale services (linkages).
Proposal: Participate in policy dialogue on AgDB reform to expand deposit and credit services to rural entreperneurs.

6. Informal finance matters

Informal group-based financial institutions (IFI) of ancient indigenous or recent origin are ubiquitous in much of Asia and Africa, but in contrast to the origins of microfinance in some European countries, they have rarely provided a basis for financial sector development.
Informal finance: IFI are widespread and fulfill important functions; but their modern adaptations and their potential in RMF sector development is rarely recognised.
Risks: Ignoring IFI as indigenous social capital leads to a continual existence of a dual financial sector and misses the chance of building an inclusive financial sector.
Opportunities: Building a culturally integrated, inclusive RMFI sector through strategies such as upgrading IFI, linking IFI with banks, downgrading banks linked to IFI.
Proposal: Support pilot projects of upgrading and linking IFI in remote and semi-arid areas.

7. Linkages matter

Linkages Between banks and SHGs or MFIs
Risks: Discouraging savings mobilisation and growth.
Opportunities: Linkages provide a full range of banking services, including safe-keeping of deposits, access to bank credit, liquidity
balancing, equity participation, money transfer, check clearing, payments, monitoring and supervision.
Proposal: Support model projects of horizontal networking among non-formal MFIs, incl. SHGs in remote areas (with incentives-driven upgrading), and vertical linkages with banks.

8. Good practices matter; best practices risk turning into worst practices

The notion of best practices in RMF may lead to mechanical replication and to strategies which are not adapted to the cultural or economic conditions at a given time. Evidence is needed of the range of more variable and adaptable good practices and the process of their transformation over time.
Best vs. good practices: Only good practices may have the adaptability required in development situations widely varying over space and time.
Risks: Insistence on best practices may lead to mechanical replication and inappropriate practices.
Opportunities: Appropriate good practices may permit the development of viable RMFIs in rapidly changing or widely varying situations or in nonconducive policy environments
Proposal: Support a variety of good practices (e.g., group lending, individual lending, joint liability, capital injection in undermonetised rural economies) contingent upon socio-cultural situation and policy environment

9. Development matters

Given the emphasis on poverty alleviation, development has become the forgotten half of RMF. Does RMF lead to development and poverty alleviation; or does development as the result of good policy create an environment in which RMF will thrive and effectively contribute to poverty alleviation? Does RMF with its emphasis on the poor and the poorest sustain the poor in poverty or lead to sustainable poverty alleviation and development?
RMF and development: The relationship between RMF, development and poverty alleviation is complex.
Risks: A sole emphasis on the poor and poorest undermines both development and the growth of outreach to the poor.
Opportunities: Establishing a strong RMF sector for all segments of the population will in due course contribute to poverty alleviation once broader market-driven development processes set in.
Proposal: Strengthen RMFIs with services to all segments of rural enterprise.

10. Cooperation and co-financing matter

Co-financing of studies and programmes with research funding agencies and international development agencies would not only increase the flow of funds; it would also bridge the gap between basic and applied research; this would lead to more relevant and more systematic research as well as better communication and coordination between the worlds of research and development.
Co-financing of studies and programmes:
Cooperation and coordination among research funding agencies and development agencies
Risks: Lack of coordination undermines the effectiveness of both research and development approaches and fosters uncritical and ineffective replications
Opportunities: Learning-based innovations in RMF
Proposals: Support cooperation between research funding and development agencies in RMF

11. Conclusions

– Include among the institutions eligible for support formal, semiformal and informal financial institutions – in private, cooperative, public, community or mixed ownership.
– Place a special emphasis on support to small institutions which include people from the lower segments of the population as owners or customers.
– Support the development of appropriate legal frameworks, conducive regulation and effective (delegated) supervision of self-reliant and sustainable RMFIs.
– Provide incentives-driven schemes for upgrading institutions in terms of legal status, supervision, and outreach.
– Support the injection of equity into RMFIs for bridging, leveraging and upgrading purposes.
– Support linkages of informal and semiformal RMFIs, including SHGs in remote and marginal areas, with the banking sector and their up grading to the level of regulated institutions as seen fit.
– Support RMFIs in establishing business associations with apex services to member institutions.
– Support the development of sustainable BDS apex organisations in private ownership or in the hands of business associations of rural entrepreneurs.
– Do not support temporary or ad-hoc solutions with no chance of institutional sustainability.
– Initiate cooperation between research funding and development agencies in RMF; provide funding for longitudinal impact studies, e.g., of linkages and upgrading of RMFIs.