2.2.5.2. Financing trade and
rural development
Lack of financial intermediation is a major constraint to
rural development. In Rwanda, as in many other developing countries, the role
of the finance sector in channeling resources to small firms and to finance
productive opportunities in the rural sector has been considerably stifled.
Financial institutions in developing countries tend to concentrate on
short-term trade and related activities in cities. Providing financial services
to commercial SMEs and particularly in rural areas remains a considerable
challenge. This reflects significant constraints on access finance: lack of
collateral, borrowers' inability to provide financial information of the
standard required by banks, small size of loans requested which increases the
unit cost of lending; and higher transaction costs inherent in administrative
and risk-related costs.
2.2.6. Barriers that restrict
the ability of households to move into commercial activities
Of particular importance to poverty reduction are factors that
constrain the ability of farmers to move into commercial and non-farm
activities. Reducing trade costs increases incentives to move into new
activities but there are substantial barriers that limit farmers' responses.
2.2.6.1. Lack of access to
credit
Shifting from subsistence agriculture into commercial
activities requires financial resources to purchase new plants or materials.
These financial resources are simply not available to most households in rural
areas. Without an increase in the activities of formal financial institutions
in rural areas there will be little success from raising incentives to
commercial activities and in stimulating monetization and the development of
rural markets.
2.2.6.2. Lack of organization
of the rural sector
The lack of effective organization of the rural sector is
a substantial barrier to the emergence of market oriented
activities. The highly fragmented nature of the rural economy
limits the scope for financial intermediation in rural areas and constrains the
emergence of effective supply chains linking rural producers
to local, regional, national and international markets. A key
initiative must be to strengthen the role of cooperatives, first, by clarifying
their legal standing and then by raising capacities to
organize members, to develop business plans and to attract and
manage credit.
2.2.6.3. Lack of access to
energy
Access to modern energy (electricity and petrol) is crucial to
export diversification, non-farm growth and poverty reduction. Attempts to add
value to exportable products are often dependant on the availability and
reliability of modern energy supplies. Access to electricity is a strongly
significant determinant of the probability of being poor. Widespread extension
of the electricity grid in rural areas is not feasible in the timeframe of
achieving the objectives of the government's growth strategy. However, there
does appear to be scope for the effective targeting of local
«micro-hydro» based independent grids. What is required initially is
the development of a strategy to maximize the returns to the available
opportunities for bringing modern energy to rural communities (REPUBLIC OF
RWANDA, 2006:12).
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