Rural Finance: Role of State and State-owned Institutions

Governments have a critical role to play in development of agricultural and rural financial institutions. But state involvement in the management and implementation of rural financial system has proven expensive and inefficient. Subsidised credit programmes which are part of state intervention in rural financial markets undermine the institutional sustainability of financial institutions, distort rural finance markets and discourage savings mobilisation and fail to develop market-driven sources of funding. The revitalisation of the state-owned rural financial institutions is possible without a wholesale structural and ownership change.