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WWB Hosts Rural Finance Workshop in Monterrey, Mexico, Feb. 21-23

In collaboration with Grupo Financiero Banorte, a leader in rural finance in Mexico and a member of the WWB Global Network for Banking Innovation (GNBI), and with the support of the Inter American Development Bank (IDB/MIF) and The Andean Development Corporation (CAF), WWB hosted a Workshop on Rural Finance in Monterrey, Mexico, February 21-23. Over 75 rural development and financial experts attended, including WWB Network members from Colombia, India, Africa and the Middle East. The workshop was the second in WWB's Product Diversification Workshop series.

The workshop's goal was to increase knowledge of rural markets and the agricultural risks faced by farmers, and to explore successful, customer-responsive strategies and technologies for microfinance institutions and banks serving rural areas. Rural finance, in particular agricultural lending, remains mostly uncharted territory for development finance. Lack of infrastructure, distant markets, inadequate farming techniques, volatile prices and unpredictable weather make small-business farming risky for both farmers and lenders. For microfinance institutions, meeting the needs of rural clients with a range of financial services is a challenge requiring extensive first-hand knowledge of models and innovations in the field.

Banorte's Jose Carlos Martínez welcomed workshop participants and mentioned several aspects of the bank's outreach toward rural communities and customers. He highlighted his organization's partnership with Telecomunicaciones de Mexico (Telecomm), the public telegraph company, which allows Banorte to offer accounts through local Telecomm offices, many of which are located in rural areas. Martínez also discussed the overall importance of providing support (technical assistance) and development opportunities to rural populations in Mexico and worldwide.

Calvin Miller from the United Nation's Food and Agriculture Organization (FAO) served as the workshop's opening speaker and used a soccer analogy to begin his discussion, stating that to be successfully developed, rural finance, like soccer, requires a strategy, good coordination and skills. He provided the larger context to the challenges facing rural populations who make up 70 percent of those living in poverty globally. Miller acknowledged the advances made by microfinance and globalization in providing economic access and opening markets. He cautioned that "money flows" to the developing world, such as remittances, will not by themselves transform rural areas. Rather, sound development policies are needed to create sustainable, long-term development.

To meet the challenges of developing rural areas, key players to will need to cement connections and pull in under-served and marginalized rural communities that are often not able to compete in global markets. Connectedness is one of the key drivers for success in rural finance; particularly important is the development of technologies that facilitate market access. Miller walked participants through the major vulnerabilities to rural farmers in three major areas: systemic risk such as regulatory issues, market risks like pricing, and credit risk for both rural lenders and borrowers. He mentioned that the politicization of agricultural finance was an ongoing threat to its sustainable growth. He stressed the importance of advocacy and coalition-building in shaping the environment for rural lending. In the area of best practices, Miller pointed out that organizations need to develop good research capabilities in order to lend in a way that manages risk. Value chains are also key to linking farmers to markets throughout the world. Miller and other presenters addressed a variety of different models for value chains, including warehouse receipts, trade finance and risk management in the form of price hedging.

WWB Network members and experts representing institutions from Kenya to Bolivia shared their experience in implementing successful rural finance services for their clients. Several panels discussed expansion strategies and innovations in rural finance products and technologies, allowing participants to understand how challenges posed by rural environments are addressed in different contexts. For example, the growth of ATMs in rural areas has linked rural customers to financial products and services and provided convenience. Institutions such as Bolivia's Prodem have introduced ATMs that use fingerprint technology instead of requiring personal codes or other types of identification. The ATMs are also helping Prodem's customers to build up savings, providing a financial cushion for small farmers and rural entrepreneurs. In Kenya, Equity Bank has introduced an innovative mobile banking program in order to facilitate modern business transactions in communities lacking widespread access to electricity. Bridging the infrastructure gap and reaching rural clients has enabled Equity Bank to reach over a million customers.

In the Philippines, mobile phone technology is being utilized in order to connect rural residents of the more than 7,000 islands of the country. An alliance between Microenterprise Access to Banking Services and Globe Telecom is providing rural communities with instant, secure and low-cost ways to conduct financial transactions such as paying bills and taxes, sending and receiving remittances and transferring money.

Workshop participants learned about innovative financial strategies such as cotton swaps, one of the commodity price hedging strategies developed by Standard Chartered Bank in Uganda to manage the price risk of cotton crops. Standard Chartered Bank (SCB) uses exchange traded prices (New York over-the-counter prices) to offer fixed prices to cotton sellers. In this way, SBC is able to offer producers a floor price that enables them to plan and make decisions about planting after negotiating an upfront price for their cotton crops.

Overall, participants agreed that the two-day workshop provided exciting opportunities to explore the main challenges involved in rural finance in an integrated and up-to-date way. For more information about future WWB workshops in rural finance, please contact Hans Dellien at hdellien@swwb.org or Elizabeth Lynch at elynch@swwb.org. For more information on FAO's rural finance programs, http://ruralfinance.org or www.fao.org/ag.