Role of Government in Rural and Agri-Finance: Transitioning to Private Sector Involvement
The Role of Government in Developing Agricultural Finance: A Look at the History of Germany, the U.S., and South Korea, a briefing note from ISF Advisors, builds on previous analysis of the natural stages of agricultural finance and interrogates more deeply the transition that countries make from government-led to more bank-led agricultural finance.
By adding the historical experiences of Mexico, Turkey, and Uganda (as well as other specific initiatives in other countries around the world) to past research by ISF Advisors into the United States, Germany, and South Korea, we gain a greater understanding into the unique approaches that different countries have taken to make this transition.
While these approaches are heavily influenced by each country’s macro-level approach to managing the economy, analysis shows the importance of meso-level enablers and more direct micro-level interventions. As we unpack government actions into these different levels and acknowledge the dynamic interplay between the agricultural and finance sides of the market, we create a more systemic view of these historical experiences.
What becomes clear from this work is that transitioning from government-led agricultural finance to the involvement of private sector financial service providers is difficult. This transition typically happens over decades as macro, meso and micro enablers are put in place and refined. However, experiences from across the world reveal lessons learned about what actions governments can take, how those actions should be coordinated across levels, which institutions should be tasked with implementing government initiatives and the role that strong commercial incentives play in activating private sector financial service providers.
In stimulating a new conversation about the role of government we propose that:
1. Donors have an important role to play in promoting private sector involvement, but government engagement and integration with the policy environment is critical to sustainable participation.
2. Governments need more — and more reliable — evidence to guide integrated policy making and implementation.
3. Governments need new ways of managing the agricultural finance agenda across the macro, meso and micro levels, as well as ministries to enable sustained private sector participation.
Read the 2020 Role of Government in Rural and Agri-Finance Briefing Note and Case Study Compendium.