New Horizons > December 2000

Expanding Rural Financial Markets

In a front page article in the last issue of New Horizons, Fausto Jord·n, President of ECLOF Ecuador, reported on the positive ways in which his country was coping with the economic hardships created by two massive volcanic explosions in 1999. Here, he has news of more progress for people in rural areas.

“I have five plots of land–about 3.6 hectares in all–that my father left me. I grow rice on three of them, corn on one and a half, and on the rest, barely half of a plot, I have my house and a small area for cocoa trees. Before, when it was time to plant, I could get a loan but they would charge me 10% a month. A lot of what I earned went to the moneylender. Now, I get loans from ECLOF and can work in peace. My family eats well and I have even been able to buy a few things we needed.”
Félix Kléver Mor·n Z·rate, peasant farmer from Junquillo, Ecuador

Despite all the initiatives taken in Ecuador over the past thirty years, there is still a desperate lack of financing for rural sectors. In fact, the problem has become even more complicated because of the severe economic situation facing the country. The established financial system has always been hesitant to venture into the rural sector because of the risk involved, the dispersion of clients and the lack of appropriate credit instruments. Today, it is more distant from the poor sectors of the population than ever before.

In the past, when the old model of substituting imports prevailed, the official banking system used to be the main source of resources for the sector it referred to as agriculture. Today, it is in full retreat. The Fondo de Desarrollo Rural Marginal (Informal Rural Development Fund) was dissolved although the Banco Nacional de Fomento (National Development Bank) has survived but with a score of restrictions.

In response to this situation, ECLOF Ecuador has repeatedly sought new ways to increase what it can offer by way of rural financial services. To do this we have had to examine the reasons why credit schemes have not successfully expanded and survived. Reflection surrounding these questions made us realise the need to expand rural financial markets by supporting the development of intermediary financial institutions that are dedicated to serving the poor and located near them.

ECLOF Ecuador therefore took the initiative to form the Grupo Sistema Financiero Rural (Rural Financial System Group), which today is legally registered under the name of Corporación “Red Financiera Rural” (Rural Financial Network Corporation). The Network operates on the basis of alliances, tries to make optimum use of resources, draws on the strengths of its members and aims to constitute a sustainable system for financial services. Although the road is rough, progress is being made.

From January to October 2000, loan applications totalling US$373,000 have been serviced. In the same period, ECLOF Ecuador alone granted 373 loans totalling some US$225,000, with the average loan amount being US$598. This represented a dramatic change from 1999 when the NEC granted only 32 loans for a total of US$50,000, or an average loan amount of around US$1,600.

The most significant fact behind these figures is that the local financial intermediaries are becoming stronger and forming permanent financial service mechanisms. ECLOF Ecuador continues to encourage the operation of the Network with the intention of learning from experiences, the mistakes and successes, and to improve further the mechanisms and financial instruments until the highest quality in lending services is achieved.

We are confident that this will be accomplished and that poor rural families, with their own strategies to create several sources of income, will finally have their own intermediaries who, because of the nature of their work, must have a reputation for professionalism and solidarity.