What macro-level constraints do financial institutions face in supplying rural and agricultural finance?
Lack of diversification of the rural economy and covariant risk: Covariant risk arises when many farms or households in one area are adversely affected by a single phenomenon such as drought, flood, epidemic, unexpected changes in world prices, macroeconomic crisis or civil conflict. This is distinct from individual risks, which randomly affect individual households. Individual risks relate more to individual illness, predation on livestock, old age, job loss, crime, etc. Policy and regulatory constraints: An example of a policy and regulatory constraint that limits the recourse a lender has in the case of non-payment is a prohibition against repossessing real property from the poor. This is primarily a supply-side constraint. Political meddling and crowding out: Politicians often use rural development programs to garner political support. Often accomplished through subsidized credit programs, this political meddling results in market distortions and crowds out potential financial inst
