Rural Financial Services (RFS)
Why Is Transformation Needed In This Program Area?
Access to finance is critical to agricultural and rural transformation. Many Ethiopian smallholder farmers require access to credit to purchase recommended inputs, and farming tools to maximize yields and produce marketable surpluses. Saving products and micro-insurance are also critical for farmers to mitigate the risk of natural disasters typically associated with rain-fed agriculture. Cooperatives, traders and agro-processors need financing to be able to aggregate farmers’ marketable surplus and invest in value-addition and processing. Improved financial systems can therefore improve the efficiency of Ethiopia’s agricultural value chains by lowering transaction costs and improving local sources of production.
Although access to finance has improved in Ethiopia over the last five years, it remains low overall. Only 27% of Ethiopians over the age of 15 hold an account with a formal financial institution (i.e. bank, Micro Finance Institution (MFI) or rural savings and credit cooperative). Access to credit is lower still in rural areas. Rural-based MFIs and rural savings and credit cooperatives make up only one-quarter of adults accessing finance, or 6% of the adult population. (REF NEEDED)
What are the objectives of this program area during GTP II?
The Rural Financial Services (RFS) program area aims to increase access to finance for smallholder farmers and other actors in the agricultural value chain. This requires addressing both structural and service-quality issues to create a vibrant and self-sustaining rural financial sector. Strong financial institutions must be developed to offer access to rural sector-adapted credit and other financial services. Furthermore, farmers need incentives to raise aggregate savings. Under this vision, savings and credit cooperatives will mature into professional financial service providers with competitive depth of products and services.
What are the focus areas of this program?
Based on an approval of the proposed Rural Financial Services Strategy, a number of other financial services initiatives will be scaled up in the coming three to five years. These are expected to include the national expansion of the manual and eVoucher system, the development of Cooperative Bank as an apex body for Rural Savings and Credit Cooperatives (RuSACCOs), and the development of weather-index insurance in collaboration with a consortium (a consortium that includes Kifiya Financial Technology, University of Tewnthe, National Meteorology Agency and Royal Netherland Embassy).