Public Policies in Support of AKST | 209

5.6.2 Financing to strengthen capacities of rural people and vulnerable groups
When it comes to financing policies for strengthening the capacities of rural people and vulnerable groups, these should promote employment in agricultural firms that foster sustainable production and the integration of small-scale producers into productive chains that operate in accordance with principles of sustainability and equity, and finally they should consolidate the efforts of indigenous communities by promoting their productive and organizational capacities within the context of their practices and cultures. The goal should be to enhance their productive capacities and thereby reduce poverty, exclusion and vulnerability. In conventional approaches, policies will be proposed for financing segments of the population living in poverty, particularly in the countryside, and this will be done with the help of multilateral agencies like the World Bank and IDB, through such programs as “Oportunidades” in Mexico. There will also be efforts to mobilize funds for these agencies to promote small businesses under market rules, for example through the IDB’s MIF programs. The government will encourage financial innovation, so that rural producers will have the instruments to cover risks in the main agricultural products, farm insurance, etc.

Given the changes in financial systems, modern financial regulation is emerging with less emphasis on traditional schemes of official bank lending. Nevertheless, in this conventional perspective there is also a tendency to promote financing for rural development and agricultural production through policies to diversify financial systems by addressing the particular needs of rural people—specifically, legislative and regulatory reforms to strengthen different types of financial institutions in sectors such as microfinance, cooperatives, etc. From this conventional perspective, the impact of these financing policies will depend on articulation with other policies for promoting rural development, while the time needed for these policies to have an impact on rural development will depend on the involvement of the various intermediaries that will play roles in the new financial fabric.

In contrast, from the viewpoint of public management described above, financial policies will seek to strengthen these population groups with the central objective of establishing and strengthening rural financial markets, going beyond the former approach to government financial intervention that focused on development banks. This issue point out the necessity of developing new, nongovernmental public or mixed entities that mobilizes micro financing to the poor farmers. These institutions work with government
funds or funds from multilateral development institutions (World Bank, IDB). They need to be articulated within the national institutional framework for sustaining macrofinancial balance. This encourages the development of privately operated financing systems that can take the form of efficient local cooperatives. An example might be the Fundaciones Produce in Mexico. These financing approaches seek to promote efficiency in financing, and decentralized private management can sharply reduce transaction costs.

Viewed from the context of competition for hegemony, but operating under market rules, the government could apply

 

apply financing policies to groups seeking to reinforce the presence of the national economy in the global context. Such policies could encourage the consolidation of producers’ networks that would bring economies of scale and efficiency to the output of rural SMEs for the domestic market. The selection of sectors would be a mixed outcome, between favoring the most efficient ones and safeguarding the national economy, although under a “pick the winners” approach. The government promotes policies for financing the sectors, encouraging private financial intermediaries to channel funds to them, by offering government guarantees, etc. As well it will invest in infrastructure that will create positive externalities in these sectors. It promotes the policy of financing AKST through the establishment of internal market support networks and creating decentralized entities associated with those networks.

Approaching the financial issue more systematically, policies should try to encourage rural people and vulnerable groups to develop “popular” or grassroots financing institutions offering a full range of financial services (deposits and payment systems, savings, credit and insurance), operating with market efficiency and sustainability. These institutions should be developed in conjunction with local producers’ networks (see FAO, 2004ab).

The financing of institutionalized forums for taking decisions and implementing the policy agenda for supporting AKST is an aspect that will contribute to their success. If financing for these activities can be made more independent of external cooperation, those agendas can be designed, implemented and evaluated more successfully, and they will contribute more to reducing hunger and poverty in the region.

A viable solution must recognize existing differences by creating comprehensive financial services for the indigent and for the creditworthy poor. The first group is unable to borrow, and they require specific solutions along the lines of the Grameen Bank in Bangladesh. The second group, on the other hand, can access financial services under certain assumptions, primarily the resolution of property rights, education, management capacities.

These policies for promoting institutions offering a full range of financial services will help generate decentralized financing networks of varying kinds, reflecting the varied conditions of different kinds of producers’ networks, which will be supported with regulatory reforms and training policies for the efficient development of financial networks. These policies will promote local savings and financing capacities, and may trigger virtuous circles that will be differentiated according to the specific evolution of the various networks.

The greater efficiency of “popular” financial institutions of this kind is based on lower moral hazard, derived from specific knowledge of the borrowers, and lower transaction costs through local operation. However, it could require the government to provide offsetting policies and support for the weaker networks to help them stand on their own. Depending on these conditions, rural people and vulnerable groups will have better access to financing, and their communities will stand a better chance of survival in a context of progressive development.

In recent years, the potential for fostering grassroots financial institutions has been greatly enhanced by the emer