Rural Finance in Latin America and the Caribbean: Challenges and Opportunities

Despite substantial financial deregulation in larger financial systems, rural financial markets in Latin America have been shown to be shallow, segmented, and inefficient. The principal reasons for the observed market failure are due to pervasive risk, information asymmetries, and high transaction costs. In order to improve the situation, yet avoid government failure, concerted effort is needed in a number of areas--- macroeconomic, sectoral, legal, regulatory, institution capacity building, and new product developmentC to effectively resolve the underlying root causes. The role of donors and national governments is primarily to create a conducive environment and the role of the private intermediaries is to assume risks and to provide financial services.'