Over the past five years in Turkey, theagricultural and rural sector has seen substantial change intransfer policies which now place greater emphasis onimproved equity and investment.These have been summarizedin the earlier World Bank "Review of the Impact of theReform of Agricultural Sector Subsidization (2004), and"Policy and Investment Priorities for Agricultural andRural Development" (2005).Currently, the structuralchanges in the agricultural sector and rural employmentgeneration in response to labor shedding in the agriculturalsector are key challenges to which Turkey is responding inthe design of and agricultural and rural developmentstrategy.However, the impact of government transfers andpublic investment policies in the rural sector will belimited unless the supply of, access to, and demand forrural financial services is significantly increased. Forthese reasons, the Turkey Rural Finance study (RFS) seeks toestablish a policy agenda for the Government of Turkey (GOT)in order to contribute to the effort of renewed growth ofthe rural financial system after a period of prolongeddecline. In order to inform this policy agenda, the studyalso has aimed at portraying the situation of ruralfinancial markets in Turkey and determining the factorsinfluencing the use of financial services by ruralhouseholds and the constraints affecting the availability offinancial services in rural areas.The findings andmeasures recommended by this study are also important forTurkey's on-going rural sector dialogue with theEuropean Commission (EC), as increased access of small ruralenterprises to financial services is desired for improvedabsorption by these enterprises of EC funding under theInstrument for Pre-Accession programs in rural areas. Thefindings of the RFS, based on two surveys of ruralhouseholds and financial intermediaries carried out in 2004and on other financial data compiled in 2005, reveal thatrural financial markets perform relatively poorly, leadingto low incidences in the use of financial services by ruralhouseholds and therefore limiting their ability to takeadvantage of growth opportunities and/or accumulation ofassets. For example while the agricultural sector accountsfor roughly 10-15 percent of GDP, it receives only 5 percentof all bank loans. Based on the survey of rural households,over 70 percent of rural households were found to be creditconstrained, and only 9 percent of surveyed rural householdsreported making investment outlays in 2004.
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