Bolivia benefited from an overallfavorable economic evolution in the last few years,supported by sound macro-economic indicators. Yet, economicgrowth was unevenly distributed between the sectors, withparticularly extractive industries, construction andfinancial services showing higher real growth rates, whileagriculture and manufacturing fell behind. This is an areaof concern for the government which-as manifested in the newconstitution-aims to foster a more balanced and equitablegrowth. In its reform measures, it places a particular focuson developing the rural areas, in which a large share of theindigenous population lives, and on the productive sector(agriculture, forestry, manufacturing and extractive), whichprovides the livelihood for a substantial number of poorpeople. This paper aims to contribute to the discussion andon-going reform efforts by providing an evaluation of therole the financial system could play for enhancing growth inrural areas and the productive sector without threateningthe sector's stability. It also endeavors to update theBank's knowledge on the financial sector, assess itscurrent role and recent developments, and determine possiblevulnerabilities as well as core bottlenecks for the outreachto underserved segments of the population and economy.However, the government needs to strike a fine balance inits policy measures to foster outreach and credit in orderto not unduly lower the profitability in the financialsector, jeopardize the quality of the loan portfolio and asa result introduce vulnerability in an otherwise soundsystem. In particular, the strong push towards financing ofthe productive sector at comparatively low interest rates,can lead to over-indebtedness of the clients or adeterioration of the repayment culture, if lendinginstitutions expanding their loan portfolios do not maintain(or introduce) prudent lending
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