The history of rural - mostlyagricultural - finance in Colombia, is characterized by asystem which channels benefits to limited numbers ofbeneficiaries, at the expense of the public sector, and theeconomy as a whole. A legacy of powerful agriculturallobbies (coffee, livestock) has translated intosector-biased legislation, that established the"Sistema Nacional de Credito Agropecuario"(National Agricultural Credit System), and relatedinstitutions. Nonetheless, current agricultural policiessend mixed signals in terms of the degree of protection vs.subjection to market forces producers can expect, thuspreventing the development of a profitable, and competitiveagriculture. Against this background, the advent of a newadministration faced a rather dangerous policy juncture, asthe pressure to tackle poverty in rural areas, coincideswith severe fiscal, and public debt constraints. TheGovernment however, has now the opportunity to buildsubstantive reforms in the financial sector, enacted underprevious regimes. The study found that access to financialservices in rural Colombia is limited and segmented, whosecauses are traced to inadequate services, lack of innovationin financial intermediation in rural areas, and, to anoutdated model of public intervention in agriculturalcredit. Recommendations center on a re-direction of publicinterventions, aimed at substantially expandinginstitutional outreach, and financial services and qualityin rural areas. Recommended reforms would exploit theexisting private (including cooperative) and public retailinstitutional base, and, the skills and capabilities in thetwo main institutions, one playing as second-tierinstitution a strong development agency role, and the otheras a lead innovator in rural microfinance. Also suggested isa substantial revision of the usury law, and reforms of thelegal and judicial framework, for the use of moveableproperty as collateral.
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