The Political Economy of Rural Credit

To provide affordable financial services to the rural population in less developed countries has been a critical component of public development policies. Direct interventions in rural finance through credit programs, interest subsidies and other government policies became widespread until the 1970s when began a strong disenchantment with this approach. As a response, at the beginning of the 1980s appeared a new approach that trying to combat rural poverty by finding ways to cost-effectively lend money to poor rural households. Following this new approach, major reforms of state-owned rural banks have been launched in most less developed countries, but only a few of them have been successful. The purpose of this work is to analyze the political economy of the BANRURAL reform in Mexico carried out during 1989 - 1992, and to find out whether the Mexican state faced political and social pressures that limited its capacity to carry out an effective reform.