Financial Sector Assessment:A Handbook institutions providing financial services to the rural finance and microfinance sector are likely to be different from those for formal banking and finance institutions,because the design must consider the operational,market,and client characteristics of the rural finance and microfinance sector.This section focuses on the regulatory framework issues that have an important influence on access to financial services for low-income rural households. The term financial services extends bevond the traditional credit products and savings deposits facilities provided to varying degrees by different types of rural finance andmicro ce institutions.See se ion 7.3 and table 7.1 in tha organizatio and remittance services,and insurance and contractual savings products.It is important to focus on access to payments and savings products by different segments of the popula tion and the supply of those products by different institutions.Payment and savings prod. ucts are often the most important financial services for low-income households.Improved access to savings product can help households achieve higher returns on their savings and smoother cash flows,and can reduce vulnerability to external shocks. The decree and quality of access to manctal services available to low in mall bu quality of the lega framework.This fram ork should be guided by the folowing core principles of o evel playing field am ong partici of financial services beyond creditand vinfciies:(b)tolthe institutional rans ant ion of a rang formation of nontraditional and non-regulated MFIs(such as multipurpose and microcredit NGOs)into specialized,regulated,or licensed rural finance and microfinance intermediar ies;(c)to promote and reward transparency in financial accounting and transaction report- ing:and (d)to foster the exchange and sharing of credit histories of borrowing clients Available data and information show that deeper,more-efficient financial markets can contribute to accelerated agricultural growth and better food security.Scaling-up a wider of fi ces thro ediaries bec a holds me rural hous ed rang smooth enhance labe productivity,which is the mos factor controlled by the poor.Also,agriculture has strong forward and backward mult plier effects for the overall economy.Economic growth in agriculture is a key precondition for overall economic growth and poverty reduction,given that most of the world's poor still live in rural areas (Robinson 2001;Zeller 2003) There are examples of agricultural development banks,MFIs,and credit unions devel. oping strong rural portfolios,while commercial banks do not generally seem to fit this market niche as readily.Some MFIs have tried to transform fron ancial institution with notable reliable route to impro ptions,this a an general,commercial banks h nave not entered the rural and agricultural ces.In markets or a substantial scale in most developing countries,despite incentives designed to encourage downscaling and rural market penetration. In a few countries,agricultural development banks have succeeded in transforming themselves into more-sustainable institutions by offering demand-driven financial ser- 188188 Financial Sector Assessment: A Handbook 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 institutions providing financial services to the rural finance and microfinance sector are likely to be different from those for formal banking and finance institutions, because the design must consider the operational, market, and client characteristics of the rural finance and microfinance sector. This section focuses on the regulatory framework issues that have an important influence on access to financial services for low-income rural households. The term financial services extends beyond the traditional credit products and savings deposits facilities provided to varying degrees by different types of rural finance and micro￾finance institutions. See section 7.3 and table 7.1 in that section for a listing and discus￾sion of various types of MFIs, including those linked to nongovernmental organizations (NGOs) and various non-bank institutions). The term includes payments, money transfer and remittance services, and insurance and contractual savings products. It is important to focus on access to payments and savings products by different segments of the popula￾tion and the supply of those products by different institutions. Payment and savings prod￾ucts are often the most important financial services for low-income households. Improved access to savings product can help households achieve higher returns on their savings and smoother cash flows, and can reduce vulnerability to external shocks. The degree and quality of access to financial services available to low-income rural households and their small businesses is influenced by the quality of the legal and regulatory framework. This framework should be guided by the following core principles of good micro￾finance: (a) to provide a level playing field among participants in the provision of a range of financial services beyond credit and savings facilities; (b) to allow the institutional trans￾formation of nontraditional and non-regulated MFIs (such as multipurpose and microcredit NGOs) into specialized, regulated, or licensed rural finance and microfinance intermediar￾ies; (c) to promote and reward transparency in financial accounting and transaction report￾ing; and (d) to foster the exchange and sharing of credit histories of borrowing clients. Available data and information show that deeper, more-efficient financial markets can contribute to accelerated agricultural growth and better food security. Scaling-up access in rural markets to a wider array of financial services through a varied range of financial intermediaries becomes critical to help low-income rural households smooth consumption and enhance labor productivity, which is the most important production factor controlled by the poor. Also, agriculture has strong forward and backward multi￾plier effects for the overall economy. Economic growth in agriculture is a key precondition for overall economic growth and poverty reduction, given that most of the world’s poor still live in rural areas (Robinson 2001; Zeller 2003) There are examples of agricultural development banks, MFIs, and credit unions devel￾oping strong rural portfolios, while commercial banks do not generally seem to fit this market niche as readily. Some MFIs have tried to transform from nongovernmental status to a regulated, supervised financial institution; however, with notable exceptions, this has not proven to be a reliable route to improved rural outreach of financial services. In general, commercial banks have not entered the rural and agricultural credit markets on a substantial scale in most developing countries, despite incentives designed to encourage downscaling and rural market penetration. In a few countries, agricultural development banks have succeeded in transforming themselves into more-sustainable institutions by offering demand-driven financial ser-