pose here is to create specific assets that are differentiated from commodities, and in which small-scale and peasant/ indigenous producers have special characteristics and advantages. This will also require appropriate institutional frameworks to promote these undertakings commercially (environmental standards, certification, etc.), and enhance their negotiating power vis-à-vis the “downstream” sectors in the marketing chain. 

5.6 Financial Services for the Rural Economy
The availability of financial services is essential for supporting the AKST system’s efforts to meet the IAASTD goals, and for the rural economy as a whole. Yet for more than a decade, and for various reasons, agricultural financing has been facing a dilemma in developing countries (FAO, 1996). Currently these issues are being examined by the Consultative Group to Assist the Poor (CGAP), an international consortium of 33 public and private development agencies working together to expand access to financial services for the urban and rural poor. For further information, see CGAP, 2003.

On one hand, there are the challenges of financing the investments needed so that the AKST system can enhance production in the rural sector, for which there is a strong incentive in light of the growing worldwide demand for food, spurred by demographic growth, particularly in lowincome and densely populated countries. Here, the countries of LAC could expand their supply significantly. Within the region there are countries with large agricultural surpluses that could help meet this demand, but if their supply is to be sustained they will have to maintain the pace of investment. By contrast, there are other countries in the region with significant shortfalls in their food supply, and this is a point of national vulnerability. All of this suggests the need for financing policies for the AKST system that will recognize these contrasting situations in the region.

Other financial services are also important for the rural economy. A serious problem facing many rural towns, especially the smaller and more remote ones, is the lack of efficient, prompt and cost-competitive payment systems. Information and communication technologies and cellular telephony now offer broad possibilities in this area, but government policies are needed to create the technical conditions to finance the infrastructure that will make those resources usable.

On the other hand there are financial services that can reduce risks, both the general risks that arise from the uncertainties of day-to-day life, and those relating to crop losses through natural phenomena. The first requires an efficient and suitable savings system, while the second calls for the development of farm insurance systems with competitive costs and conditions appropriate to the activity.

Finally, if producers are to switch to new farming methods that will improve their lives, they will need to change the current organization of their production to one with higher capacities. This will require, among other things, financing in adequate amounts and at appropriate rates and terms. Overall, the rural sector in the region is in need of financial services to support its activities and in particular its investments in pursuit of development and sus

sustainability at a time when the number of donor-supported farm credit programs has fallen. There are few indications that governments or commercial lenders are taking steps to compensate for the decline in funding for agricultural production, processing and marketing. As well, there are the new conditions governing international financial relations and the new macro-financial configurations prevailing in the region as a result of liberalization and deregulation during the 1990s.

 On the first point, the current international financial environment is characterized by extraordinarily high liquidity and low interest rates, and at the same time there is still systemic weakness and instability in the international financial system that could threaten the progress achieved in national economies. Together with this, multilateral agencies are pushing market solutions to meet financing needs, and are restricting the scope of subsidies and transfers of public funds.

 On the second point, most countries in the region currently enjoy a climate of relative price and exchange rate stability, fiscal balance or low government deficits, but at the same time financial services in many countries are provided predominantly by private entities that charge high real interest rates on loans to low-income sectors and offer them only limited services of other kinds, and at high cost. The solution to the AKST financing problems in the rural sector is complex, not only because of the international
and domestic context described above, but also because of the particular conditions of the sector in the various countries of Latin America. As noted in CGAP 2003, some of the key problems are:

• The thin demand for financial services;
• High information and transaction costs;
  
• Inadequate institutional capacity of rural lenders;
  
• The fact that much of farming activity is seasonal in nature, and that many crops take a long time to maturity;
  
• Risks relating specifically to cultivation of the land;
  
• Absence or insufficiency of usable collateral because of lack of clarity in ownership rights and institutional factors.

All of this must be viewed in the context of great heterogeneity in the conditions of the rural poor, and the productive possibilities of agriculture in different countries, and of regions within the same country, as well as their relations with the various national and international markets. Finally, within this heterogeneity there are great differences in local capacities for AKST in the different countries of the region.

In contrast to this complex and problematic situation, recent decades have seen a notable expansion in the possibilities for financial institutions geared to meeting the financial needs of poor and low-income groups, as much in terms of institutional organization as in sources of funding, the operating conditions of financial institutions, and the accessibility that the new ITCs offer rural people. There has been great progress in the capacity to offer low-cost financial products and risk cover for highly diverse situations.

If such institutions and systems are to be launched or