Financing Rural Structural Transformation in the Least Developed Countries

11 February 2016

In its latest policy brief, UNCTAD discusses key policy measures and instruments that the least developed countries and their development partners can mobilize to widen the financing of rural economic activities.

For the least developed countries (LDCs) to reach the Sustainable Development Goals, their rural economies will have to undergo structural transformation, given that most of their population lives in rural areas and agriculture is a main contributor to their economy.

To this end, UNCTAD proposes that LDCs engage in the poverty-oriented structural transformation, or POST, of rural areas. It should encompass the upgrading of agriculture, the diversification of rural economic activities and the strengthening of synergies between both. A major obstacle is the dearth and inadequacy of financing for rural economic activities.

Key points

  • Microfinance in rural areas of LDCs is hampered by high interest rates and short maturities, which can be countered by interest subsidies and in-kind microgrants.

  • Official development assistance and development banks can be used to finance the public investment required to fill infrastructure gaps, so that LDCs can reach the Sustainable Development Goals.

  • Information and communications technology provides opportunities to broaden the reach of financial services to rural areas.

  • Financial literacy and better management of collateral and risks will help finance rural structural transformation in LDCs.