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El Salvador - Rural Finance : Performance, Issues, and Options (Inglês)

This report analyzes trends in agricultural credit and savings mobilization, examines the performances of main rural financial intermediaries, provides a diagnosis of rural household participation in credit markets, and reviews the prospects and constraints for the adoption of improved financial mechanisms. Aggregate trends in the past decade suggest that a substantial decline in profitability of Salvadoran rural sector, especially agriculture, may be at the root of the problems identified in rural financial markets. The steady decline in relative agricultural prices may have made the agricultural sector less creditworthy than other sectors while probably increasing its demand for external liquidity. Sectoral shares in domestic credit have declined faster than sectoral contributions to GDP. While corrective measures represent significant progress in strengthening the financial system, several shortcomings remain: (i) despite the entry of new institutions, three large banks continue to dominate the banking system; (ii) further improvements are needed in banking supervision, and the legal and regulatory framework for secured transactions; and (iii) various Government decisions have undermined financial discipline, notable debt forgiveness programs (open or disguised).

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