Rural finance is about managing risk. Lenders can effectively pool and aggregate risk held by a large number of borrowers if the risk they face is largely independent. A major advantage of microfinance entities and other forms of collective action has been the ability to pool risk. However, correlated risk can not be pooled. Small rural finance entities (RFEs) are simply not capable of pooling and managing correlated risk on their own. 

Author: Jerry R. Skees 

Country: USA