Rural development and Financial Inclusion

Consider the lowly P.C. Bank- The case for Rural Development and Financial Inclusion

Depending on whom you speak with, the decade comprising the period 1994-2004 was either the greatest period of wealth destruction or creation in Jamaica. During that period, no fewer than three of the major local storied financial institutions comprising banks and insurance companies collapsed. In the case of the National Commercial Bank, one of the English speaking Caribbean’s largest financial institutions, they were bailed out and nationalized because of fears of contagion and systemic risks. This of course, was fancy economic speak to say it was deemed too big to fail, where the fear was that its collapse and demise would wipe out the entire financial resources of the country. Yet in spite of the carnage in the financial industry in the 1990s, there were rays of sunshine particularly as it regards community owned financial intermediaries. These intermediaries included the Building Societies, the Credit Unions and the National People’s Co-operative Bank (PC Bank). While the story of the Building Societies and the Credit Unions and their successes over the course of their history has been well documented, it is the PC Bank that remains obscure and largely overlooked. Yet it is this institution that possibly holds the key to unlocking the potential of the small farmer and rural communities.

The PC Bank begun at the turn of the twentieth century, in the year 1905. This was a mere sixty-seven years after the end of the slavery/apprenticeship system. The shift from an economy based on chattel slavery to freed men had the effect of converting, in the main, former slaves into a property owning peasant class. As a testament to the role of the institution in transforming the lot of peasant farmers, in 1920, just fifteen years after its inception, the bank processed 59,000 loans, the vast majority of which were for purchases of farm land. Further, by the 1950s the Bank was the primary port of call for small scale agricultural interests and rural communities recovering from the passage of hurricanes. During World War II, the institution spearheaded the funding of programs targeting increases to and diversification of domestic food production to assist the island in becoming self-sufficient. Yet in spite of this rich history, the question remains, why has this institution been overlooked as a tool for rural development particularly given the renewed thrust towards Food Independence?

The simple answer to the question is that the institution is too small. With a savings portfolio of just J$830 Million/US$5.4 million, the bank’s financial portfolio is dwarfed by all other financial intermediaries. From this vantage point, one can see that the institution is a victim of its own success. That is, by being the institution of the small farmer, it has not been able to develop a substantial capital base. A larger capital base allows it to procure and leverage Information Technology for more efficient service delivery. Furthermore, it provides a platform to fund the provision of loans large enough such that farmers can make sizeable capital investments in their farms. 

However, the 1990s financial crisis shows that size is not the only issue in prudent financial management. The bank was able to weather the storms of the 1990s because it maintained its core focus on the communities that it serves. To this end its network of 35 branches in mostly distant rural communities, is in contrast to the current trend to close branches and move banking online.  It is precisely these communities, such as Mavis Bank in Rural St. Andrew, Buff Bay in Portland and Albert Town in Trelawny that are the centers of small farm agriculture. It is also these communities, which will benefit from cooperative approaches to agro-investment particularly as it regards cold-chain management technologies.

Furthermore, by being centered on the rural community the institution has developed specialized knowledge in the creation and packaging of financial products geared towards both the agricultural sector and agro-workers. Within Jamaica’s financial architecture, agricultural land has the lowest investment grade value compared to residential and other commercial property. To complicate matters further, agricultural land often times do not have clear property titles. Beyond the land titling issues because the produce themselves are perishable, and susceptible to vagaries of the weather, loans are especially risky. For major commercial and merchant banking institutions these are high hurdles to clear to advance loans to the sector in general but to small farmers in particular. This has allowed, the PC bank to develop a specialization in the creation and underwriting of agriculture sector loans.

Beyond the benefits of the community networks, the governance framework of the PC Bank has demonstrated a degree and pedigree of robustness. The institution celebrated 116 years of existence in June 2021. This means that it has survived the Flu Pandemic of the 1920s, the Roaring Twenties and the Great Depression of the 1930’s, World War II, the Oil Crisis of the 1970’s, the Cold War, the 1990’s Financial Crisis, the Great Recession of the early 2000’s and the current Coronavirus pandemic. During this period the core structure of being a bank owned by its members has not shifted. This structure has allowed its membership base to acquire products such as life and health insurance that are often outside the scope of offerings afforded to rural farmers in similar communities globally. Within the scope of Development Economics, this is classified as last mile access to financial services and speaks to the question of inclusion, financial literacy and wealth creation for rural communities.

In the final analysis, increasing the capitalization of the PC Bank will have a multiplied effect on rural community development. This capitalization can take the form of direct funding or membership subscriptions in the Development Banking model to supplement the small savings base. It is generally recognized that rural development is predicated on providing access to financial products to farmers and farming communities. However, this cannot be accomplished in an environment of downsizing and branch closures by the major financial intermediaries on the island. The current thrust of the Government of Jamaica is to increase domestic food production so as to reduce dependence on imports and save on foreign currency. This is not unlike during the period of World War II, when the PC Banks funded similar programmes. Such, developments allow for wealth creation among communities that are usually outside the normal corridors of power, through self-help and mutual assistance. In this capitalization model the mutual structure of the PC Bank, that has weathered many external challenges, remains intact. However, its ability to transform the economic potential of the small farmer is transformed through its improved capacity.

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