Index Introduction Characteristics of a rural market Socio-political and cultural influence Legal and regulatory framework History of credit policy Product design and diversification Savings Credits Insurance Introduction Over 55% of the world's population lives in rural areas (Morvant-Roux, 2017) where most of families are excluded from the formal financial system. Access to financial services by poor families is therefore a necessity, as it represents an opportunity for this excluded segment of the population to reduce their vulnerability and increase their income. Access to financial services can enable poor families to improve their health, nutrition and education; which is why it has become a key element of several World Bank initiatives aimed at alleviating poverty and ensuring better social and economic well-being of the poor. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Microfinance has seen tremendous growth in recent years and has attracted the attention of politicians and academics who now see it as a means of promoting rural development due to its embeddedness in rural communities. Formal banks initially considered this sector very risky and had no interest in the sector, now they invest in it, both in the form of equity and debt. However, although the sector has seen enormous success, it has often been criticized that most of these institutions are concentrated in urban and semi-urban areas, providing financial services mainly to customers outside the bottom of the poverty pyramid. Providing microfinance services is very expensive due to the specific nature of the client and is more challenging when the target population is located in rural areas. Although the sector has been successful, it has equally witnessed several crises in different regions of the world, with almost similar characteristics leading to defaults in some cases and transformations in others. Therefore, in order to lay the foundation for a solid, financially sustainable and socially responsible microfinance institution, lessons can be drawn from this crisis by taking into account the specificity of this sector. Establishing rural microfinance requires taking into consideration the supply and demand sides of microfinance services respectively. The supply side refers to the interests of the banking institution and the demand side, the needs of the rural population. On the supply side, several factors must be taken into consideration. Characteristics of a rural market A review of the context is necessary, i.e. recognizing the existing infrastructural development and economic activities. In most rural areas economic activities are very limited and sometimes rudimentary. Market characteristics can be composed of the following variables: Target population Outlining the market population of a microfinance institution can be considered the most essential criterion to take into consideration when defining an MFI. Having the target group at hand will not only facilitate product design but also allow an institution to know its market size. Furthermore, rural communities are always characterized by a low population density; therefore, targeting a specific population group will not only have social repercussions; but also economic implications. It has a double effect: firstly, each population group has its own specifics and can be profitable differently in using microloans, and secondly, each group will have patternsof different reimbursement; thus impacting the sustainability of microfinance. This therefore implies that the financial sustainability of an institution does not depend solely on its social opportunity to lend to a specific group but to different components of the population. This ensures the existence of a large and diversified market which also ensures better financial performancesocial performance.Economic activities of the target groupThe rural population is always associated with agricultural and small business activities, whereby the cash flow is periodic, irregular and uncertain . The reality of a local or rural economy is that we may have a market for financial services where demand is low; with families engaged primarily in subsistence farming and limited opportunities for off-farm activities. Serving such a population requires the creation of a low-cost organization that can support the costs of intermediating a small pool of capital that can meet the liquidity needs of small-scale customers. On the other hand, the economy may be highly diversified with high demand for financial services, where a high-cost organization can profitably serve a large pool of capital to small customers with a larger volume of transactions. Having a mastery of the different economic activities present in a rural area allows an institution to have an idea of ​​the cash flow and therefore the debt capacity of different households, which is a key determinant of the demand for financial services. This equally helps the institution to tailor savings, credit products and services that are suitable for the rural population and can easily adapt to seasonal constraints, low profitability in activities such as agriculture and climate risks Socio-political and cultural influence Local environments can have an impact on credit supply and demand, therefore influencing the way financial services are organized in a rural context. The social, political and cultural aspects of the environment play a very important role in the financial and social integration of microfinance; which can be positive as well as negative, so understanding the various behaviors is vital to the long-term sustainability of such an institution. Most of the microfinance crises that have occurred in countries such as India, Nicaragua and Morocco, for example, are all related to the failure to repay loans, instigated to a large extent by political elites, social groups and even local leaders. Elected leader, local political leaders due to their closeness to the local population; their charisma can influence and exert a certain pressure on local subjects; thus allowing an institution to gain legitimacy (Morvant-Roux et al,2012). Such leadership can facilitate or slow the rollout of microcredit by acting as a moral authority to intervene and incite poor payers to repay or can induce claims for non-repayment as has occurred in India and Nicaragua; where local elites and political leaders called on local people not to repay their loans. Examining informal financial practices is also instructive. The most common informal loan sources are shopkeepers and family members, respectively representing the majority of all loan sources within a rural population. Due to some cultural and social characteristics, households sometimes consider such sources reliable because they are free, extremely flexible and play a central role in smoothing household cash flows. Furthermore, local perceptions of debt differ in some contexts, for social or cultural reasons; debt can be considered normal within the community where, as in other rural areas, the reluctance totaking on debt can be seen as a matter of safeguarding honor and dignity (Morvant-Roux et al, 2012). Therefore, by outlining and understanding these specific social elements, we move on to shape how microservices can be sustainably offered in a rural context. Legal and Regulatory Framework The legal and regulatory framework of any company can be considered an important incentive capable of galvanizing any potential investor, because it offers some assurance that financial losses arising from disputes could be minimal and that the rule of law can prevail. The degree and quality of access to financial services available to low-income rural families and their small businesses is influenced by the standards of the legal and regulatory framework. A solid and unambiguous legislative framework is considered a prerequisite for an efficient regulatory system. This allows for a support system for all types of institutions; regulated and unregulated to provide sustainable financial services according to a uniform and shared performance standard. Legal enforcement of contractual obligations and the ability to seize pledged assets are of great importance. Although from a conceptual point of view microfinance does not require collateral to grant credit or require collateral to be equal to the value of the loan and should not be concerned about its ability to legally repossess a pawned asset, it can generally be agreed that good financial transaction law influences a borrower's behavior to some extent (Ledgerwood,1998). Some legal systems allow financial providers to formally charge their debtors for non-payment. It is useful for a microfinance institution to know the different legal means of pressure that can be used in order for borrowers to comply with their contractual obligations. Due to the specific nature of microfinance activities, the regulation applied in the sector differs from one context to another. In some locations, microfinance activities are limited to credit operations only, and microfinance is prohibited from mobilizing savings and managing other financial services. To be competitive and thrive in an environment conducive to financial intermediation, a microfinance institution should be confident that governments and policymakers have put in place financial regulation that ensures market efficiency. History of Credit Policy Loan repayment in microfinance is very important, since the sustainability of such institutions largely depends on the revenue generated from credit operations. Several microfinance studies have suggested that repayment history is the best predictor of future repayment performance. It is based on the concept that past behavior is indicative of the future behavior of a population with similar characteristics. Due to the specific nature of microfinance activities, the sector is always faced with debt relief situations and this history of credit policy and past experiences in debt relief have had an impact on local regulations in some cases where failure refund is considered legitimate. Governments forgiving existing poor people's debts to state banks can have an enormous effect on private sector MFIs, whose borrowers may mistakenly understand that their loans do not have to be repaid either. In general, both donors and providers should determine the consequences of existing or past credit subsidies or debt forgiveness. While such altitude may be linked to poor governance, it isIt is essential that the target market for a microfinance institution has a responsible approach to debt in order to ensure the long-term survival of that institution. Bad credit records mean bad borrowers, and borrowers mean bad loan portfolio. On the demand side, we look at product design and services. Product design is a crucial dimension of financial services when talking about how microfinance can help the poor improve their well-being, as the effectiveness of cash flow management of the poor depends on access and product design financial. Product design and diversification. Microfinance's mission is to provide financial services to poor families who do not have access to formal banking systems. Like another business, a microfinance institution (MFI) must strive to be sustainable to survive; however, in its quest for profitability, an MFI must impact the livelihood of the population. Furthermore, poor families need these financial services to be able to regulate their consumption; invest in projects and major events and hope equally with risk and uncertainty. Therefore, the conceptualization of microfinance products and services must take place with the following elements to take into account: Secure: The financial position of this institution must be secure to gain the trust of the local population and, above all, galvanize the saving habits of the rural population. Easily accessible: The proximity of this institution is very vital as most of the rural areas have very poor infrastructure, which makes mobility a challenge. Furthermore, low documentation requirements must be ensured; the majority of the population in rural areas are individuals with limited academic qualifications or educational standards. Low costs of opening and maintaining savings accounts, so that the rural population can afford these services and benefit from their existence. Flexible: must be able to handle or allow small transactions; activities in rural areas are mostly small-scale, periodic and consistent; therefore it is necessary to adapt to the needs of the population. Actual savings and loan products must be designed based on the needs of the target markets. However, although most MFIs provide savings and credit services, it is crucial to consider an integrated microfinance approach that combines classic products such as savings and credit with non-financial services such as insurance; entrepreneurship and other training courses. Savings Until recently, most MFIs were not interested in mobilizing savings, but the acclaim from professionals and politicians for MFIs to mobilize savings is an attestation that poor and rural families can and do save . A World Bank inventory of MFIs shows that most sustainable MFIs rely heavily on savings mobilization (Ledgerwood, 1998). Savings, which can be mandatory or voluntary, constitute a very reliable and economical source of financing and equally make microfinance institutions independent from donors and external investors. Mandatory saving is useful: to extort the saving habit of customers; act as collateral for loan repayment and illustrates that customers can manage cash flows by making periodic payments. While mandatory savings is useful for demonstrating the value of savings practices to borrowers, most view it as a fee to pay to participate in or gain access to loans.