Turkey - Rural finance study (Vol. 1 of 2)

 DRAFT (05/11/2006) Report no. 69968 v1 TURKEY Rural Finance Study (In Two Volumes) Volume I: Main Report May 2006 Environmentally and Socially Sustainable Development Sector Unit Europe and Central Asia Region Document of the World Bank  Currency and Equivalent Units (Exchange Rate Effective as of April 28, 2006) Currency Unit = NEW TURKISH LIRA (NTL) US$1.00 =1.322 NTL (=1,322,000 TL) Fiscal Year January 1 to December 31 ACRONYMS AND ABBREVIATIONS ACC Agricultural Credit Cooperative ARIP Agriculture Reform Implementation Project ASC Agricultural Sales Cooperatives ASCU Agricultural Sales Cooperative Union ATM Automatic Teller Machines BANSEFI National Savings and Financial Services Bank (Mexico) BRI Bank Rakyat Indonesia BRSA Banking Regulation and Supervision Agency CEE Central and Eastern Europe DIE (SIS) State Institute of Statistics DIS Direct Income Support DSI State Hydraulic and Waterworks Organization EU European Union FAO Food and Agriculture Organization FM Financial Module GDP Gross Domestic Product GOT Government of Turkey KOSGEB Small and Medium Industry Development Organization MARA Ministry of Agriculture and Rural Affairs MFI Micro-Finance Institution MIT Ministry of Industry and Trade MOF Ministry of Finance NGO Non-Government Organization NTL New Turkish Lira PPP Purchasing Power Parity QHS Quantitative Household Survey SAGARPA Secretariat of Agriculture, Rural Development and Nutrition (Mexico) SDIF Savings and Deposits Insurance Fund SME Small and Medium Enterprise SOE State-Owned Enterprise SPO State Planning Organization TESKOMB Union of Tradesmen and Artisans Credit and Guarantee Cooperatives TKGM General Directorate of Land Registration and Cadastre TL Turkish Lira TOBB Union of Chambers and Commodity Exchanges of Turkey -i-  TABLE OF CONTENTS VOLUME I: MAIN REPORT Executive Summary ............................................................................................... iv Matrix of Policy and Operational Measures for Improved Rural Finance .... xxi 1. Introduction .........................................................................................................1 2. Financial Sector Development in Turkey ........................................................3 A. Introduction .......................................................................................................3 B. Financial Sector Depth and Breadth..................................................................4 C. Characterization of the Banking System ...........................................................7 D. The Agricultural Credit Cooperatives ................................................................9 E. Micro-Finance Institutions ..............................................................................15 3. Regional Structure of Financial Markets .....................................................16 A. Distribution and Use of Banking Services ......................................................16 B. Responsiveness of Banking Services to Socioeconomic Indicators ...............18 4. Participation in Financial Markets by Rural Households ...........................21 A. Introduction .....................................................................................................21 B. Participation in Credit Markets .......................................................................21 C. Use of Financial Savings and Insurance Services ...........................................23 D. Profile of Rural Users of Financial Services ...................................................23 E. Rural Households’ Borrowing Shares by Credit Product ...............................24 -ii- 5. Credit Constraints and Investment Behavior ............................................27 A. Credit Constraints ...........................................................................................27 B. Investment Behavior .......................................................................................28 References .............................................................................................................31 VOLUME II EXPANDED REPORT Chapter 1 – Financial Sector Development in Turkey Chapter 2 – Regional Structure of Financial Markets Chapter 3 – Participation in Financial Markets by Rural Households Chapter 4 – Rural Credit Market Structure Chapter 5 – Credit Constraints and Investment Behavior -iii-  Executive Summary Introduction 1. Over the past five years in Turkey, the agricultural and rural sector has seen substantial change in transfer policies which now place greater emphasis on improved equity and investment. These have been summarized in the earlier World Bank “Review of the Impact of the Reform of Agricultural Sector Subsidization (2004), and “Policy and Investment Priorities for Agricultural and Rural Development