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Local financing in rural areas

[ Summary ]

 

Chapter 1:
Local financing - needs and issues

 


Financing is a special form of partnership that exists in varying degrees between a number of different players. However, it is common to find a gulf between funding supply and demand.

 


1.1 Financing, a form of partnership

 

“To finance”, means “to furnish with finances or money; to find capital for”, “to conduct or engage in financial operations, to manage monetary affairs; to provide oneself with capital” [1]. It also means to provide someone with the means to access the market for goods and services in order to carry out a project. The matter of financing therefore involves a supplier and a beneficiary.

However, even in its most commercial form of a bank loan, financing differs from an ordinary supplier/customer relationship because the commitment between the two parties generally extends beyond the supplier providing the goods or services and the customer simply paying for them.

By its very nature, financing engages the responsibility of the “customer/beneficiary” to his supplier at other levels, whatever form such financing takes:

  • If it involves a donation or subsidy, the financing can never totally be divorced from its underlying objective and the donor’s expectation of a result from the beneficiary: this may include support for a specific project or more general support to participate in a public interest measure (e.g. subsidizing a cultural association);

  • If it involves a loan, the beneficiary is committed to reimbursing this loan and the supplier will certainly guarantee its reimbursement and negotiate the terms and deadlines.

  • If it involves co-partnership in a project, there is a de facto joint responsibility between supplier and beneficiary.

In all cases, the fund provider and beneficiary share an objective. This is why financing is first and foremost a special form of partnership. This partnership may vary in scale, from a bank that is happy to grant consumer credit, to a partnership between a project promoter and one or more savers pooling together their ideas, know-how and financial resources to implement a project.

Linking financing to a partnership is crucial, because this link makes it possible to grasp the full importance of financing and to turn it into a local development tool in its own right.

By considering financing from this angle, it is also possible to turn financing into a real lever for coordination, rather than merely a management tool. So, in some cases, LEADER subsidies for project promoters may be perceived simply as resource allocations whilst, in others, they trigger mechanisms which engage the beneficiaries in local processes of consultation, shared objectives, collective learning, transfers of experience, etc.

By forging a link between financing and partnership, we also pinpoint the correlation that exists between local financing and social cohesion/democracy. Indeed, financing is easiest in areas with strong social cohesion. By contrast, in areas dominated by conflict and distrust of institutions, people coming forward with ideas and projects are able to count solely on their own resources, which limits their ability to bring their ideas and projects to fruition.

As we shall see, setting up financial engineering structures at local level, and alternative financing solutions more generally, relies primarily on new forms of partnership and of joint commitment between a variety of players (local councils, business firms, financial institutions, project promoters, etc.). Financing is therefore a particularly effective lever, making it possible to progress beyond agreements that may remain superficial and to culminate in concrete undertakings concerning the proportion of each partner’s resources that they make available for common objectives.

Financing is therefore not simply a means of advancing projects or of developing ideas. It is also an essential tool for creating new links and new solutions to bridge the gap between an area’s people and its institutions, and hence an instrument of social cohesion and democracy.

 


[1] According to the “Oxford English Dictionary”,
Compact Edition, Oxford University Press, 1971.



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