How To Develop Rural Finance In Developing Counrties

Rural finance has received a great attention from economists, governments, policy makers and donors, for its role in alleviating poverty in Developing Countries. Despite the effort to develop rural finance, it remains a challenge and for developing countries, it is generally weak. While a lot of studies have been conducted and major of advances have been made on developing rural finance, less has been done concerning the role of social ethics of the people specifically, in developing rural finance. The aim of this study was to find out if people's social ethics can help to develop rural finance, focusing on Zanzibar. The study investigated three main questions:i) Is the household participation in financial activities affected by social ethics? ii) Can social values help to improve financial activities? and iii) What is the current role of religious institutions in developing rural finance and what can be done to enhance rural finance.The study used the descriptive research methodology by using survey approach with a questionnaire, used to test the hypotheses. Cluster and random sampling methods, were used to select 131 participants to respond to the questionnaire, and then the questionnaire was analyzed by using e-view and SPSS (statistical package for social science) programs.The results of the study revealed that social ethics, specifically religious values have direct effects on household participation in financial activities. Further, social ethics if well integrated in the financial system, can help to develop it, but if ignored, can hold back the whole financial activities. Furthermore, Religious authorities and institutions can play a significant role in facilitating rural finance.Further, the study showed that the Islamic banking system is a perfect substitute of the both, informal financial system which is less efficient and the formal one which has not just failed to serve the poor who are the majority of the households in Zanzibar, but also not well accepted due to the social ethics of the Zanzibaris.