Exploring segmentation in rural financial markets : an application in El Salvador

Understanding the segmentation in rural financial markets is of major importance for the identification of feasible relationships between clients and financial institutions. In this article we combine different insights into segmentation in rural financial markets into a two-dimensional analysis, with the supply of credit by types of lenders and the demand for credit by types of borrowers as the dimensions. Within the grid formed by these two dimensions the existing credit relationships indicate occurrence and measure of segmentation. We apply this method of analysis to analyse the rural financial market in two provinces in southern El Salvador. The supply side is analysed by examining the stipulations of the credit contracts offered by different types of suppliers, and the demand side by examining the characteristics of different types of farm households in relation to their credit relationships. The a priori classification of lenders and borrowers is tested and found valid; the qualitative and quantitative insight into segmentation obtained from the resulting two-dimensional perspective on the rural financial market may be used by financial institutions to expand their services and reach new clients