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The Inter-American Development Bank (IADB) has approved a US$300mn policy-based loan to Mexico to support the consolidation of the reform of the rural financial system.

The programme is designed to increase the efficiency and efficacy of financial services for rural sectors through the liquidation of the failed Banco Nacional de Cr édito Rural (Banrural) and replacing it with Financiera Rural.

Coordination will be tightened among different government programmes for the rural sector, and steps will be taken to encourage the establishment of bank and non-bank financial intermediaries that will serve rural areas.

The project, reflecting the IADB strategy of strengthening the financial system and increasing services to the poor, is designed to replace an unsustainable financial institution with a viable one that will be able to more successfully promote rural credit, particularly to small producers. The programme is coordinated with parallel financing by the World Bank, which supported the establishment of Financiera Rural.

The IADB loan is for a 15-year term, with a five-year grace period, at a variable annual interest rate.