Assessment of rural credit in the Brazilian Amazon: role of the Northern Constitutional Financing Fund in rural development

Purpose Resources provided by The Northern Brazilian Constitutional Financing Fund (FNO) aim to promote regional development to economically and socially backward regions through subsidized financial resources for economic activities, including agriculture. This study aims to determine whether rural credit and the FNO were able to produce structural changes in the distribution of financial resources and thus contribute to economic growth in Northern Brazilian municipalities. Design/methodology/approach This paper used inequality indexes and the Local Indicator of Spatial Association to verify the credit concentration and the spatial presence of clusters. To analyze the role of credit in promoting agricultural growth, this paper estimated an ordinary least squares regression with panel data for 450 municipalities during 1995–2017. Findings The results highlighted that rural credit, including the FNO, is essential to incentivizing agricultural production and increasing rural income. However, the financial resources are mostly captured by a small share of municipalities, spatially clustered in the expanding agricultural frontier of Pará, Tocantins and Rondônia states. Low-Low clusters are mainly present in the Western Amazonian region and are subject to structural and institutional constraints that reduce their demand for credit. The FNO resources proved insufficient to reduce financial inequality between Brazil’s northern municipalities. Originality/value This study demonstrates that the FNO’s policies are failing to reduce the concentration of financial resources in Amazonian agriculture. The results emphasize the importance of credit for development and, consequently, reducing inequality, which leads to a higher demand for financial resources by farmers. Implications include supporting economic agents with infrastructure and technical assistance, as well as improving farmers’ access to the banking system.