Enabling poor rural people
to overcome poverty
GOB recognised, soon after independence, that limited access to cheap institutional credit was one of the most important constraints to rural development; hence it created a special rural bank (BKB) and imposed on a nationalised commercial bank, Sonali Bank, the financing of Thana Central Cooperative Association (TCCA) cooperatives. Formal credit institutions developed steadily in the late 1970s, mushrooming in the early 1980s but collapsing after 1984 due largely to the lack of sustainability of past lending.
Credit is the largest component in IFAD-supported projects amounting to USD 224 million5 (or 60% of total base project costs), of which USD 123 million went to Income Generating Activities (IGA) and USD 49 million to minor irrigation works. This represents about 8% of all disbursements made by formal rural credit institutions during the period 1980/81 to 1991/92; IFAD's share in the financing of IGAs is even more substantial. Pure credit projects were disbursed fully and in a timely manner. Individual credit operations numbered more than two million. In view of the above, the CPE made a special effort to capture the lessons of experience in this field.
As far as delivery mechanisms are concerned, IFAD funds were delivered through five models:
- the first model, represented by credit project (SFACP in 1980-85) was channelled speedily by BKB, the sub-loans were for hand tube wells (HTWs), DTWs and fish tank rehabilitation. Recovery was not satisfactory (respectively, 49%, 47% and 73%) but was still better than BKB's overall recovery. The relevance of targeting depended on the nature of the investment financed through credit;
- the second model concerned the rural development projects (SRDP and NRDP 1982-1991); the minor irrigation investment subloans and seasonal credit were delivered to groups of wealthy cooperative members (with collateral), while IGA subloans were delivered to male landless cooperatives (BSS) and female landless cooperatives (MBSS); cooperatives were supervised by BRDB, while the credit was channelled
through Sonali Bank; targeting depended on the nature of the operation but was particularly bad for DTWs which were dominated by large farmers; the worst feature of this model was the very low recovery rate (somewhat better for IGAs), due, in particular, to the lack of a clear division of responsibilities between BRDB and Sonali Bank;
- the third and most successful model has been the Grameen Bank (Loan Nos. 041-BA, 161-BA and 239-BA): targeted by definition (with a large percentage of sub-loans going to poor women), and being both fully disbursed and in a timely manner with a good rate of recovery (95%); and
- two other models, developed for the Marginal and Small Farm Systems Crop Intensification Project (MSFCIP), Oxbow Lakes Small-Scale Fishermen Project (OLSFP) and Smallholder Livestock Development Project (SLDP), were inspired by the GB model but for activities more directly related to agricultural production, and on a district basis: groups, formed and trained by an NGO, received subloans for crops, treadle pumps, fisheries or poultry activities from BKB (as in MSFCIP) or from an NGO (OLSFP); technical assistance was instrumental in guaranteeing the credit and in training bank officers; negotiations between NGOs and bank have been difficult on responsibility sharing, sprpread of interest rate and the guarantee fund; nevertheless, credit delivery has recently started in MSFCIP and after one year the recovery rate is excellent.
IFAD's experience validates the assumption made by its credit projects that cumbersome and lengthy formalities required by the formal institutions in sanctioning loans constitute important hindrances for the rural poor in availing themselves of institutional credit.
The review further highlights a number of difficulties: recovery schedules prescribed by banks do not in many cases conform to the cash flow of these borrowers; the supervision and follow-up techniques of many of these institutions are traditional and do not reflect the attitudinal aspect of poor borrowers; their loan agents are not t expected and/or not equipped to go to these borrowers, while the projects have not always sufficiently provided for the associated costs of delivering credit to the poor.
In spite of some improvements in their lending patterns, formal institutions assisted by IFAD have continued to concentrate more on agricultural and related activities and their loan credit has benefited mainly medium and large farmers.
Against this unfavourable background, the role and performance of IFAD in supporting NGOs (including the GB, the Bangladesh Rural Advancement Committee (BRAC) and several other smaller NGOs) to extend credit to rural poor have been remarkable. It is estimated that NGOs provided nearly BDT 4 billion as rural credit during 1990-91. Nearly 75% of their credit has gone to women borrowers. As regards activities, 56% of NGO loans have gone to non-farm enterprises (such as trading, processing, manufacturing, services), 38% for livestock and fisheries and 6% for agriculture. This pattern is consistent with poor people's stdard employment and income-generating sources.
While the share of NGOs in the total rural credit supplied has significantly increased from less than 5% in 1986/87 to roughly 15% at the beginning of this decade, it remains insufficient to cater for the needs of the target group. Moreover, as the case of the GB would suggest, expansion of NGO credit activities may threaten their very comparative advantage over more bureaucratic lending institutions. Hence the importance of the most recently IFAD-financed projects which aim at developing effective links between the formal banking institutions and NGOs operations for the benefit of various segments of the target group (see para 51 (iv) above).
By learning from others and its own experience, IFAD's move towards gender awareness has been accomplished within less than a decade.
Most important has been the financial assistance given to those of the rural poor who are willing to undertake self-help income-generating activities. The activities promoted range from non-crop food production (i.e., the raising of cattle, goats, and poultry), food processing (rice husking), services to farmers (mechanics), to crafts, petty trade and transport (rickshaws). Women are frequently active participants in these household-based activities.
Poor Bangladeshi women provided with adequate credit were found to be capable of working in cooperative arrangements and to venture over new ground. Attempts to identify new economic opportunities for them should continue to be developed in future.
IFAD's attention to homestead agriculture is correct as far as targeting rural women is concerned. However, the approaches followed so far appearar to be segmented, focusing on poultry and, to a lesser extent, livestock. The inter-dependence of the activities carried out within the homestead land should be emphasised in future.
61. Projects provisions for technical and management training were not adequate and sometimes by-passed the intended beneficiaries, i.e., women.
It is highly desirable to raise project staff's awareness of gender issues and their capability to handle them. Because of increasing poverty, de facto female heads of households\fs18 , created by husbands' migration, are on the increase. More information is needed regarding their needs, constraints and strategies. Special attention should be given to female heads of households whenever it appears that there are difficulties in integrating them into women's development groups.
The effectiveness of credit-targeting approaches cannot be assessed in isolation from the prevailing policy and economic environment. Effective targeting appears to be related to three important factors. Firstly, the corporate culture of the institutions through which credit is disbursed, and particularly the extent to which this culture is oriented towards the poor. Hence the need for both social intermediation and reorientation of the formal institutions towards the target groups (change in institutional behavioural patterns) which is well reflected in the design of second generation projects.
The second factor pertains to the relevance of the purpose of credit to the poor's activities. First generation projects have over-emphasized FCDI and did not provide enough access of small and marginal farmers to minor irrigation for examplple. Recent projects have markedly improved in this regard, but appear still constrained by the availability of profitable investment opportunities. This is in particular why the cost of lending to the po is still high in relation to the volume of lending.
Geographical coverage of credit institutions (branches network) represents a third contributing factor. Its development has been restricted by limitations inherent in the credit system and policy environment and by the above-mentioned cost of lending.
From the analysis of IFAD's experience with rural credit, it is evident that for credit projects to perform well and reach target groups, it would be necessary for them to:
- directly focus on the landless, particularly women; and for that purpose to support specific activities in which target groups are involved;
- promote the formation of homogeneous functional groups for effective participatory planning; to involve NGOs and quasi-government organizations in administering credit to the rural poor;
- introduce a savings component: savings collected regularly help build capital for the poor and also foster a better commitment to the lender; savings should come from income and not out of loans.
- keep the design simple and identify clearly the responsibilities of each participating institution; anticipate problems in the case of multi-component and multi-agency projects and provide appropriate mechanisms for coordination;
- identify the appropriate on-lending agency and resolve issues relating to margin (among different lending tiers), security, the credit guarantee fund, etc., at the design stage rather than during implementation; and
- (vi) emphasise loan supervision arrangements and better loan recovery through the necessary incentives and disincentives for bank personnel which could be measured objectively; and institute an appropriate training arrangement for project personnel for handling the various loans.
The planning and execution of IFAD-financed projects have increasingly addressed the problems of those sectors of the rural population with which IFAD is most concerned. It is obviously difficult to turn an innovative, well targeted project design into a tangible reality: the analysis of the difficulties encountered in implementation provided a basis for drawing lessons which, it is hoped, eill contribute to better project effectiveness.
Overall, IFAD's role has been of a catalytic nature. It is relevant and desirable for the Fund to replicate its most successful approaches in its future programmes. However, for these programmes to remain relevant to the poor, two increasingly important challenges will have to be faced by IFAD and GOB. These are: the increasing proportion of landless rural poor and, the need to generate and disseminate technical packages that are more specific to the conditions of the target groups.