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The poor in highly-populated areas with little land and a high degree of agricultural intensification and diversification, are usually the landless or near-landless. Credit given to the poor in these circumstances has inevitably been used for non-farm or non-land-based activities. These interventions have been successful because the credit was used to finance (mainly) non-farm activities and non-subsistence agriculture. Conversely, there are situations where most of the poor have access to poor land that lacks production infrastructure and institutions. Credit given to the poor in these conditions will be applied to their subsistence agricultural production. This is due partly because significant opportunities for non-farm employment are not available in these areas, because the necessary preconditions for their evolution (higher production, incomes and demand) seldom exist.
The Grameen Bank model in Bangladesh, and variants in projects in Sri Lanka (219 SR) and Indonesia (215 ID) were very successful for these reasons: (i) the recipients of the loans in these areas were the landless or near landless, and (ii) the credit was used by them for non-land-based or non-farm activities. The important considerations are that the undirected and flexible nature of this type of credit and its terms and conditions (short-term, with frequent and regular savings/repayments) make it extremely suitable for the non-farm employment/activities of the poor, which are usually of a short-term nature, with frequent and regular income flows.
The only type of institutional credit readily available to the landless poor is the kind that affords group guarantees instead of land collateral. The Bangladesh Country Portfolio Evaluation (CPE) reported that, although 54% of households could be classified as landless, only 15% of these had access to institutional credit. Overall experience shows that repayment rates have been high and the credit sustainable. Such credit has not been known to work for seasonal agricultural loans for the landed poor under conditions of one-season, rainfed, subsistence cultivation: Subsistence food crop farmers cannot make regular savings and loan repayments during the growing period of their crops. They have few, if any, other sources of income and no savings to contribute. Defaults and lack of savings can lead to fewer group meetings and less group cohesiveness - the basis of successful credit systems. Poor crops because of low rainfall, or complete failures add to this scenario.
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The Grameen Bank model does not work well for the poor just because they
are poor. Rather, it works well in respect to a specific group of the
poor, who engage in non-farm activities.
- When such credit is rigorously targeted and given to the landless/near-landless poor, including women, rates of recovery can be very high and the credit becomes sustainable, provided the supporting institutional framework is sustainable.
- Such credit should be undirected, given to the very poor, and used for non-farm activities. It seldom succeeds when used for seasonal rainfed subsistence agriculture.
