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In Bangladesh, government policies have generally been more growth than equity-oriented contributing to the widening gap between the rich and poor. Though incidence of poverty is declining, the absolute number of the poor, including rural, is rising.
Overall scarcity and skewed distribution of land reduces poors access to rural credit. The landless/functionally landless account for nearly half the rural households, but only 15% had access to institutional credit. Concentration of formal lending institutions on agricultural land-related activities have benefited mainly medium and large farmers. The poor have also been forced out due to high social competition for subsidised credit, whereas government resources are insufficient to meet excessive demand.
Cumbersome and lengthy formalities required to sanction loans constitute the main hindrances for the rural poor to access it. This is exacerbated by non recognition of commercial/rural banks that the poor are creditworthy; and their reluctance to lend to the rural poor, in view of the administrative costs of delivering/ recovering numerous small loans.
In this context, effective targeting mechanisms represents the only valid alternative. In IFAD-financed projects, the modalities for delivery of formal rural credit have initially relied on an association between the Bangladesh Rural Development Board (BRDB, a parastatal) and the cooperatives as represented by the Thana Central Cooperative Association (TCCA). In more recent projects, NGOs involvement was actively sought as an interface between banks and beneficiary groups, following the Grameen Bank model. The latter stands as a highly integrated approach combining the features of a bank (dissemination and recoveries), an NGO (targeting and group formation), and government (policy and management).
Household
income is much more indicative than per capita income, as the former indicates
the capacity of different household members to combine a variety of sources
of sustenance. Diversification of income sources represents the major
coping strategy of the poor. Whereas credit focus was on poultry and livestock
to target rural women, a wider range of income-generating activities (IGAs)
are in fact appealing to them. Hence, focusing on homestead agriculture
emphasises the interdependence of the household activities, particularly
benefiting rural women. Experience revealed that poor women provided with
adequate credit are capable of working in groups and venturing to new
grounds.
Effective targeting depends on: a) the corporate culture of credit institution (its behaviour towards target groups and capacity for social intermediation); b) the relevance of the purpose of credit to the poor's activities; and c) the geographical coverage of credit institutions, their proximity and accessibility to the target group. For credit to reach target groups it should moreover:
Focus on the landless, particularly women heads of households;
Raise projects staff awareness of gender issues and their capability to handle them;
Promote the formation of homogeneous groups for effective participatory planning;
Introduce a regular savings component to build capital for the poor and also foster a better commitment to the lender through peer pressure; and
Involve NGOs in administering credit to the rural poor.
References
Bangladesh Country Portfolio Evaluation Report No. 0540-BD, October 1994
