THEME: Savings promotion helps women deal with urgent consumption needs
and family emergencies.

A 1996 study of the impact of three IFAD projects in South Asia provides useful lessons on rural finance. Traditionally, subsistence households in these areas have coped with food insecurity through crop diversification and informal saving and borrowing. Animals have constituted a form of saving, as has grain. Informal borrowing has normally been more for consumption rather than production purposes, and has taken a number of forms.

• borrowing grains within the village (mainly among members of like castes or among relatives);
• borrowing grain from private traders or from landlords, often at very high rates;
• borrowing cash for the purchase of food or for other household expenses (health, education, house repair) from relatives, friends or neighbours (but usually in very small quantities);
• borrowing cash from moneylenders (at high interest rates) for similar needs;
• buying on credit from saukars, to whom the borrower's harvest is later sold.

For most women, the credit provided to them under the IFAD projects was their first experience with formal credit, and with borrowing for production rather than consumption. Projects also provided some promotion of savings, either in cash or kind (grain banks). Where established, the Women's Thrift and Credit Groups in India were highly successful and played a major role in increasing women's control over resources and participation in decision-making at the household level. Women even went to banks and talked with the bank officials who had come to the village. The complementing of long-term gestation loans (for horticulture) with short-term loans (for sheep and goat-raising) was an innovative feature of the Tamil Nadu Project.

The study concluded that, in all, both access to credit and group savings among women members played a vital role in helping to buffer some of the shocks of the sudden shift to market-oriented production under projects in Tamil Nadu, India, and Nepal.

But the study also found a factor missing from the IFAD projects: consumption credit, such as that provided by informal moneylenders. Although internal loans, made from group savings, had no restrictions, such credit was comparatively small, limited by the amount saved by the group. In the case of the project in Andhra Pradesh, lack of consumer credit was probably the major reason why people could not escape from the clutches of the unscrupulous saukars. Cooperative associations had been set up by the project to ensure fair prices and provide, as the saukars did, consumer goods. But what the cooperative associations could not do was to allow people to buy on credit, and then pay at the harvest time. Therefore, people continued to buy from the saukars, and were compelled to sell at low prices at harvest time, thus continuing the cycle of poverty.

Development projects are often unaware of or consciously dismiss informal credit as being unimportant. But, in practice, rural financial services are often in direct competition with informal credit providers, and therefore need to borrow some of the latters' attractive features: rapid access, flexibility and the provision of loans for consumption as well as production. With good reason, development projects have usually avoided providing consumption credit - a legacy of production-oriented development finance thinking. But not providing such credit can leave the poor vulnerable to informal lenders. While consumption credit was not available under the projects reviewed, a later IFAD project in Maharashtra, India, does provide it, even through banks. Savings promotion can also partly meet consumption needs, as it did in the case of group "internal loans". Promotion of savings therefore becomes important, particularly among women, since savings are most likely to benefit the household and can become a useful source of funds during emergencies.

Adapted from:

Nandini Azad. 1996. Engendered Mobilization - the Key to Livelihood Security: IFAD's Experience in South Asia. Rome: IFAD.

Siddiqur Rahman Osmani. 1998. Food Security, Poverty and Women: Lessons from Rural Asia, Part I. Rome: IFAD/TAD, February.

Asia and Pacific Division/IFAD, PCR. 2001. Andhra Pradesh Tribal Development Project. Rome, IFAD.