Making a difference in Asia and the Pacific



Issue 19: January/February 2008

Rural finance

In this issue


IFAD and rural finance in Asia

Reviewing the best practices in rural finance in AsiaOne of IFAD’s strategic objectives in reducing poverty is to help provide improved financial services in rural areas. Globally, two-thirds of IFAD-funded projects have a rural/microfinance component. Some 30 per cent of resources are dedicated to rural finance. Between 1996 and 2005, IFAD allocated US$340 million to support rural finance and microfinance in the Asia and the Pacific Region. This amount constituted 30 per cent of total lending to the region.

In the rural finance programmes and projects it funds, IFAD has often targeted remote rural areas and disadvantaged groups of poor rural people. It has supported a variety of innovative approaches to delivering financial services in rural areas. For example, it has promoted self-help groups (SHGs) and SHG-bank linkages in India. In fact, IFAD played a key role in mainstreaming the SHG strategy in national programmes not only as an instrument for credit provision but also for social and political change. This strategy has now spread to other countries such as Nepal and Indonesia. In the Philippines and Cambodia, IFAD has promoted the Grameen Bank approach. In China, it has supported rural credit cooperatives.

Analytical studies conducted (see links below) have shown that economic and social benefits through women’s empowerment are substantial. The studies reported that when women are socially empowered, domestic violence against them decreased and they played a major role in rooting out social problems such as alcoholism and female infanticide.

The study also highlighted that the poorest people failed to participate in IFAD-funded rural credit programmes due to their lack of awareness about them, their inability to overcome social exclusion, and inadequate flexibility in the design of schemes.

To promote financial empowerment of rural poor people through policy dialogue, innovative pilot programmes and knowledge sharing, IFAD is working with the Asia-Pacific Rural and Agricultural Credit Association (APRACA) in several countries of the region.

Ganesh Thapa, Regional Economist, IFAD

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Reviewing the best practices in rural finance in Asia

Reviewing the best practices in rural finance in AsiaThe Asia-Pacific Rural and Agricultural Credit Association (APRACA) has been an important partner for IFAD for many years. Both organizations share their vision of pursuing and creating conducive rural finance policy environments and regulatory frameworks in Asian countries. In 2007, IFAD approved a US$1.2 million grant to APRACA to finance the programme titled Accelerating the Financial Empowerment of Poor Rural Communities in Asia and the Pacific through Rural Finance Innovations (FinPower Programme). One of the recent studies conducted under the programme examines rural financial innovations and best practices in Asia.

The ‘Review of Rural Finance Innovations in Asia-Pacific Region with Focus on APRACA Member Institutions and Projects: New Approaches, Best Practices and Lessons’ analysed four of the most important microfinance methodologies used in Asia that have achieved success in both outreach and financial viability during the past decade. These methodologies include:

Grameen Bank model
The Grameen model is the most popular and widely replicated model in Asia. It consistently achieves outreach (both depth and magnitude) and high repayment rates (98 per cent). The early replicators (as early as 1989) were India, Malaysia and the Philippines; others include China and Indonesia. The model focuses on:

  • poor people’s access to credit, with women as a priority
  • small loans repaid in weekly instalments
  • eligibility for higher loan amount for succeeding loans
  • loans for income-generating activities
  • financing activities chosen by borrowers themselves
  • forming solidarity groups

Over time, the replicators modified the model to suit local contexts. For example, in the Philippines replicators modified the terms of loans (e.g. the maturity of loans of three to six months instead of 12 months), the number of members per group, roles of small groups, and frequency of meetings. Nevertheless, its essential features remain.

ASA model
ASA is another model from Bangladesh. In the 1990s, ASA gained recognition for achieving a repayment rate of 99 per cent. In Asia, the model has been replicated in India, Indonesia and the Philippines. While loan products are the same as with the Grameen model, the difference is that it does not impose the group co-liability. The model also requires that the borrowers form groups of 25 to 30 members. The model uses a unique standardized branch approach which enables cost savings and efficiency in service delivery – the branch has no need for additional personnel for cashier and accountant, enabling it to fully cover costs even after 9 to12 months.

SHG Linkage Banking model
The SHG Linkage Banking model is an outcome of the Regional Linkage Banking Programme – an initiative supported by APRACA and Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) in the early 1990s. Using this model, NABARD of India achieved the largest scale and outreach in the countries supported by this programme, with a cumulative number of 16 million loan clients from 1992 to 2004. The approach is linking SHGs with banking institutions for loan and deposit services. Most SHGs are formed by NGOs or government agencies with financial support from NABARD. One difference between this model and the Grameen and ASA models is that before obtaining their first loan, the members of SHGs are required to mobilize savings first. They usually start at a 1:1 or 2:1 loan- to-savings ratio, increasing to 4:1 in succeeding loan cycles. Bank loans are ‘wholesaled’ to SHGs, which in turn lend to individual members following terms and policies set by the SHGs themselves.

Unit Desas model
Reviewing the best practices in rural finance in AsiaUnit Desas are village banks of the Bank Rakyat Indonesia (BRI). These village banks enabled BRI to attain phenomenal outreach and turnaround in profitability. The strength of Unit Desas is savings mobilization. Currently, Unit Desas have about 30 million savers and a deposit-to-loan ratio of 225 per cent. Each is managed by 4 to 11 personnel at a ratio of one loan staff per 400 borrowers and one cashier per 150 daily transactions. The bank provides loans for any income-generating activity: from 3 to 24 months for working capital and 36 months for investment capital. The reported repayment rate is 99 per cent. Charging market interest rates enabled the unit banks to be profitable and operationally self-sustainable units.

Mixed model and mixed method
As a result of cross-dissemination of various methodologies and experimentation by microfinance institutions, there is an emerging trend of adopting a ‘mixed model’ and a ‘mixed method’. The former combines features of two or more models under one approach. The latter uses different methodologies for different client segments. For example, in the Philippines, microfinance institutions use an approach called ‘GraSa’ which identifies clients and forms groups using the Grameen model while removing the co-liability requirement, which is a feature of the ASA model.

Overall, the common thread among the best practices is the shift from mere credit to providing broader and sustainable financial services. While there are variations, there is an increasing emphasis on attaining a sustainable fund base, cost recovery of invested funds and efficient and responsive financial services to rural clients.

To read the full paper, please contact Mr Benedicto Bayaua at

Ramon C. Yedra, APRACA Consultant, the Philippines

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IFAD’s experience in microfinance in Bangladesh

In Bangladesh, IFAD is supporting microfinance services through five ongoing projects. Project data show that these services are now reaching 475,000 poor families in four projects (see table below). Out of these families, about 84 per cent are current borrowers and almost all are savers. Group formation in the most recent project – Market Infrastructure Development Project in Charland Region – is only just starting.

Microfinance borrowers in IFAD-supported projects


Year commenced

No. of members of microfinance groups

No. of borrowers

Smallholder Agricultural Improvement Project*




Sunamganj Community-Based Resource Management Project




Microfinance and Technical Support Project*




Microfinance for Marginal and Small Farmers Project*







* data for June 2007, ~ data for September 2006

Out of the five projects, four deliver microfinance via NGOs-MFIs based on the model of Grameen Bank. The Sunamganj Community-Based Resource Management Project uses the SHG approach.

The Microfinance and Technical Support Project and Microfinance for Marginal and Small Farmers Project are being implemented through the Palli Karma-Sahayak Foundation (PKSF), the apex funding agency for NGOs-MFIs. IFAD and PKSF have forged a close partnership and both projects have made significant innovations in microfinance.

The Microfinance and Technical Support Project has combined the provision of microfinance with technical support for livestock development. It has demonstrated the synergy between microfinance and technical services delivered through the same NGO at the field level. 

IFAD’s experience in microfinance in BangladeshThe Microfinance for Marginal and Small Farmers Project uses a new institutional approach to deliver financial services to poor farmers. The project has expanded the outreach of microfinance from the functionally landless (owning less than 0.2 ha of land – the traditional target group in Bangladesh) to marginal and small farmers (a segment that was previously not effectively served by either microfinance institutions or by the banking sector).

To date, the project has achieved the following impact:

  • 173 branch offices have been established
  • 97,481 poor farmers have become members, forming 5,318 marginal and small farmers groups
  • 78,812 farmers have borrowed money
  • Farmers have saved Taka 1.184.40 million (US$1.69 million), with individual farmers saving on average Taka 20 per week
  • Almost 75,000 members have received technical training (for example, managing crop variety) and social training (for example, literacy, family planning)

To reduce vulnerability of already vulnerable people to emergencies, the project established a disaster reserve fund. The project’s partner organizations use the fund to provide loans when natural disasters or family emergencies occur. If viable, the project may support the provision of crop and livestock insurance.

The project has also introduced seasonal loans alongside the ‘Grameen classic’ loan model of weekly repayments spread over one year. Seasonal loans are more appropriate for the cash flow of many agricultural enterprises. Such loans now account for over one-quarter of the project’s lending. Seasonal loans have now been incorporated into the mainstream operations of PKSF.

To ensure better price of crops, farmers are allowed to store their crops in a special storage facility for crops at the time of harvest and sell them in the post-harvest period when prices of crops are higher.


Case study: Growing aubergine and litchi trees enables a marginal farmer to become a successful businessman

Md. Babul Hossain (50) is a marginal farmer from Rajapukur village in Dinajpur district in northwest Bangladesh. He has only 3 decimals of land as homestead and 150 decimals of land for crop cultivation (100 decimals = 0.4 hectares).

Hossain’s crop land is relatively high and suitable for vegetable cultivation but requires capital to pay for the cost of inputs. In the past, he mostly used the land for paddy and sometimes had to take expensive loans from moneylenders to pay for fertilizers.

Eighteen months ago, Hossain joined a group organized by Padakhep Manabik Unnayan Kendra (PMUK), one of the PKSF’s partner NGOs that is implementing the Microfinance for Marginal and Small Farmers Project. He received two loans from PMUK.

He invested his first loan of BDT 10,000 (US$146) in cultivating brinjal (aubergine), which he sold for BDT 40,000 (US$583). His second loan of BDT 3,000 (US$44) financed the production of more brinjal. He also planted 24 litchi trees and used the space between them for growing vegetables such as gourd and spinach. By selling the first fruits of his litchi trees at the market, Hossain earned BDT 7,000 (US$102). He is now able to meet family’s daily expenses and uses the additional income for further investments.

Hossain has also started to trade fruit trees – purchasing saplings from villagers and selling them in the market at wholesale prices. When he is busy with this business, his wife manages the vegetable field. To date, he has saved BDT 1,800 (US$26) with the group.

Since he joined the project, Hossain has been able to meet some major expenses that his family faced. He used BDT 3,000 (US$44) to send his son to Dhaka to find a job. Another BDT 3,000 funded building a wall to protect the homestead from soil erosion. The wall will be incorporated into a new house that the family plans to build.

Source and photo: Rownok Jahan, IFAD Consultant


Edward Mallorie, Microfinance Specialist
Golam Touhid, Project Coordinator, Microfinance for Marginal and Small Farmers Project, PKSF, Bangladesh

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Supporting rural finance reform in China 

Supporting rural finance reform in China Since 1995 IFAD has participated in rural finance reform in China. In particular, it has been supporting the network of rural credit cooperatives (RCCs). This feature of rural financial service has become an important part of IFAD-supported projects and programmes in China. It focuses on the adoption of an institutional approach to ensure that disadvantaged people have access to credit.

IFAD’s assistance to RCCs is twofold. By providing credit to RCCs, IFAD helps to improve the funding structure of RCC operational branches and their capacity to lend to poor people. At the same time, IFAD builds the institutional capacity of RCCs by financing technical training of the staff, developing loan products and procedures, conducting market surveys, exposing the staff to best practices in microfinance techniques for reaching poor people, and financing equipment such as motorcycles for credit officers and computers for branch offices.

Before potential borrowers apply for loans from RCCs, the IFAD-supported projects train them to gain skills in literacy, income-generating activities and credit management. Trainings take place through federations of women and local service providers. IFAD-supported projects also provide technical and financial support to these federations and service providers to help them improve the creditworthiness of economically active poor people so that they become more bankable in the eyes of the RCCs. In return, RCCs provide feedback to these agencies on their additional training needs for potential borrowers, which are then taken into account in the next round of training.

The credit provided by IFAD is matched by the funds of participating RCCs, mostly on a 50/50 basis or higher. The funds seek to reach economically active poor people, especially women. When lending to poor people, RCCs apply market interest rates and no collateral for the loans is required.

To further secure access of poor men and women to RCC credit, in 2005 IFAD initiated the Rural Finance Sector Programme. This US$21.3 million programme is being implemented by provincial RCC unions in Chongqing and Shaanxi provinces. The programme is strengthening institutional, managerial and operational capacities of RCCs, with special attention given to developing products and services tailored to poor men and women. In addition, at the end of 2007, IFAD approved a grant for the training centre of the Rural Cooperative Bank of Tianjin to build the capacity of RCCs in microfinance.


A poor household gets credit from an RCC


Wang Benhai, 30 years old, lives with his wife, daughter, son and father-in-law in Taohua Village of Yunyang County, Chongqing, China. Mr Wang and his wife used to be migrant workers in the urban centres of the province. Their income was too low to meet their basic needs, especially when the father-in-law was diagnosed with cancer. Food security could only be sustained ten months during the year.

In late 2005, the couple returned to the village, where they planned to raise chickens. But they lacked money to start up. Mr Wang approached the local RCC for credit support. The RCC credit officer reviewed Mr Wang’s proposal and concluded that there was a promising market potential for such an enterprise. Nevertheless, the family had lived below the poverty line for a long time and lacked sufficient assets or income to meet the borrowing criteria of the RCC.

At that time, IFAD had started to implement the Rural Finance Sector Programme. The Yunyang County RCC union fell under this programme. Based on the programme lending requirement to lend to economically active poor people, the local RCC reassessed Mr Wang’s loan application. It considered a number of factors such as credit record and repayment willingness, income-generating potential and repayment cash flow. Mr Wang finally obtained a loan.

Mr Wang used his first loan of CNY 5,000 (US$700) to purchase several dozen chicks and build a rudimentary shelter. The business went well and Mr Wang was able to make timely repayments. In 2007, he received a second loan of CNY 20,000 (US$2,800) to build a solid henhouse and expand his poultry to 400 chickens. He earns income by selling the chickens and eggs through regular retail channels.

As a result of the successful poultry farm, Mr Wang’s annual family income increased from CNY 8,000 to CNY 18,000 (US$1,112-2,500). The family met its food sufficiency needs for the whole year. The increased income also enabled the family to upgrade its house and purchase a TV.

Currently, the RCC is considering increasing Mr Wang’s credit ranking to a higher loan ceiling. Once he has repaid his second loan on time, he will have graduated from programme borrower to an RCC regular borrower. Once this happens, RCC will use its own credit funds to lend to Mr Wang in order to continue supporting his thriving business.





重庆云阳县桃花村居民王本海今年30岁, 家庭共有5人:妻子、儿子、女儿、岳父。由于夫妻二人长期在外务工收入较低,其岳父又患有癌症,生活水平长期处于较低水平,家庭经济长期入不敷出, 粮食安全仅够10个多月。

2005年下半年夫妻二人回到家中,准备养鸡,但苦于没有资金。他们与当地信用社讨论了他们的创业项目,并希望得到信用社的贷款支持。信用社的信贷员认为养殖业适合这样的家庭发展,市场前景较好, 但该农户家庭贫困,缺乏足够的家庭资产或收入,因此达不到信用社正常贷款户的要求。




信用社正在考虑待该借款人按期还清第二笔贷款后,提高其授信度, 使其有可能得到更大的贷款额度,并由目前的项目贷款户毕业到信用社正常贷款户。信用社将使用本身的贷款资金,继续支持王本海一家的创收活动。










Peter Situ, IFAD resource person for field support in China

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Diversifying microcredit services for poor rural people in China

Diversifying microcredit services for poor rural people in ChinaIn China, rural credit cooperatives provide much-needed financial services to poor rural households. However, cooperative investments need to go beyond simple agricultural loans tied to the production cycle, to new market segments that respond to the diverse needs of poor rural people, particularly women. The IFAD-supported Rural Finance Sector Programme is working with the Chongqing Rural Credit Cooperative Union (RCCU) to diversify its microcredit services to poor people.

As a part of IFAD’s programme support, the Chongqing RCCU has adopted innovative steps to diversify its loan products to include:

  • loans without collateral for poor households that have income-generating potential
  • loans that support off-farm and non-agricultural activities
  • loans for those in the remotest villages

Despite the increasing focus of financial institutions on providing credit to urban areas, Chongqing RCCU is committed to work in rural areas. By the end of 2006, Chongqing RCCU’s overall microcredit portfolio had increased from 25 to 30 per cent. Some specific results include:

  • Access to credit by rural households has increased from 25 to 36 per cent.
  • Lending to poor farmers has increased from 7 to 16 per cent
  • Women borrows have increased from 3 to 9 per cent; women savers from 5 to 14 per cent
  • Quick loan disbursements (within one day) have increased from 50 to 89 per cent
  • A grassroots network of farmer credit agents has been developed and trained to identify economically active households and act as credit brokers between RCCs and rural clients

The Chongqing RCCU has also recently introduced a model of village bulk lending as a response to the need to provide an equitable share of access to credit to economically active poor people, particularly women, living in remote rural areas.

LI Zhaofeng, Deputy Director of Business Development Division, Chongqing Rural Credit Cooperative Union, China

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Sowing the seeds of sustainability: kitchen gardens in India

Sowing the seeds of sustainability: kitchen gardens in IndiaIn India, women's self-help groups (SHGs) significantly contribute to improving the living conditions of poor households and the surrounding environment. In the IFAD-supported Tejaswini Rural Women’s Empowerment Programme, one important SHG programme activity is kitchen gardens, where women cultivate fruits, flowers and vegetables around their homes for consumption and sale.

The Tejaswini Rural Women’s Empowerment Programme is an eight-year IFAD-supported initiative in India focusing on women’s development. The programme is supporting and strengthening women’s SHGs and their apex organizations in two states of India – Maharashtra and Madhya Pradesh. It provides women with access to financial services, fostering linkages with banks and supporting microfinance institutions. The objective is to enable poor women to have a wider range of choices and opportunities in the economic, social and political spheres.

In Maharasthra, one of the programme activities is to help women develop ‘kitchen gardens’ with the view to improving their living conditions, food security and surrounding environment, as well as helping them to earning additional income. In the Hingoli district alone, 514 SHGs (4,234 women) in 155 villages are cultivating kitchen gardens. Most of the SHGs in the project area are beginning their own gardens, with continuous programme support.

The programme helped SHG members to form environment committees to generate awareness about the importance of kitchen gardens. With the help of the Department of Agriculture, women were trained to select seeds that will meet dietary and health needs. Using SHG savings, women have purchased seeds from the Department of Agriculture.

As a result of this initiative, families have fresh fruits and vegetables available regularly, improving their diet and health. By selling their produce from kitchen gardens, women generate additional income for their household and for SHG savings.

Kitchen gardens are also used for managing waste and reducing pollution. Diverting water to gardens helps keep waste water away from homes, where it can create unhealthy conditions. Furthermore, by spreading greenery in the village environment, kitchen gardens reduce pollution, making villages cleaner and prettier.

Villagers are excited about the environmental awareness and new developments in their villages. As a result, the programme has been supporting this activity all over the programme area in the Maharashtra state.

Kusum Balsaraf, General Manager, Mahila Arthik Vikas Mahamandal (MAVIM), Tejaswini Rural Women’s Empowerment Programme, India

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Matching affinities to empower poor farmers in Indonesia

Matching affinities to empower poor farmers in IndonesiaHelping poor farmers mobilize into self-help groups (SHGs) is key to giving them the confidence and power to lift themselves out of poverty. TheIFAD-supported Income-Generating Project for Marginal Farmers and Landless - Phase III (P4K) in Indonesia has established 58,118 SHGs across 10,720 villages. It has also helped create 205 microfinance institutions and 35 cooperatives to empower SHG members.

The Income-Generating Project for Marginal Farmers and Landless - Phase III (P4K) is an initiative financed by IFAD, the Asian Development Bank and the Bank Rakyat Indonesia. The project closed in 2006. Experience from the project shows that when poor farmers and fishers join SHGs and have access to credit, their self-confidence boosts and their participation in social and economic activities increases. As a result, poor farmers are able to develop their microenterprises, repay their credit and save.

Strength in numbers
Strong institutions increase poor people’s capabilities to work together, improve their bargaining positions and increase their production scale. As of December 2005, the project helped establish 58,118 SHGs, 1,946 SHG associations, 205 microfinance institutions and
35 cooperatives. In 2005, the Indonesian Agency for National Statistics conducted a study of the project which revealed that:

  • Poverty incidence decreased in ten provinces from 22.5 per cent in 2002 to 15.7 per cent in 2005
  • Increased participation in social and economic activities has enabled farmers to develop micro-enterprises and repay their debts
  • 50 per cent of SHG members have accumulated savings, reducing their vulnerability to emergencies

Empowerment through gaining self-confidence
The project showed that self-confidence is the main entry point to help farmers escape the poverty cycle. To build individual self-confidence, the group approach has proved to be an affective instrument. Groups such as SHGs unite individual farmers and fishers, providing them with confidence to manage their credit. Farmers learn from each other, and help and support each other during difficult periods.

J. B. Haryanto, Head of Monitoring and Evaluation Division, Agency for Agricultural Human Resources Development, Ministry of Agriculture, Indonesia

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A ‘big brother’ approach to improving livelihoods in the Philippines

A ‘big brother’ approach to improving livelihoods in the PhilippinesIn the Philippines, community institutions serve as ‘big brothers’ to self-help groups (SHGs). Registered with the government, they accelerate financial assistance and implement viable poverty alleviation sub-projects. The IFAD-supported Northern Mindanao Community Initiatives and Resource Management Project is working with 223 community institutions that have 11,680 members.

The IFAD-supported Northern Mindanao Community Initiatives and Resource Management Project aims to alleviate poverty and reduce vulnerability of low and upland farmers, indigenous peoples and fishers, living in seven provinces of Caraga and Northern Mindanao regions of the Philippines. The project works with community institutions that are recognized by the government and eligible for financial assistance. Community institutions channel funds to SHGs, which perceive them as ‘big brothers’.

The role of community institutions includes:

  • accelerating the flow of financial assistance to SHGs (it takes time before newly formed SHGs become eligible for financial assistance)
  • mobilizing volunteers from community organizations to facilitate project activities
  • making funds available to SHGs from the project, once SHGs are ready

Producing abaca in the province of Surigao del Sur
MAFABUFA is a community organization in the municipality of Marihatag. It is working with three SHGs that want to strip abaca fiber to generate income. Abaca is a species of banana plant grown almost exclusively in the Philippines. Its fiber is used to produce rope, shoes, baskets, pillow cases and many other products.

Funds were provided to one of them to:

  • purchase an abaca-stripping machine, located near the farms
  • train a full-time operator to teach all members to operate the machine
  • build a ‘farm-to-market’ road

The big brother approach has had impressive results:

  • Machine-stripped abaca is worth 30 per cent more than hand-stripped abaca
  • Marihatag has become the top abaca-producing municipality in the province
  • Fiber traders have easy access to producers

 The government recognizes that the strategy of abaca producers is in line with its “One Town One Product” initiative and is encouraging local governments to focus on the production of commodities made of abaca and related services. The local government also recognizes the potential impact of abaca on its economy. As a result, it intends to diversify abaca production to produce value-added products and use waste for mushroom and paper production.

Antonio B. Menor, Project Director, Northern Mindanao Community Initiatives and Resource Management Project, the Philippines
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Strengthening rural microfinance through public-private partnerships in Pakistan

Strengthening rural microfinance through public-private partnerships in PakistanIn Pakistan, sustainable microfinance institutions do not reach rural areas with a range of financial services and products. The six-year IFAD-supported Microfinance Innovation and Outreach Programme was initiated in 2006 and seeks to address this by working with the Pakistan Poverty Alleviation Fund (PPAF) to create a flexible funding facility. The Fund is an innovative model of public-private partnership, and the programme is working with it to develop new partner organizations and help existing partners create new financial products and approaches for the rural market.

The following are examples of some important results the programme has achieved to date.

Using technology to maximize outreach
The programme is carrying out pilot testing with Swipe/Smart Card technology that allows borrowers to make transactions with mobile Point of Sale devices. It also plans to support savings, emergency loans and utility bill functions for the card-based technology

Supporting small business
The programme is scaling up the microcredit operations to support small businesses. For this purpose, it disburses large loans (US$450-1,666) to groups of five to ten people. To ensure timely repayments of loans, groups are formed based on residential or business ties.

Setting up village banking
The programme is providing credit through PPAF to different village organizations, which select borrowers and offers financial services, including savings. Disbursement and recovery remain the responsibility of the village organizations.

Expanding and developing the partner network
The PPAF is strengthening governance, the management structure and the strategic planning of participating microfinance institutions and non-governmental organizations. It is also developing human resources of partner organizations, including hands-on training for recent graduates in microfinance.

Tariq Khan Baluch, General Manager, Credit & Enterprise Development Unit, Pakistan Poverty Alleviation Fund, Pakistan

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Rural financial system in Thailand: the Bank for Agriculture and Agricultural Cooperatives

Rural financial system in Thailand: the Bank for Agriculture and Agricultural CooperativesTo enhance agricultural production and meet the needs of Thailand’s farmers through the provision of financial services, in 1966 the Government of Thailand established the Bank for Agriculture and Agricultural Cooperatives (BAAC). The bank serves 95 per cent of Thai farmers. What is behind this success? “Establishing a close relationship between the Bank’s officers and farmers, providing a good service attitude to farmers as clients, and selecting and using appropriate technology are some of the key factors contributing to this success,” explained Thiraphong Tangthirasunan, President of BAAC, in his statement during IFAD’s Performance Review Workshop in Bangkok in November 2007.


Joint Liability Groups (JLGs)


Joint Liability Group (JLG) is a group of a minimum of five farmers who mutually guarantee small loans up to THB 150,000 (US$5,082). Lending through JLGs benefits both borrowers and BAAC. Borrowers receive credit without collateral while the Bank reduces its administrative costs.

Through this mechanism, BAAC minimizes the transaction costs, enhances the efficiency of screening, and is better able to monitor and enforce repayment. The mechanism has been a crucial tool for BAAC to penetrate its services in rural areas.

Borrowers are initially provided with relatively small and short-term loans. Once they demonstrate a reliable repayment record, they become eligible for a larger loan and other loan instruments.

The status of loans to JLG members is monitored in periodic meetings or by informal monitoring procedures established by JLGs. BAAC's credit officers regularly visit each JLG. The performance of each group member affects the entire group’s future access to loans.


The availability of appropriately designed financial services is an essential part of the enabling environment for rural economic growth and poverty reduction. BAAC plays an important role in Thailand’s rural development. During its 42-year existence, the Bank’s performance has been extraordinary – reaching 95 per cent of farmer families in Thailand.

A major factor behind BAAC's success in its client outreach was the massive expansion of the retail network over the past decade. At the end of 2006, BAAC had 75 provincial offices, which supervised 908 branches throughout Thailand. To date, the Bank also has 945 field units scattered around the local areas of districts, serving as places of contact for its rural clients.

The number of savings accounts (around 12 million) provides significant proof that rural clients in Thailand have high demand for the financial services of BAAC. The pro-active mobilization of rural savings by the Bank led to an almost revolutionary change in its financial resource base. BAAC has become financially self-reliant and has been able to significantly reduce its dependence on loans from domestic and foreign sources.

Factors behind BAAC’s success

Mobilization of local resources
BAAC developed and provided demand-oriented deposit schemes for its rural clients – farmers. Farmers needed credit and savings services to keep their financial assets somewhere reliable and easily accessible. BAAC’s strong branch network, supported by trained staff and the trust fostered between the Bank’s field staff and clients, is the foundation for the expansion of savings services.

BAAC has introduced Joint Liability Groups (JLGs) to reduce the transaction costs and enhance the efficiency of screening, monitoring and enforcing repayment.


Second World Congress on Agricultural and Rural Finance


Top decision makers from rural finance institutions in 120 countries in Asia, Africa, Europe and Latin America met in Bangkok from 31 October to 3 November 2007 to share experiences on the use of rural credit as a strategic way to fight poverty.

Over 1000 rural finance professionals and experts from the public and private sectors participated in the 2nd World Congress on Agricultural and Rural Finance, jointly hosted by the Bank of Agriculture and Agricultural Cooperatives of Thailand and the Asia-Pacific Rural and Agricultural Credit Association.

Co-sponsored by IFAD, the congress was organized in collaboration with four regional rural credit associations – the African Rural and Agricultural Credit Association, Asociación Latinoamericana de Instituciones Financieras para el Desarrollo, the Confédération Internationale du Crédit Agricole and the Near East-North Africa Regional Agricultural Credit Association.

The congress examined the theme, "The contribution of agricultural and rural economies to sustainable and equitable development", focusing on food security, empowering rural poor people through access to financial services and appropriate technologies, climate change and environmental issues, and public-private sector partnership in the provision of rural services.

For more information about the congress, please visit: World Congress on Agricultural and Rural Finance


BAAC has a relatively low rate of overdue debts to overall credit (less than 5 per cent). This low rate has been achieved despite the Bank’s exclusive focus on agricultural activities that face risks and vulnerability related to increasing frequency of natural disasters and changing markets. BAAC’s mechanisms for repayment include: the pressure by other JLG members for timely repayment, an annual repayment schedule matched with the production cycle, and progressive loan amounts based on repayment performance. A solid relationship between clients and Bank staff based on the mutual trust has also contributed greatly to this achievement.

Financial sustainability
BAAC has been reducing risks by mobilizing savings, and delivering and recovering cost-effective credit. Although BAAC is still receiving financial privileges from the government, its financial sustainability has been steadily improved. The Bank’s deposit-to-loan ratio increased dramatically, from 21 per cent in 1980 to 66 per cent in 1993, to 93 per cent in 2004.

Demand-oriented approach
BAAC has a strong client-oriented mindset and provides financial services based on demand. The large number of repeat borrowers, who have been the Bank’s clients for many years, attests to its client orientation.

Development of appropriate loan mechanisms
BAAC developed its loan mechanisms at the early stage of its operations. The mechanisms include:

  • non-collateral lending through JLGs
  • peer monitoring through JLGs
  • flexible repayment schedule (e.g. annual repayment and calculation of interest rates based on the date of repayment)
  • simple and quick procedure for loan disbursement
  • progressive lending based on repayment performance

Strong commitment by the field staff
BAAC’s field staff have played a crucial role in the Bank’s development. Regular meetings and training by BAAC field officers have been a key factor in keeping JLGs active. Close relationships between clients, and particularly between the leaders of JLGs and the Bank’s field staff (strengthened by frequent visits), are a precious social capital for BAAC in fostering a high repayment rate and savings mobilization.

In 1997, BAAC’s management decided to decentralize its banking operations from the provincial to the district level by introducing the ‘transfer price’ mechanism. The transfer price is an internal interest rate applied to funds transferred between the branches and the head office.

Monitoring and feedback system for appropriate policy making
BAAC has developed an internal monitoring and feedback system to help it create policies based on the operational situation, trend of rural finance, demand of clients, and other relevant issues.

Unlike many other rural financial institutions in developing countries, it appears that BAAC has pursued cost-effectiveness and productivity since the early stage of its development. Currently, the operational costs of the branch office are closely monitored by the Branch Management Information System.

BAAC has gradually expanded its loan target and operations to include agriculture-related activities and non-farm activities by amendments to the BAAC Act in 1992, 1999 and 2005. Seeing the changes around the world and a shift in paradigm from directed or semi-directed credit towards more commercial rural credit and microfinance, BAAC is continuing its effort to change its image from an agricultural financial institution to a rural development bank.

Thiraphong Tangthirasunan, President of BAAC and Chairman of the Asia-Pacific Rural and Agricultural Credit Association, Thailand

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Innovations in microfinance in rural areas

Innovations in microfinance in rural areasThanks to the microfinance revolution, millions of poor people now have access to some form of formal financial services. However, recent studies indicate that rural areas and agriculture tend to be unserved. Rural areas represent a particularly difficult challenge even for efficient microfinance institutions because of the high operating costs in reaching dispersed populations and making small loans to farmers with risky enterprises. Fortunately, many innovations are being tested to expand the financial frontier.

Product and service innovations
New products and services are being tested to better serve rural areas. For example, group lenders are beginning to offer individual loans for short-term crops. Value chain approaches are being used, with standing crops taken as collateral. Nonstandard assets are being taken as collateral, and short-term farm and non-farm loans are being given to farmers who produce more than one crop. Efforts are being made to bring services closer to rural households.  Small partial service offices, such as in post offices and community-based organizations, are being opened. 

Mobile banking units are being used to reach rural areas in countries such as Kenya and Viet Nam. Self-help groups (SFGs) in India are accumulating savings and managing savings accounts in banks. Lockboxes are being given to rural bank clients in the Philippines to collect savings for periodic deposit. Savings collectors in Bangladesh and Ghana are making regular visits to pick up small deposits from savers. Experiments in weather-indexed crop and livestock insurance are underway in Malawi, Mexico, Mongolia and India. Life and health insurance products are being tested to cover high-risk borrowers, especially people with HIV/AIDS.

Technological innovations
Experiments are being conducted with improved technologies to reduce the transaction costs of supplying financial services. Electronic banking is expanding, using information technology to deliver financial services through automated teller machines, debit and credit cards, Point of Sale devices and cell phones.
SafeSave in Bangladesh and several ACCION International affiliates in Latin America use Palm Pilots for loan assessments and recording loan payments. In the Philippines, Smart Communications uses cell phones for making financial transactions. 
A Remote Transaction System is being tested in Uganda that permits cash deposits and withdrawals by MICROFINANCE INSTITUTION clients through a network of loan officers, rural branches and/or agents. It electronically captures transaction data of clients through a Point of Sale device with a card reader and a cell phone managed by a microfinance institution agent.

The National Bank for Agriculture and Development in India is backing a special credit card for farmers. Lines of credit have been extended to 25 million farmers for use with agricultural suppliers. Computerized credit-scoring models are being tested to evaluate the risks of lending to low-income, self-employed borrowers.

Innovations in delivery mechanisms
Linkages, partnerships and alliances are being developed in which two or more institutions cooperate to provide financial services. It is expected that their natural complementarities will reduce costs and risks in ways that each would be unable to accomplish by itself. For example, BASIX in India offers livestock insurance to borrowers in partnership with a private insurance company. The ICICI Bank in India links with microfinance institutions that serve individuals and SHGs to reach larger numbers of poor clients. AVIVA, an international insurance company, is providing insurance services in rural areas in India by linking up with microfinance institutions that have a comparative advantage in servicing rural clients.

In Bali Indonesia, small commercial banks called BPDs lend to non-bank village-level financial institutions (LPDs) at a commercial interest rate. The LPDs in turn re-lend the funds to their local clients, applying their own credit policies. In Mali, the Banque Nationale de Développment Agricole offers financial services to networks of local microfinance institutions. 

The People’s Credit and Finance Corporation in the Philippines lends long-term funds to microfinance institutions so they can expand credit into new areas without having to immediately engage in savings mobilization. In Bolivia, strategic alliances are being created among financial institutions in which one Bolivian institution operates teller windows within the rural branches of another institution. In this way, services can be provided to remote areas.

A threat to innovation
Microfinance has performed best where the economic and political environment allows flexible interest rates. Unfortunately, many countries have interest rate ceilings that restrict innovation. Several countries ranging from Bolivia to Uganda are threatening to cap interest rates and tighten usury laws. This loss of flexibility would be a step backward in the effort to expand microfinance into rural areas where costs and risks are high.

Richard L. Meyer, Professor Emeritus and Senior Research Specialist, Ohio State University, United States

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Martina Spisiakova
Tel: 3906-54592295

Making a Difference in Asia and the Pacific

Issue 18: December 2007

Issue 17: September-October 2007

Issue 16: June-July 2007
Managing risks and reducing vulnerability to natural hazards

Issue 15:
March/April 2007

Energy for sustainable development

Issue 14: January/February 2007 - Sustainable natural resource management

Issue 13: November/December 2006 - PBAS: looking beyond the resource allocation system

Issue 12: September/October 2006 - Communication for poverty reduction and rural development

Issue 11: July/August 2006 - Working with UN agencies at the country level

Issue 10: May/June 2006 - Indigenous peoples and ethnic minorities

Issue 9: March/April 2006 - Access to land

Issue 8: January/February 2006 - Agricultural Technology Management

Issue 7: November/December 2005 - Pro-poor policies

Issue 6: September/October 2005 - Gender & MDGs

Issue 5: July/August 2005 - Partnership

Issue 4: May/June 2005 - Rural Finance

Issue 3: March/ April 2005 - Donor Harmonization

Issue 2: January/ February 2005

Issue 1: November/ December 2004

Upcoming events and missions:


Governing Council – 13-14 February 2008, Rome, Italy

Launching of the photo book ”IFAD in China (1980-2006)” – 14 February 2008, Rome, Italy


16th APRACA General Assembly Meeting – 24-26 March 2008, Hanoi, Viet Nam

54th APRACA Executive Committee Meeting – 24-26 March 2008, Hanoi, Viet Nam

Second IFAD-APRACA FinPower Regional Rural Finance Policy Forum – 24-26 March 2008, Hanoi, Viet Nam


Start-up mission – Finance for Enterprise Development and Employment Creation (FEDEC) Project, January – February 2008

Follow-up supervision mission – Market Infrastructure Development Project in Charlands Regions, January – February 2008

Supervision mission – Sunamganj Community-Based Resource Management Project, 27 January – 7 February 2008

Wrap-up meeting of the supervision mission – Sunamganj Community-Based Resource Management Project, 8 February 2008

USA delegation from the US Embassy in Rome may visit Dhaka to look at projects funded by Rome-based UN agencies – 1-6 March 2008

Monitoring and evaluation support mission – 18-27 March 2008


Roundtable meeting of Donor Consultative Group – 18 February 2008, Timbu, Bhutan


Preparatory studies – Tonle Sap Poverty Reduction and Smallholder Development Project, February – March 2008

Workshop on the finalization of project implementation manual – Rural Livelihoods Improvement Project in Kratie and Ratanakiri, 23 January – 7 February 2008

Training in upland rice-based systems at the Yunnan Agriculture Academy – Rural Livelihoods Improvement Project in Kratie and Ratanakiri, 26-31 March 2008


Loan signing – Inner Mongolia Autonomous Region Rural Advancement Programme, 12 February 2008

Formulation mission – Dabieshan Area Poverty Reduction Programme, 15 March – 20 April 2008

Mid-term review mission – Environment Conservation and Poverty-Reduction Programme in Ningxia and Shanxi, 20 May – 10 June 2008

Implementation support mission – Xinjiang Uygur Autonomous Region Modular Rural Development Programme, 15-30 June 2008

Implementation support mission – South Gansu Poverty-Reduction Programme, 15-30 June 2008


Appraisal mission – Mitigating Poverty in Western Rajasthan, January-February 2008

Implementation support mission – Chattisgarh Tribal Development Project – 1-7 February 2008

Implementation support mission – Tejaswini Rural Women’s Empowerment Programme (in Maharashtra), 1-7 February 2008

Implementation support mission – Tejaswini Rural Women’s Empowerment Programme (in Madhya Pradesh), 1-7 February 2008

Start-up workshop – Post-Tsunami Sustainable Livelihoods Programme for the Coastal Communities of Tamil Nadu, 16 February 2008

Pre-formulation mission – West Bengal Coastal Area Development Project, January-March 2008

Training in financial management for all projects – 25 March 2008

Global Agroindustry Forum – 3-5 April 2008

Portfolio review – Orissa Tribal Empowerment and Livelihoods Programme, 8-14 April 2008


Review of the Country Strategic Opportunities Programme (COSOP) for Indonesia by the Government – 1-7 February 2008

Loan negotiations – National Programme for Community Empowerment – 13-17 March 2008


Supervision mission – Leasehold Forestry Programme, 23 January – 14 February 2008


Mid-term review mission – AJK Community Development Project, 1-16 March 2008


Inception mission – Comprehensive Highland Agriculture Resource Management Project, January-February 2008


Appraisal mission – Khatton Livelihoods Support Project, 23-31 March 2008

Viet Nam

COSOP validation mission – 1-7 March 2008

Start-up mission – Programme for Developing Business with the Rural Poor, 1-7 March 2008

Pre-implementation support mission (consultations for effective programme start-up) – Programme for Developing Business with the Rural Poor, 1-31 March 2008

Mid-term review mission – Decentralized Programme for Rural Poverty Reduction in Ha Giang and Quang Binh Provinces, 8-31 March 2008

Participatory consultations for COSOP – 1-7 April 2008

Start-up workshop – Programme for Developing Business with the Rural Poor, 1-7 April 2008

Formulation mission – Programme 135 – Production Development Support Project, 8-31 May 2008

Pre-appraisal mission – Programme 135 – Production Development Support Project, 1-30 June 2008

Appraisal mission – Programme 135 – Production Development Support Project, 1-23 July 2008


About IFAD

The International Fund for Agricultural Development (IFAD) is a specialized agency of the United Nations, dedicated to eradicating poverty and hunger in developing countries. Its work in remote rural areas of the world helps countries achieve the Millennium Development Goals. Through low-interest loans and grants, IFAD develops and finances projects that enable rural poor people to overcome poverty themselves.

IFAD tackles poverty not just as a lender, but as an advocate for the small farmers, herders, fisherfolk, landless workers, artisans and indigenous peoples who live in rural areas and represent 75 per cent of the world's 1.2 billion extremely poor people. IFAD works with governments, donors, non-governmental organizations, local communities and many other partners to fight the underlying causes of rural poverty. It acts as a catalyst, bringing together partners, resources, knowledge and policies that create the conditions in which rural poor people can increase agricultural productivity, as well as seek out other options for earning income.

IFAD-supported rural development programmes and projects increase rural poor people's access to financial services, markets, technology, land and other natural resources.

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