Banking on the rural poor

The Projek Ikhtiar(PI)is a rural credit scheme which follows an adapted version of the Grameen Bank Approach(GBA). PI provides credit on reasonable terms to very poor small farm households with the aim of reducing povberty.

The PI followed the Grameen Bank design of operation in formulating loans with certain changes to suit the Malaysian situation.On the aim of giving credit ot the poor for them to engage in what they were skilled in and were used to, the PI extended loans for agricultural purposes.

Although the Grameen Bank gives very few loans for the cultivation of crops, PI approved many single purpose cultivation loans as the target groups asked for them and were familair and skilled in agriculture.

As there would be a difficulty in making weekly repayments before harvesting, loanees promised to work in fields of other farmers, with which income they would make the weekly repayments. Once the crop was harvested, the bulk of the remaining loan would be paid in equal weekly installments as the system runs.

The first loanees, as in the GBA , were entitled to second bigger loans. With the bigger loans, the weekly instalments became higher. However problems cropped up in no time as work in fields of other farmers ran out and crops failed to produce expected harvests. Many loanees defaulted in their repayments and as there was no threat of legal action, some loans were never paid back and loanees stopped attending meetings held by the bank.

It was experienced that the borrowersdid not always know best; especially regarding the amounts to be borrowed, and needed guidance in their credit transactions.

PI arrived on an effective solution. Loanees who insisted on borrowing for cultivation instead of income generating activities, received dual purpose loans. The loan conditions were that a part of the loan be used for cultivating purposes and the other part to be invested in a medium term income generating activity with the income of which the weekly repayments should be made. This criteria was insisted upon for loans over $ 500 ringgit.

An alternative scheme was designed where the loanee, taking credit for agricultural activity, would pay a token repayment to maintain the principle of weekly repayments until the harvest, after which the balance owing would be settled in full. This scheme however was not launched on advise that collecting large amounts after harvesting would be very difficult.