Savings and Credit in Rural Development

THE IMPORTANCE OF CREDIT IN RURAL DEVELOPMENT

Savings and credit are two sides of a coin which play an important part in rural development. One cannot exist without the other. Savings provide capital for items like machinery and irrigation systems. Credit helps borrowers for short term production inputs or provides daily expenses in the interim period. Crdit facilities access and control over markets etc.

In Wilpotha a small village in the Puttalam region on the Sri Lankan west coast a Womens groups set up a mini bank called women’s Savings Initiative which offers 12% on deposits and charges 18% on loans. A major breakthrough was promoting the concept of Group Loans not accepted in State Banks.

The mini bank provided credit for two major economic activities namely cashew processing and handicrafts turned out of Pol Matoul, a coconut waste material, both initiatives of IRED’s development agency People’s Rural Development Association (PRDA). The recovery rate was 100% as against 80% in individual loans.

The group loan scheme enhanced closer interaction and mutual obligation among its members as well as collective participation in economic activities and sharing of benefits. The group lending scheme was a strategy reaching the poor who were unable to meet conditions required by formal lending agencies.

The Mni Bank also extends credit facilities for animal busbandary, brick making and agriculture to members trying to improve their families economically. Further skills and business ventures are encouraged by sub groups for men and youths.

today the Capital fund of the Mini Bank consists of shares and savings of the members and funds donor agencies amounting to nearly US$12,000. It channels donor funding to its members and is now transferred into a Revolving Fund assisting development programmes.