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 poverty.

At the inception of the PI many difficulties were faced due to defaulters who either postponed repaying loan installments or stopped repaying altogether. As the PI, following the GBA, worked on the group system, project officials implemented an effective way of promoting group responsibility for defaulters within each group and designed a system to make good repayments that have not been made.

It was the setting up of the Special Centre Savings Fund (SSF)to buffer the credit scheme when loanees default.

When a loanee in default of weekly repayments fails to settle arrears at a subsequent meeting, the SSF is activated automatically. Each member of the group in which the defaulter is, pays an extra $2 weekly into the SSF and other centre members to which the group belongs pay $1 weekly until the default is covered.

Where any member paying weekly repayments is unable to make the payment of $2 to the SSF, such member is requested to compulsorily pay the SSF money and his loan instalment goes into arrears which in turn mars the borrower’s repayment record. It is in fact a subtle form of blackmail in order to make each member responsible for the default of a fellow member and to ensure that the credit scheme is sustained by group effort.

The money collected in the SSF is deposited in a Loan Capital Account and used to extend further loans to other borrowers until such time the arrears are settled in full. At that time, the money in the SSF is returned to the Centre and the Centre decides what is to be done with the amount.

Thus the funds in the SSF are used to offset arrears and not to clear them.

The SSF when introduced to the PI, did not solve existing repayment problems. But it effectively stopped such problems from spreading to Centres which did not have arrears. In fact the SSF contained the problems of defaulters very well.

One problem the SSF encountered was that even when one group had more than one defaulter, the payment into the SSF remained the same. Only the duration of Payment increased as it took longer to clear every outstanding loan.

Solving problems in the SSF havetaken various forms. When contributions to the SSF became slow, the project officers withheld further loans until the arrears were cleared.

It is evident that the SSF works better with women. In one project a woman defaulter was given another supplementary loan from the informal centre fund to use to repay her prevous loan. This seemingly risky move was sucessful in that the woman loanee used the second loan in an income generating project, raise a sufficient income and repaid the previous loan.

The SSF is hated by the loanees but works effectively. The group collectively is responsible for the repayments and works hard to ensure that no member falls into default.

Also the SSF is culturally accepted and although unpopular, is an alternative way of establishing the required degree of collective responsibility.