Debate
Credit
Micro-credit systems have been developed in response to the needs of small-scale farmers and rural entrepreneurs, who otherwise would not have access to finance. Without money it is not possible to purchase the inputs that are required to establish businesses or to improve productivity. Yet those who operate with the least surplus income available to finance purchase of inputs, and therefore are most in need of access to sources of external credit, are those deemed least credit-worthy. Small farmers seldom have title to the land they farm and therefore have no collateral or security for loans, and crops and livestock are not considered adequate. The unemployed seeking to start trading or agro-processing also have nothing. Furthermore, commercial banks do not view small farmers and rural businesses as potentially attractive customers because their credit needs are so small, and it is expensive to service such customers in scattered and remote communities. That many are also illiterate is seen as an added problem by bank staff, who must spend time explaining the meaning of financial documents.
The Grameen Bank in Bangladesh pioneered micro-credit through lending to members of groups, with the group providing the security: peer pressure encouraging prompt repayment. Similar schemes have been initiated elsewhere. Although in many instances repayment has been excellent and many small farms and businesses have benefited, micro-credit is not a panacea and is open to exploitation.
Projects and programmes for rural development are again and again captured by rural elites for
their own advantage. Credit goes to the creditworthy who are those who least need it... There seems
to be a general law that the greater the amount of money that has to be spent in a rural
development programme and the shorter the period in which that money has to be spent, the more
likely it is that the rural elite will benefit disproportionately.
Robert Chambers, quoted from "Challenging the Professions: frontiers for rural
development"
Too little is known about complementary relations between formal and informal credit activities;
it is an area requiring further study. What does seem obvious is that the informal savings and
credit programmes are likely to be both more pervasive and more flexible in meeting local needs
than many of the top-down, donor-funded programmes which also carry the burden of external
accountability and design.
Bill Rau, quoted from "From Feast to Famine"
A major problem with many credit schemes supported by NGOs or other agencies has been the tying
of credit to particular purposes, such as a 'package' of inputs, which enables people to adopt a
particular technological innovation, for example, to buy improved seeds or to buy raw materials in
bulk. Credit has only been given on production of receipts. These schemes may lead to manipulation
of loans by poor people so that they can use the money in accordance with their changing
priorities; this may be characterised by the lending institutions as 'misuse'.
The Oxfam Handbook of Development and Relief, Vol. II
Credit and savings available from small-scale projects are unlikely to be sufficient for all the
production and consumption needs of poor people. Where possible they should also attempt to
increase people's ability to use other formal and informal sources of credit to increase the range
of options available to them.
The Oxfam Handbook of Development and Relief, Vol. II
Much can be learned from informal money lenders in Ghana because of their in-depth knowledge of
the debt-carrying capacity of rural people.....Banks should also change their perception and
mistrust of the informal sector and begin to work constructively with them to integrate and make
the financial system work as a whole.....If we can get it right, I believe that we will be able to
deliver financial services which will greatly enhance the productivity of the farmers and of Ghana.
Dr Sakyi Dawson, Dept. of Agricultural Extension, University of Ghana
A major problem arising out of the great emphasis on microcredit is that groups break up both
when they do no get microcredit and when they misuse it. Many people join the groups only to get
credit. This is not mobilisation of the poor. Groups of the poor are the cornerstones for their
'development'. If groups are formed for credit the whole effort becomes banking for the poor. This
does have benefits but it does not replace other state and NGO initiatives.
Mokbul Morshed Ahmad, Assistant Professor, University of Dhaka
Microfinance institutions, praised as the key to the aspirations of poor women in developing
countries, could be missing their target - despite huge advances, there are doubts over how much
control women exercise over income generated by them from small loans… Even when women retain
full or significant control over their loans, they commonly use them to provide for traditional
women's activities, such as raising livestock and poultry, rather than new uses.
Dipankar der Sarkar, PANOS Features
Helping poorer people access financial services in a sustainable manner can be a vital element
of poverty reduction. In general, the very poorest people benefit most from savings facilities and
loans which can increase their economic security and well- being... However, poverty is more than a
lack of material resources; it is also about the denial of basic rights, control, access and power.
OXFAM press release on microcredit
The provision of financial services in rural areas is problematic because of seasonality, the
risks associated with agricultural production and the wide spatial dispersion of potential
borrowers (which raises servicing costs considerably). These problems are particularly acute in
Africa; there have been few successful experiments with the newer models for financial service
provision in rural Africa although in places like Kenya more traditional savings and credit
cooperatives do reach large numbers of people. It should, though, be borne in mind that some
borrowers in remote and risk prone areas may never have adequate debt capacity. Urging credit on
such people should be avoided.
DFID Key Sheets for Sustainable Livelihoods: Rural Finance.
Since the liberalisation of the (cocoa) sector, license buying agents have swarmed in like a new
variety of pest to exploit poor farmers by providing the products (chemical pesticides) on
credit... It is not easy for the rural farmer, especially when the cocoa season comes and they have
to buy inputs. Farmers in such situation without cash go on their knees looking for pesticides and
so fall prey to Agents who provide the farmer's needs and demand much more in return.
One farmer's view recorded in La Voix du Paysan, Cameroon. October 1998
