Sustainability of a Government Targeted Credit Program: Evidence from Bangladesh

This paper develops a methodology to estimate the costs and benefits of group based credit programmes and analyses the financial and economic efficiency of the Rural Development (RD-12) project in Bangladesh.The RD-12 project:

• Provides credit, skills development training, organizational help, and other human development inputs to the rural poor;
• Is based on the co-operative structure, in groups of fifty to sixty people, separating men and women;
• Forms solidarity groups of four to five members to monitor group performance;
• Has saving mobilization as an integral part of its activities;
• Sets repayment of principal and interest at weekly, fifty, equal installments;
• Borrowers are required to contribute 5 percent of the principal loan amount to a group fund.

It covers one-third of the villages in Bangladesh:

• Has women membership at 70 percent;
• Women members account for 73 percent of the savings and deposits mobilised;
• Had highest growth in lending between 1989-1994 occurring in sectors demand driven by women;
• Provides conscientious leadership and skill-specific training which has increased training expenditures.

In terms of program sustainability:

• The loan recovery rate for RD-12 loans is comparable to Grameen Bank rates;
• Is a highly subsidised program, but given that this program provides resources to generate income and employment and other human development inputs to improve the living standard of the rural poor, this amount of economic subsidy may be worth spending;
• The project can eliminate the subsidies by expanding its membership and lending.

The constraints for expansion are:

• The societies dependency on the government administrative structure;
• Lack of the appropriate skill mix to diversify non-farm activities.