To Pay or Not to Pay? Local Institutional Differences and the Viability of Rural Credit in Nicaragua

This paper compares the relative success and failure of an initiating credit program in rural villages in Nicaragua. It explores some of the local institutional factors at play when a credit enterprise endeavors to create an appropriate social interface with rural client communities.

The paper states that innovative credit enterprises can attain financial sustainability and broadened social outreach if they embed financial operations in local institutions, such as social networks and prevailing rules.

The paper concludes that:

• Nature of the local institutional environment has a profound influence on the performance of rural credit programs;
• Deficiencies in management capacity are detrimental to the relationship between credit programs and local clients;
• Operation of a sustainable credit programs can be severely hampered by the strong influence of patron-client relationships on most of the poor population;
• Lack of transparency and downward accountability contributes negatively to the repayment culture.