Sustainability of a Government Targeted Credit Program : Evidence from Bangladesh Book

Alternative institutions, notably cooperative societies, were developed in many countries in order to deliver credit when it was found that financial institutions had failed to reach the target household. Unfortunately, the cooperative societies could not reach the target households either as they were dominated by the elite who got the lion's share of the fund earmarked for the target household, Bangladesh is not an exception. In the recent past, however, Bangladesh's cooperative structure has managed to reach the poor (both men and women) because it has adopted the small-group lending approach of the Grameen Bank in its cooperative structure, and the poor were asked to self-select into the program. This study presents the findings on the performance and sustainability of this project, called the Rural Development (RD-12) project. Unlike its predecessor, the project built savings mobilization, skills development training, and small group monitoring aspects into the cooperative structure. The RD-12 project started in 139 thanas in December 1988 with CIDA funding and by 1994, it mobilized 452,000 members of whom 70 percent were women. In 1994 alone, it disbursed $17.2 million to the poor members of which women received 84 percent. In the same year, it mobilized from members $5.3 million in savings and deposits; women contributing 73 percent of this amount. The project financed mostly rural nonfarm activities. Trading, paddy husking, livestock, fisheries, and poultry account for more than 80 percent of its portfolio. The loan recovery rate of RD-12 has been consistently above 90 percent. The results indicate that it is possible to develop a targeted credit program within the cooperativestructure to reach the poor. However, the project enjoys a high rate of economic subsidy. But it has a potential in reducing its subsidy dependence through loan and membership expansion. Given its potential, the government is considering expanding its scope and mandate of operation through developing a sustainable organization for the poor.