Delivering productive credit to the rural poor has long been plagued with problems. In the last 15 years, however, group credit with joint liability - modelled on the Grameen bank in Bangladesh - has emerged as an alternative form of institutional credit delivery, well suited for poor borrowers. This is so because group credit promises:
(1) to lower transaction costs through economies of scale;
(2) to use local information on credit worthiness to screen members at low cost; and
(3) to use peer monitoring and pressure to insure prudent use of loan fund and timely repayment.
A Costa Rican NGO called Fundacion Integral Campensina (FINCA) has initiated revolving loan programmes of this type in isolated rural communities.
The FNCA programme has a two stage design. It organises and trains joint liability groups who receive a series of graduated loans ranging from approximately $50 to $400 per person in the first stage and up to $2,000 per person in the second stage. Loan terms are usually a year in the first stage and up to five years in the second stage. Interest rates are subsidised.
During the first stage, FINCA promoters present the village banking model to all interested parties in a particular community. Those interested in forming a credit group democratically elect a leadership committee, contact FINCA, and receive training.
FINCA promoters continue to visit the group periodically to further instruct the group leadership in basic book-keeping and group management techniques.
Groups meet monthly and members are required to save 20% of their total loan amount on a regular basis to insure against loan defaults or to finance group activities.
The typical FINCA beneficiary is a male, head of household, with six years of primary education, who engages primarily in grain production (corn and beans) on less than 20 hectares which he owns, but to which he has no clear title. He owns very little farm equipment, primarily hand hoes, cutlasses, and chemical back sprayers.
The successful aspects of the programme include the transfer of organisational skills, the promotion of community action and the development of collective marketing strategies as an outgrowth of credit and savings mobilisation. Strong credit groups have used accumulated savings to finance playground construction, to restore cemeteries and to improve roads.
But FINCA has a major lingering weakness, namely its adverse environmental impact. In Costa Rica, cattle production is the second most profitable activity available to the typical FINCA participant. As traditional cattle production is increasingly financed through micro-enterprise programmes, tracts of afforested land are cleared for pasture, resulting in soil degradation and deforestation. The mountainous topography, extensive use of unimproved pastures and highly erodible soils exacerbate the situation, making long-term sustainability of these enterprise activities as traditionally practised virtually impossible.
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