Chapter 1
Rural
Credit is increasingly a significant element in rural development strategies. It
can be used as a tool for poverty alleviation because the main reason cause
poverty of Cambodian rural people are: lack of capital for purchasing tools and
other means for agricultural production such as labor cattle, pump for rice
field irrigation, fertilizer, appropriate technique and technology etc (CCRD,
1997). Experiences of several countries such as Bangladesh, the Philippines and
Indonesia have shown that providing access to credit for the poor can be an
effective tool for poverty alleviation. A Socio-Economic survey done by the
Credit Committee for Rural Development (CCRD) in three provinces found that the
poor people really need the capital to improve their living condition (CCRD,
1997).
In
Cambodia, except moneylenders and relatives, rural credit schemes are the only
sources of funding for families productive activities in rural areas (MRD,
1998). In 1985 Group de Research et d’ Echanges Technologiques (GRET), a
French NGO, pioneered rural credit schemes in Cambodia. By late 1988, the Women
Association of Cambodia and UNICEF develop another credit schemes in the rural
areas. In early 1991, the work of the Association of Cambodian Local Economic
Development agencies (ACLEDA), an dependent Khmer NGO, was established by UNDP/ILO
with financial and technical assistance.
After
UN sponsored election in 1993, there were several multilateral and bilateral
donor agencies supporting the rehabilitation and reconstruction programmes in
Cambodia. In line with the government policy, which emphasizes rural
development, the credit schemes have spread over the country. So far, 225,000
families have received the loan from 65 local and 35 national agencies. To put
credit schemes in to perspective, it should be noted that the number of clients
reach so far is still less than 2.5 percent of the total households in the
country (MRD, 1998). However, the national institution framework for credit
schemes in Cambodia is in the early stages of evaluation, with considerable
uncertainly over the direction it will take. Any agency seriously involved in
promoting credit should take careful note of this changing framework as well as
where possible, contribution to the debates over its development. Currently
there is a good deal of unrealized potential for learning between different
programmes in the country.
In early 1995, the government created the Credit Committee for Rural
Development (CCRD) which is responsible for coordinating rural credit programmes
and policies. The CCRD has been a useful forum for discussing and suggesting
appropriate government policies toward improvement of micro-finance programmes.
The CCRD also has coordinated different credit operators to avoid duplicate or
overlap in the areas of operation and also tried to standardize the interest
rate in sustaining effort of the credit operators to provide the best service to
the poor farmers.
In
1997, The National Bank of Cambodia (NBC) established the Bureau of Supervision
for Decentralized Banking System. The main purpose of this bureau is to oversee
the operations of micro-finance institutions including NGO credit operators.
This bureau has assumed many of the functions of the CCRD.
Recently,
the government has decided to create a Rural Development Bank (RDB) which is
envisaged to be a government owned bank that can accept private shareholders. It
will support and expand rural credit activities, give special attention to
provide credit for agricultural activities, give priority to more remote areas,
especially to poor farmers and women, and extend credit operation to satisfy the
need of farmers, craftsmen, and rural traders (PRGC, 1997).
The full title of the programme is Programme
De Rehabilitation et D' Appui Au Secteu Agricole Du Cambodge (PRASAC).
This programme is funded by European Union (EU) and commenced its credit
activities in December 1995. In the first phase for 30 months (January 1995-June
1997 and continue to February 1998), this programme was intended as a
"crash programme”, with intention to establish 1000 village banks in the
first phase. However, due to the unrealistic planned and lack of experience of
the field staff, the number of the village banks has rescheduled to some
350-village banks. There were actually 705 SCAs established in six provinces
with the total accumulative disbursements 25,678,600,250 riels as of December
1998 (PRASAC – Credit Section, Monthly Summary of Credit Statistics).
By
March 1998, 94 SCAs were formed with 4,072 members in Prey Veng Province. In the
bridging phase (March–December 1998), no more new SCAs was formed during this
period. The objective in this period was to strengthen existing SCAs by training
of members by the credit agents. Disbursement and repayment of revolving fund
have been continued.
Since
March 1998, the three sub-programmes have merged into one, which is under the
responsibility, and the management of the Project Management Unit (PMU) based in
Phnom Penh. The credit specialist in PMU is responsible for the management of
the credit progrramme in the six provinces, Prey Veng, Svay Rieng, Kompong Cham,
Kompong Chnang, Kompong Speu and Takeo. The efforts have been made to adopt the
common approaches, it means to standardize the system of programme of the six
provinces. Currently, the main objective of PRASAC is to find the best way to
contribute building up a sustainable professional Khmer entity to work on it own
based on the experience gained from the field for the last four years.
PRASAC
organization is not considered as non-governmental organization. The staff were
seconded from the government agencies which mostly from the Ministry of Rural
Development and the Ministry of Agricultural, forestry and Fishery. The
employment of the government staff was expected to be sustained of the programme,
after the withdrawal of the support from EU. The second
phase has planned to start at May 1999, to consolidate and strengthen the
existing programme in order to reach self-sustainability.
Rural
credit is a risky and uncertain business. In planning and implementation rural
credit programmes in the rural areas, the organization faces a dilemma. The
organization which is more profit oriented become a “ bank” in rural areas,
where rich people are often able to capture facilities, and which fail to reach
the poor. There is a trade-off between the financial sustainability of the
institution and the reaching out to the poor people. Credit programmes that
serve to the rich farmer is tend to be more successful and sustainable than the
projects that concentrate on poor people. Because an inability to cover cost and
high default rate are considered the hallmarks of poorly administered credit
programmes, credit manager tend to keep the loan to small farmers to minimum in
order the criteria by which they are judge (Donald, 1976). On the other side the
institution, which are more socially oriented may become financially unlivable,
which in turn leads to break up of the institutions. “ Some objectives and
activities of welfare programmes conflict with the principles of good credit
management” (Otero, 1994).
PRASAC targets for credit schemes were highly over-ambitious even in
revised form. The programme has rapidly expanded, but with inadequate time to
develop capacity of the staff and village banks to eventually manage the
programme. The programme, with 3 months preparation work in Phnom Penh, intended
to establish 1,000 villages banks over 3 years, the term of the programme. Group
de Recherch et d’Exchanges Technologies (GRET), for example, a leader in-group
lending methodology in Cambodia, was only able to form 235 village banks in five
years. PRASAC is a donor-initiated programme without much consideration of other
essential institutional requirements. Problems that may arise from such a
programme may include:
1.
The ability to achieve self-sufficiency, which depend on capital,
interest rate, staff capacity, loan arrears and bad debt level.
2.
Financial sustainability (as related to pricing policies, portfolio
quality, and fund capital), and the feasibility or desirability of accompanying
savings schemes, need to be given carefully by any agencies involved with
credit.
3.
They may not use existing experiences from many credit institution that
have been operating in the rural areas
4.
PRASAC programme employing civil servants, which may not have appropriate
qualification in the field of rural development in particular, the experiences
of the rural credit management.
To
increase production, borrowers must spend money not only for consumption
purposes but also for physical inputs or other investments. The surplus output
must be transported to market and sold. This is a complex process and depends on
several factors such as the farmer’s socio-cultural attitudes, infrastructure,
market, appropriate technology, services institution and others. Likewise,
PRASAC rural credit scheme provide the rural poor with the small funds which can
be used to purchase productive inputs such as fertilizer, pumping machine for
irrigation, work cattle, rice seed and are used to make other investments. Thus
the effect of the programme on the rural poor and sustained benefit for the
farmers become further issues for the study.
Rural
development requires action on many interrelated and interdependent factors,
which credit is the main factors, so there is a need to examine the
effectiveness of the credit institution in support of the rural development.
Rural credit programme objective is to assist rural poor, so that this programme
should be oriented towards the rural poor. If a credit programme that aiming at
poverty alleviation does not reach the poor and if the intended beneficiaries do
not make a clear profit from the use of credit, the credit programmes is
unsuccessful.
PRASAC
is the biggest credit programme being implemented in Cambodia. It expends a
large amount of funds from EU. To improve this institution to be more effective
and beneficial to the rural poor, there is a need to evaluate the implementation
of this credit programme. So, the findings of this study can be useful for
determining further policies and guidelines to improve the credit programme to
be more effective and responsive to the needs of the rural poor.
The
general objective of the study is to examine the organizational ability of
PRASAC and its impact on rural development in Prey Veng province. The specific
objectives are:
1.
To examine the perceptions and expectations of the rural people in
relation to rural credit
2.
To assess the strengths and weaknesses of the programme
3.
To document and explain effects of the credit programme on its intended
beneficiaries
4.
To search for ways to improve the effectiveness of the PRASAC's Credit
Scheme, in term of serving the needs of the poor farmers.
Prey Veng province was selected for the case study. Prey Veng is one of
the six provinces where PRASAC is operating the credit programme. The study
focuses more on the Credit and Saving Association (SCA) rather than for
Micro-enterprise (major borrowers).
Overall
assessment of the PRASAC credit programme performance involves a review and
assessment of the credit programme's performance including adherence to design,
operating guidelines and procedures. This includes as assessment of the
processes and procedures of the credit schemes currently being implemented by
PRASAC and the long terms capability of the programme to be self-sustained.
The
evaluation of the credit process and the procedure focus on relevant issues
affecting credit scheme such as beneficiary selection, loan term, interest rate,
repayment term, member fees contribution. The study also document the effects of
the programme on it intended beneficiaries, this was studied the benefit of loan
utilization.
Cambodian farmers usually do not keep the business records and
information relating to their business or income activities. Therefore, they had
to recall from memory. Moreover, the farmers were reluctant to be interviewed
because they felt fear the information collected would end up with the credit
institution.
Due to the low knowledge and the preoccupation of the Cambodian farmers
with their daily work; they commonly had difficulties in expressing and
remembering the concepts of the credit programme while interviewing. It is
unique for Cambodian people to express ideas or speak out in particular for the
farmers due to this rights has been deprived; this is the result from more than
two decades of warfare.
The information from the staff at the field survey was limited due to all
the staff were warned against spreading out information to outsiders in
particular for NGOs people. The credit agents and the provincial staff were
reluctant to be interviewed because they felt fear that if they give much
information they would have problems with their job.