Chapter 3

Literature Review

3.1 Rural Developmen

Eminent scholars express different views on the meaning of rural development.

Rural development has defined as a process of endless variety having as its main objective the overall balanced and proportionate well-being of rural people. How it works, and the shape it takes, it determined and influenced but many factors in the rural area of the country (Poostchi, 1986).

Another definition, considers rural development as a process which leads to a rise in the capacity of rural people to control their environment resulting from more extensive use of the benefits which ensure from such a control (Webster, 1975).

Robert Chamber defines Rural Development as “a strategy to enable a specific group of people, poor rural women and men, to gain for themselves and their children more of what they want and need. It involves helping the poorest among those who seek a livelihood in the rural areas to demand and control more of the benefits of development. The group indicates small-scale farmers, technical and landless” (Chamber, 1983:147).

Rural development, in general, is a strategy designed to improve the economic and social institution of people in rural settlement and, in particular, it focus is on the rural poor, comprising the small scale farmers, tenants and landless. Since rural development intended to reduce poverty, it much clearly designed to increase production and raise productivity. Rural development recognizes, however, that improve food supplies and nutrition, together with the basic services such as health education, can not only directly improve the physical well-being and quality of life of the rural poor, but can also directly enhance their productivity and their ability to contribute to the national economy (World Bank, 1975a).

Further more the World Bank summaries the strategy of rural development is “A strategy for rural development must recognize three points. Firstly the rate of transfer of people out of low productivity agricultural and other related activities into more rewarding pursuits has been; and given the relative size of the modern sector in most developing countries, it will remain slow. Secondly the mass of people in rural areas of developing countries face varying degrees of poverty, their position is likely to get worse if population expands at unprecedented rates and while limitation continue to be imposed by available resources, technology, and institutions and organizations. Thirdly, rural areas have labor, land and least some capital which, if mobilized could reduce poverty and improve the quality of live. This implies further development of existing resources, including the constraints of infrastructure such as road and irrigation works, the introduction of new types of institutions and Organizations’ (World Bank, 1975a).

The United Nations Commission of Africa, in 1971 (as quoted by Dale and Iddagoda, 1997:23), has given the definition of rural development: “Rural Development is the outcome of a series of quantitative and qualitative change occurring among a given rural population and those converging effects indicate, in time, a rise in the standard living of favorable changes in the way of life of the people concerned. It does not mean isolated programmes of ‘ Rural Development ’, ’ rural animation’, ‘mass education’, ‘agricultural extension’ or any of other terms applies to sectoral programmes which carried out in the rural areas or within the rural community. It means, rather, a comprehensive development of rural area…rural development should analyzed both from the standpoints of increase production… and from the social advancement”.

Setty has given the definition of rural development, in a comprehensive sense, is a process of social action in which the people communities organize themselves for planning and action, define their common and individual needs and problems, make plans to solve their problems, execute these plans with maximum reliance upon community resources, and supplement these resources, when necessary, with services and material from government and non-governmental agencies outside the community. The thrust in rural development is people participation in the total process and simultaneous improvements of quality of their lives. The process of organizing rural communities for development involves working and interacting with the people in the communities (Setty, 1991:17).

Asian Development Bank’s Regional Seminar on Rural Development (ADB, 1988 as quoted by Dale and Iddagoda, 1997) clarified the overall objectives of rural development policy as:

·        preventing further impoverishment;

·        increase production;

·        distributing rural assets equitably;

·        eliminating poverty through adequate wage employment and / or transfer of more productive assets and skills to rural poor;

·        improving the quality of rural life by providing infrastructure and social services;

·        enabling rural people to share control over their environment and the use of local resources and participate in decisions affecting their lives;

·        Strengthening existing rural institutions so that they play a progressive role in development and building new institutions, which support self-sustained development.

For most of the definitions of rural development are focus on the improvement the quality of life of the rural people. In the reality, the rural development comprises all for improving, such as the agricultural productivity, increase employment and ultimately for higher income of the target rural people or group, in addition to providing them with minimum acceptable levels of health, food, shelter and education (Setty, 1988:14). The rural poor are the main target group for the rural development in the developing countries.

3.2 Who are the Rural Poor

The successful of efforts for implementing rural development programme, the first essential step is the definition of the rural poor. The absent of clarity on this point will results in ineffective coverage of the target groups as well as in the livelihood of richer farmers taking full advantage of benefits provided under the rural development programmes (FAO,1974).

The poor are highly visible in most countries of the world. They include people who are chronically hungry, it not starving; they are most often malnourished and frequently diseased. The poor are usually illiterate or insufficiently educated. They are badly clothed and lice in ramshackle housing and unsanitary conditions. Almost by definition, the poor lack sufficient resources to purchase food and other necessities of life as well as to enjoy the living conditions that are customary in their societies. The purchasing power of the poor is so low that they are excluded from ordinary living pattern, and customs and activities (ESCAP, 1985). The poor other things in common, apart from their extremely low income. A disproportionate number of them-perhaps two in five-are children under 10, mainly in large families.

Because of the adverse circumstances, in which they live and work, the poor rarely have the opportunity to improve the lot in life. For example, they frequently have insufficient access to water modern agricultural inputs and in particular, credit. They also face many disincentives to increasing the level of production because tendency arrangements are structured to fervor landlords or a moneylender who normally receives the greater share of any productive increases  (World Bank, 1980).

There are factors that burden the poor. Chief among them is the fact that they are frequently excluded from the development process. The poor lack social status and they normally do not have the power or opportunity to participate in designing projects or development programmes that would help them to breakout of the cycle of poverty.   

The World Bank, in its World Development Report for 1980, Stated that “ (although) it is difficult to measure the extent of poverty- no one seriously doubts that a very large number of people are extremely poor. Not is the serious disagreement about who the poor are. Half of the people in absolute poverty line in South Asia, mainly in India and Bangladesh…overwhelmingly dependent on agriculture – the majority of them landless (or nearly dandless) laborers.” (Srinivasan and Bardhan, 1988:1)

3.3 Rural Credit

Credit is considered as an important instrument in helping small farmers and agricultural development. Ellis. (1992) has defined “ credit is a sum of money in the favor of the person to whom control over it is transferred. The provision of credit involves two parties a lender and a borrower. It also involves a price for the transfer of control over money, which is the interest rate charge by the lender to the borrower”.

            In relation to credit, Mollett (1984) states that “ There is considerable agreement that increased farmer credit is a vital need in developing countries, and many have introduced credit programmes. Credit is particularly necessary to finance increased use of new inputs and thus to increase production and income.”

            In the 1950s and early 1960s, credit provision was considered a key instrument for breaking the ‘vicious circle’ of low income, low savings and low productivity. In mid 1960s, and up to the present time, small farmers and the rural poor have increasingly become the chief target of credit intervention (Ellis, 1992).

            Ellis (1992) states the objectives of credit policies, and reasons for their popularity with governments and aid donors alike are summarized as follows:

1.      to alleviate a critical constraint hampering growth in agricultural output, this constraint being lack of cash to make needed farm investments (irrigation, drainage, pumps, tractors, buildings) and to purchase modern variable inputs (fertilizer, pesticides, fuel, feeds, etc.);

2.      to replace the fragmented and incomplete rural financial market presented by private moneylenders, this credit sources supposedly having the effect of impoverishing their clients rather than assisting them to improve their productivity; 

3.      to accelerate the adoption of new technology by peasant farmers by providing working capital for the seasonal purchase of variable inputs and thence optimizing the complementarily between inputs essential for the success of Green Revolution technology;

4.      to assist small farmers to overcome their inability to borrow from commercial or informal credit sources due to lack of collateral and lack of information;

5.      to provide short-term credit in order to bridge seasonal and temporary cash shortfalls of small farmers, compared to the medium and long term lending preferences of commercial financial institutions; 

6.      to achieve equity goals, whether these are related to inter-rural, inter-regional, or rural urban income distribution;

7.      to offset disincentive effects for small farmers of policies unfavorable to them including low output prices, over-valued exchange rates, and inefficient market interventions by the state;

8.      to gain favor with farmers for political purposes, including forthcoming election, and so on;

9.      to make advantage of sometimes overwhelming generosity of foreign aid donors, who seem to be prepared to pump large amounts of money endlessly into rural credit projects.  

            In discussing the nature of the problem in rural credit, IFAD (1985) summaries five main issues are raised, that is:

Chronic poverty means becoming accustomed to poverty, an can also accustomed to the physical conditions, social relationship, economic restrictions that perpetuate it. Aspiration may still exist but hey may be difficult to articulate. The poor themselves may be reluctant to use credit services unless they are confident of the results.

Local economic conditions

Local economic in rural areas is often controlled by small elite group of landlords, traders and moneylenders. Their control can extend both to production and consumption. Outside intervention in the form of credit for production may help the rural poor temporarily bat fall short of achieving an equitable re-structuring of production relation.

Physical conditions

Often, the inequities that exist in rural communities are caused, or exacerbated by their physical isolation. New roads, new markets and improved supply routes for agricultural inputs may have to be link to services.

National policies

The success of credit scheme also depends on the national policy frameworks in which they are implemented. If the terms of food and cash crops between rural and urban areas are biased against the rural poor, credit for additional production will have only limited impact.

Technical issues

The uses to which credit is put must be viable. New technical packages for agriculture must be proven before they are linked to credit schemes on a wide scale. If existing agricultural practices are to be supported by credit there must be some confident that repayment schedule can be net.

            Donald (1976:34) concluded that credit programme to be successful in increasing output, there must be an opportunity for small farmers to utilize additional capital profitably, which requires an improvement in technology backed by markets that can supply the necessary inputs and absorb the output.

            Hulme and Mosley (1996) as quoted by Johnson and Rogaly (1997), has designed features for ensuring high repayment rates on loans and enabling poor people to access credit are summarized in the table below:

Table 3.1 Design Features for Ensuring High Repayment Rates on Loan and Enabling the Poor People Access to Credit

Source: Hulme and Mosley, 1996 as quoted by Johnson and Rogaly (1997)

The design of credit project is by no mean easy. The provision of credit alone may not always suffice when poverty is also perpetuated by social, cultural, technical and wider economic factors (IFAD, 1985).

3-4 Role of Rural Credit in Rural Economy

IFAD (1985) concluded that: The provision of credit can be one of the most powerful means of reaching the poor directly and preferentially. Even modest loans – on manageable terms- can represent a sufficient improvement in the access of the poor to resources to enable them to achieve significant increase in living standard.

In the rural economy it has been found that the landlords and traders take on additional roles as moneylenders and provide capital needed, through at very high interest rates. The informal financial intermediaries have often been denounced as unusers and exploiters (Ambali, 1995).

The stated objectives of various government intervention in to the rural financial markets is to provide low interest loan to farmers and to displace the information intermediaries out from the system. To this end, several countries have instituted agricultural cooperatives, rural credit banks and legal directives to commercial banks to advance a certain percentage of lending to the farmers. But in this, a considerable number of population in various countries, especially in poor Asian countries where marginal farmers, landless, wage-laborers and other off-farm laborers excluded from the conventional banking systems (Murshid, 1991).

3.5 Some Experiences of Credit Operation

The following describe briefly some initiative for rural lending in selected Asian countries:

Thailand: In Thailand, there is a Bank of Agriculture and Agriculture Cooperative (BAAC) which was created in 1966 for assisting agricultural development and increasing living standards of the rural people. In 1975, the Royal Government of Thailand relaxed restriction on the opening of new commercial bank branches in rural areas.

The total amount of agricultural credit by the commercial bank and BAAC increased dramatically form 1, 305 million Baht in 1974 to 412, 063 million Baht in 1983. The government is big shareholders of BAAC. In 1994, BAAC, operating fund totaled 132,505 million Baht consisted of different sources and the numbers of BAAC’s clients reached more than 4.3 million clients, and each in average can borrow about $500. The farmers can receive the loan directly to BAAC or through Agricultural Cooperatives. BAAC become famous to rural Thai farmers, which is an important source of providing rural credit. Moreover, BAAC also assist farmers and farmers institutions in marketing, so that farmers can sell their produce at fare price. In the economic recession, Asian economic crisis, this bank has increased the interest rate, which depend on the rate of inflation (BAAC annual report, 1994).

BAAC faces some major problems in the its implementation are the followings:

(1)   Unable to pay credit, this problem is faced only by some of the farmers who faced natural disaster, i.e. flood and drought that persist almost every yea,

(2)   Insufficient farmers knowledge about the procedure of getting the credit, this problem motivated the farmers to find out loan from middlemen with high interest rate,

(3)   Not proper use of loan and

(4) Weak capacity of collateral, (Rural-Regional Planning Workshop Peport, 1998).

Bangladesh: In Bangladesh, Grameen Bank is a famous financial institution was established in 1976. This bank started to provide credit for the poor by organizing agricultural and handicraft production, small businesses and house building. Starting capital of the Grameen bank consisted: 60% was from the government, and the other 40% from the borrowers.

Up till now the Grameen bank has been playing a very important role in the socio-economic life of Bangladesh. Currently, Grameen bank has savers more than 2 million and borrowers more than 1.9 million. For 17 years, until August 1993, Grameen bank disbursed about $743 million to the poor farmers. In 1993, Grameen bank disbursed more than $300 million for income generation credit and housing credit (CCRD, 1997).

A recent study by the World Bank examined the way in which four financial institutions handled rural credit. The institutions were; Bank of Agriculture and Agriculture Cooperative (BAAC - Thailand), Grameen Bank (Bangladesh), Badna Kredit kecamatan (BKK- Indonesia) and Rakyat Indonesia Unit Desa Bank (Indonesia) (Cameron, 1995). The following points emerge from the World Bank study:

Interest rate is not the most important feature of a rural credit scheme, availability of fund being the most important factor.

It is generally not true that low returns on borrowed funds are directly related to high rates of interest. For example, the interest rate charged by BKK-Indonesia was 42% with short-term retail credit to small rural businesses set at 130% per year. By comparison rates in the organized money market at district level were up to 48% per year. Grameen Bank of Bangladesh offers loans at 40% per year as compared to the organized market with a rate of 48%. Despite these substantially different policies, borrowers from both Banks are able to sue their credit without difficulty.

Credit extended at low rates of interest tended to be more harmful than helpful. Those who borrow at low rates of interest, for example, 9% charged by BAAC-Thailand, are able to invest in high risk or low returning projects and have often become locked indebted cycle when the project fails. Providing credit at an interest rate that covers cost or at a market level was recommended by the study as these helps force borrowers to invest carefully in projects that are worthwhile. The study also shows that extending cheap credit is not the most appropriate way to help the rural poor.

Financial institutions involved in rural credit are able to reduce their risk and refrain from a strict collateral policy. Extending credit to small agricultural groups who share the same social and economic status (personal and collective assurances), provide a sense of ownership and leads to an understand that their individual repayments are important to the collective success or failure of the group.

3.6 Sustainability of Credit Programme

            The word sustainability can be defined in different ways and has different meaning depending on whether we are referring to the environment, resources, institution, structure, process, skill or attitudes. And it also can be used referring to goal, national organizational or programme levels.

            Dale (1992:70) has defined the sustainability in the present context as the prospect of maintenance after the programme period of the perspectives, the types of organizational structures, and the work procedures developed or promoted in the course of the programme period.

The sustainability of the credit programme is a main factor to sustain the flow of valued benefiting to its members or clients overtime. The sustainability of the credit institutions is based on financial sustainability and institutional sustainability. (Elaine and James, 1994) stated that, for reaching sustainability, the central task in to establish a mature organization with a programme that achieves impact at a reasonable scale of operation and viability. Sustainable of small enterprise development organization can and must meet 100 percent auto-financing for their credit operations and establish a diversified base for other operational expenses not directly linked to credit (Otero, 1994).

The sustainability does not mean 100 percent self-sufficiency in all programme aspects. Some other activities such as training, business services may continue to require a subsidy. In this aspect, Otero (1994) determined the sustainability as the ability to generate resources on favorable terms from diversified, reliable set of resources. This includes local fund-raising from private and government sources, fun-raising form external donors and internal income generation from interest, other client fees and savings.

Financial self-sufficiency is a prerequisite for making financial services widely available to micro-enterprises. Yet debate continue on whether it is feasible for most institutions. A financial self-sufficient credit operation must cover the following through fees and interest charges: operational cost, including loan loss reserves; the cost of funds; and inflation (Otero, 1994).

The factor for financial sustainability is the interest rate policy designed to improve the credit system is to reduce transaction costs. A realistic rate of interest can be set in terms of wider market rate. Credit agency will remain non-viable if their costs are greater than the interest between borrowing and lending.

The real interest rate should be positive in order to sustain of the credit agencies. If the real interest rate negative vitally makes the loan a gift from lender to borrower (the latter pay back less in real terms than was borrowed). The real interest negatives mean the agencies charge the subsidy interest rate.           

Savings mobilization is a component for the sustainability of the credit institutions. Ellis (1992) states that the generation of funds from savers is considered as a key feature of self-sustaining credit institutions. First, a strong savings base reduces the reliance on external funding. Second, savers and borrowers are often the same people at different points in time in the community, reducing the information costs of transactions. Third, people tried to an institution for both savings and borrowings are less likely to default on loans. Fourth, farmers with savings can often self-finance small outlays so that loan became oriented to bigger outlays with lower transaction costs per unit of money.

A self-sustaining financial system requires an interest rate on loans sufficient to cover the three components of (i) the interest rate paid to savers, (ii) the average cost of making transactions, and (iii) a risk margin to cover the probability of default (Ellis, 1992).

A straightforward way to look at the financial sustainability of the savings and credit operation is to look at its income compared to its costs (Havvers, 1996 as quoted by Johnson and Rogaly, 1997).

            Sustainability index (SI) = Percentage of total cost cover by income

               total income earn from credit programme during the period

           =                                                                                                    x 100

               total credit programme costs during period

            The income received includes interest and fees on loans. Programme costs include all staff, office, and other costs necessary to run the programmes.

            Johnson and Rogaly (1997) concludes that financial sustainability is only one component of ensuring that schemes are able to provide services in the long term; aspects of management and organizational structure are equal critical. The organizational form may be the most significant design element in relation to long-term sustainability.

3.7 Rural Credit in Cambodia

            Rural Credit is considered as a major component for accelerating rural economic growth in Cambodia. The commercial banking institutions are non-existent in rural areas and the state-run provincial banking system with 21 branches is effectively moribund (Elizabeth and Mark, 1998:3). The absent of the rural banking facilities and staff with experiences in the rural finance is one of major constraints in agricultural development in Cambodia.

To fill this gap, since 1991, government and non-governmental micro-credit programmes have expanded rapidly in Cambodia. As of 1997, 85 organizations are engaged in micro-credit programmes servings 170,000 families with total loan disbursement about US$ 9 million. Through theses figures appear impressive, this numbers present less than ten percent of the Cambodia rural households (CCRD, 1997:10). Table 3.2 shows that ten major credit operators including two programmes which cooperation with the government agencies, PRASAC and MOWA/UNICEF, account for some 75% of the total reported clients outreach and the top six operators account for more than 66 percent of the total outstanding loans.

Table 3.2 Performance of Selected Credit Operators

                            as of 31 December, 1997

Source: (Abrera and Pierce, 1998)

3.7.1 The Need for Rural Credit

The need for rural credit in Cambodia is demonstrated by the existence of a widespread informal credit market and by the high rates of interest charged, of the order of 20-30 percent per month. Within agricultural loans in kind in the form of fertilizer generally demand repayment is double of the value at the end of 3-4 months period, equivalent to 20-25 percent monthly rate. The survey of 11 villages by UNICEF in 1994 revealed that 40-50 percent of farm families were indebted (Ministry of Planning, 1995).

The study conducted by the ministry of Rural Development through the CCRD in 1994 found that 60% of the rural people need the access to credit. Credit needs are therefore substitute for exploitative consumption loans to cover household rice deficits as well as to facilitate and improve rice production and yields by providing fertilizer and seed, which will help to provide food security among poverty groups and to provide more productive, sustainable farm households. Loans are further need for income diversification through small-scale and non-farmer activities.

3.7.2 Supply of Micro-Finance

The rural credit in Cambodia are served both the traditional informal lenders (composes of moneylenders, traders, and suppliers) and the GO and NGO credit operators. The informal lenders can provide only the short-term loan period, which charge high interest rate, typically from 15% to 30% per month. But, the GO and NGO credit operators can provide short-term and long-term period with the interest rate range from 1% to 6% per month (it depends on the kind of the operators). Loans used by the rural people in different purposes, improving agricultural investment and additional investments. The report of socio-economic survey made by the student with organizing by the Credit Committee for Rural Development found that the people need credit very much for purchasing fertilizer, work cattle, water pump and extending their business etc.

            The credit operators are very active in micro-enterprise lending and some of them are planned to provide larger loan in the rural areas. NGO position paper, 1996 divided three types of credit programmes implementing in Cambodia namely:

Community-based credit and savings project. Theses project establishes village level credit and saving associations more popularly known as "Village bank." The village bank provide an opportunity for the members to use internally generated funds, coming chiefly from mobilized savings.

Community development project with credit component. There are NGOs implemented community development projects that integrate credit services with other community development components such as health, literacy, human rights, etc. This are not designed to support credit delivery in long term.

Non-bank micro-finance organizations. There are donors support NGO credit and saving programmes, which focus on the creation of viable and sustainable micro finance institutions. The long-term goal is to transform them into full banking micro-finance institutions that have the capacity to intermediate deposits.         

3.7.3 Organizational Structure and Methodology

            Based on the experiences of credit operators in Cambodia since 1988, the methodology has been used is similar to micro-credit operators in the other developing countries, particularly the Grameen Bank of Bangladesh model. The methodology is based on people's participation and uses the following models (Cameron, 1995):

Solidarity group/loan group. There are self-selected groups of from five to seven people, usually with not more than two from the same household. Loan are generally for individual purposes but group activities are also financed and all members to the group guarantee the loan on the basis that default by the borrower prevents any other group members from borrowing and graduated penalties are applied to the defaulters.

Village group: Five to seven loan groups come together to form a village bank, with the village bank having he responsibility of loan appraisal and approval, disbursements, collection of repayments, collection of savings as well as administration. The management of each village bank is vested in committee, the most successful being elected rather than appointed.

Implementing organization: (Implementer). There are either a local NGOs and international NGOs and at least in the early stages, have provided the village bank's capital either directly or as an agents or implementor for an international NGOs or a sources of funds made available under a bilateral arrangement. The implementer provides training to the village group on programme implementation and training on basic management including that loan portfolio.

            In Cambodia, the predominant lending methodology is village banking model, but incorporating group lending. The village bank includes typically 7 to 9 groups, about 35 to 50 persons. Group leaders or all the members elect a chairman, treasurer who control the finances, and a secretary who undertake the bookkeeping. The average loan size is US$ 25 to US$ 60, with an average loan period of 4 - 10 months.

3.7.4 Source of Credit            

All of the credit operators in Cambodia are based on the grand from various bilateral and multilateral donor agencies. The grant support directly through the government and non-governmental Organizations. The main donors are supporting the financial sector in Cambodia are: Asian Development Bank (ADB), Caisse Francaise de Development (CFD), the European Union, UNDP/ILO, UNICEF, USAID and others small donors. The study conducted by Elizabeth and Mark stated that the donor communities have been influential both in the design and the pace of development micro-finance sector in Cambodia. The donors support also reflect their own policy objectives, since the local people still limited knowledge and experiences in implementing rural credit programmes.

3.7.5. Problems of Rural Credit in Cambodia

            Ministry of Planning, 1995 identified some problems related to the rural credit operating in Cambodia as the followings:

The common practice has been to provide below-cost delivery of funds. However, full cost coverage is a minimum condition for the full maintenance of a revolving fund and thus for the sustainability of a particular programme. It is therefore a requirement even where the programme is directed towards poverty groups. Costs to be covered include interest paid on project funds received, if any; the cost of all personnel and equipment involved in administration and loan supervision, including field visits; and losses through defaults. At the same time, real interest charges need to be calculated over and above the rate of inflation; and, if the fund is to expand in order to increase the number of beneficiaries over time, interest charges need to be further increased.

            Factors which have underline the practice of below-cost charging include:

A lack of understanding of the sustainability requirement because of concern for delivery to poor groups;

Differences in loan conditions imposed by external agencies and separate remuneration of NGO staff time, such that certain categories of cost are hidden and less likely to be reflected in the rates of interest applies; and

Variation in the cost structure associated alternative systems of loan delivery and supervision in different kinds of scheme.

Partly related to the above, wide variation has existed in the interest rates charged to similar clients, from 1 percent up to 18 percent per annum. This implies inequity and inefficiency in the market for loan funds in that similar borrowers pay different interest rates according to the organization from which they borrow and possibly, the clients' locations.

Because of the increasing volume of loan funds distributed through NGOs, there are some concerns over macroeconomic control and possible inflationary impacts.

The focus of direct assistance to the poor and on micro-enterprises has been valuable and evidently, but might also divert attention form the wider problems of credit as well as from areas of credit which could have indirect but important positive impacts on the rural and urban poor. Credit for private sector trade - for instance, to stock fertilizers and other inputs in rural trading centers and making these much more readily available - could benefit poor farmers by increasing farm yields and farm households sustainability.

            Lastly, the situation under which NGO micro-credit agencies are operating as financial institutions outside any formal legal framework is clearly unsatisfactory if they are to continue to play and important and increasing role in different sectors of the economy.

            Some weaknesses on experiences of micro-finance implementing in Cambodia which identified by (CCRD, 1997) as the followings:

·        It is not clear about who is the owner of capital

·        It is not financial self-sufficient

·        It depends upon the foreign aid fully

·        Activities do not reach to the more remote rural area

·        Credit activities are allocated in many places, but with limited clients

·        Credit for the poor is very small if compared to the more capable businessman. In short, it varies form the conception of helping the poor farmers.

·        Weak of interest in savings mobilization