Banking on the rural poor in Malaysia : project Ikhtiar

These families were considered unbankable, even for the government-sponsored credit programs provided by the Agricultural Bank, Bank Pertanian Malaysia. The pilot project adapted a credit system used by the Grameen Bank in Bangladesh. According to government statistics, there are 403,000 poor rural households in peninsular Malaysia. This number has increased slightly even as the country has experienced regular GDP growth exceeding 7% per year. The project is targeting its operations to reach 40 to 50% of a very poor subset of families totalling 150,000 households. The pilot project exceeded its target of 300 borrowers, achieving 373 loans to 448 members. A private trust (Amanah Ikhtiar Malaysia) was set up to oversee future operations and an NGO -- the Malaysian Islamic Economic Development Institute (YPEIM) -- provided seed capital of $US 500,000 free of interest to fund further lending. By July 31, 1990, 9 Project Ikhtiar branches had made 999 loans to 1,782 members. Twenty branches will be established this year and 30-37 branches will be in place by the end of 1991 to service an expected 60,000 borrowers within about 6 years. Borrowers pay loan fees that cover all administrative expenses, although governmental subsidies are received to compensate for the reduced loan fees charged for each borrower"s first two loans. All loans are repaid weekly over 50-week terms and are not collateralized. The provision of credit has raised the incomes of the borrowers substantially; the impact on women borrowers has been much higher than the impact on men. A large proportion of borrowers are now women and, in the pilot project, they achieved income increases twice that of men. Loan recovery exceeds 99% and illustrates the success and importance of close and regular contact with borrowers coupled with the guaranteed availability of financial services to customers in good standing. The project fortifies these services through intensive interviewing of potential members, the use of member groups, and compulsory attendance at weekly center meetings. (Author abstract)