On minimalist credit programs

This paper evaluates the success and replicability of three of these programs -- the Grameen Bank in Bangladesh, the Badan Kredit Kecamatan (BKK) in Central Java, Indonesia, and the General Rural Credit (KUPEDES), also in Indonesia. All three programs have had a positive impact on rural poverty. Grameen and BKK have extended credit to the poorest 20%-30% of the rural population and have enjoyed exceedingly high rates of repayment. They are successful in that they have payment schedules calling for frequent, small payments; no collateral requirements; a willingness to lend for a variety of activities (nonagricultural); and the ability to lend in cash rather than in kind. On the negative side, these programs are difficult to sustain without subsidies and to replicate in other environments. KUPEDES has had an even greater impact, with a lending rate 15 times that of Grameen or BKK, since, in contrast to the others, it targets borrowers in the middle and upper levels of rural income. Thus, although KUPEDES is the easiest program to replicate, it leaves the poorest rural households still relying on traditional, informal credit sources. Recommendations concern possible alternatives to the currently fashionable minimalist credit model.