Report On Replication

CARD-An Independent Evaluation

Mahabub Hossain and Catalina P. Diaz
  1. Backgroung Of The Project

    The CARD (Centre for Agriculture and Rural Development) in the Phillipines, started its operation in April 1988 with a training-focused community and livelihood assistance program for landless coconut workers. It organized them into associations of more than 15 members each, assisted them in formulating systems and procedures for savings and capital build-up schemes and provided loans based on the outcome of project management training. It undertook other development activities in coordination with various agencies. These included installing deep tubewell pumps, organizing credit and multipurpose cooperatives, and experimenting with demonstration farms for extending improved agricultural technologies to small farmers, marginal fishermen and landless workers.

    The initial results on credit operation were not encouraging. Members were not able to repay the loan in time and mobilization of savings was marginal to have any meaningful impact on the life of the members. Recognizing the weakness of the traditional scheme, CARD decided to test on a pilot basis a modified Grameen Bank model in four villages in San Pablo. Management staff and technical officers were sent for training to Grameen Bank in Bangladesh to familiarize themselves with the essential features of the Grameen. Encouraged by the successful outcome of the pilot scheme, CARD launched in January 1990 the LPDF (Landless peoples Development Fund) project, adopting the essential features of Grameen, modifying some to suit the unique lifestyle and economic conditions of the Filipino landless poor. Within April 1993 it set up five branches in Laguna, Quezon, Marinduque and Masbate provinces.

    Elements Of Essential Grameen:

    The major differences with the Grameen model are in selecting the target group, organization of the training program, and in operation of the collective funds. CARD provides more intensive training on project management and credit disciplines to the prospective borrowers than the Grameen Bank does. In Bangladesh, Grameen Bank uses the ownership of land (up to 0.2 ha) as the main criterion for selecting the target group. CARD identifies its target group on the basis of housing and marketable assets (up to P25,000) determined on the basis of a means tests on prospective members. In Grameen the collective fund is managed by the group, while in CARD it is managed by the center. A mutual fund is developed to provide insurance against accidents, limited old age pensions and supporting burial expenses.

    Progress of Operations:

    CARD has so far organized 9968 members into 259 centers under 13 branches. It now serves 7324 active members, as 22% of the members initially recognized have dropped out over time. The loans disbursed have reached P82.3 million, of which P62.4 million have already been recovered.

    The loan outstanding with the borrowers has reached P19.4 million. The savings accumulated in the Center Fund have grown to P11.05 million which is about 55% of the loans outstanding with the borrowers.

    Although CARD started the Grameen replication in 1990, most of the expansion took place over the last three years after it was able to receive a sizeable soft loan from the Grameen Trust in August 1993. Four of the old branches now disburse over six million pesos in a year to over 800 active members, with five field staff per branch.

    Nearly 25% of the borrowers have already taken five or more loans with an average size of loan of more than P15,000. The first two loans are typically small, because the institution does not want to take risks with new and inexperienced borrowers. The small size of loan also allow new members to gather confidence in handling credit and explore markets. The size of loan grows fast after two years, as the members could also access loans for housing improvement.

    But members also take loans for housing improvement, financing educational cost for the children, tiding over financial crisis due to natural disasters and health-related emergencies, improving sanitary conditions, etc. These loans also have to be paid in weekly instalments and bear the same rate of interest as the financial loan. The financial loan accounts for only 53% of the total loan, and hence the rate of return from investment on the credit-financed enterprises has to be substantially higher than the rate of interest in order to have the capacity to repay the other loans. Otherwise, the borrower would have to draw on the income of the other members. The emergency loans are taken mainly by the new borrowers as they find it difficult to cope with financial crises at the low level of income. As the income generated from successive loans improves the economic capacity of the households, the need for emergency loans is reduced substantially. The older borrowers however, draw on the housing loan which is available in large sizes.

  2. Success In Reaching The Poor With Credit

    Grameen regards credit as a key development input and access to credit as basic human right. It attempts to empower the poor by providing them collateral-free loans so they could generate productive self-employment by organizing economic enterprises. The success of Grameen was in developing an appropriate credit delivery mechanism to reach the bottom 50% of the household in the socioeconomic ladder. Any evaluation of the microcredit program should therefore first assess the extent to which the target group has been reached. The cost of loan is fairly high in Grameen type microcredit program because of the high cost of operation arising from the highly intensive supervision required for its success.

    70% of the CARD members are completely landless and they received 63% of the financial loans and 73% of the housing loan provided by CARD. Only 24% of the CARD members have landholdings of over 0.2 ha, and 9% above one hectare. In many target group oriented programs, the economically well-off out-of-target members influence the management of the program to have a proportionately much larger share of the resources available under the program. In CARD, the off-target group households according to the Grameen standard, however, could not monopolize the credit; their share of loans was proportional to their numbers.

    CARD defines its target group with respect to the value of the house and marketable assets. Only households who have assets not exceeding P25,000 are eligible to become members of CARD. Only 29% of the households reported a value of housing over P25,000 and they had a share of 34% of financial loans and 39% of housing Loans. It thus appears that a sizeable proportion of CARD loans go to households who are not eligible to be the members ofthe institution. It is not clear, howeve,r whether member households have invested in housing after becoming members of CARD which contributed to the accumulation of value above the eligibility limit. This possibility cannot be ruled out since CARD also provide loans for housing improvement.

    An important factor that would affect the income earning capacity of the individual is the level of education. About 42% of the members have only primary level education,and these 'human resource' poor households had a share of 33% of financial loans, and 40% of the housing loan. At the other end, 13% of members had college level education. These members should have better opportunities of finding a job in the market and higher opportunity cost of using labor in CARD financed activities. They tapped 17% of the financial loans, and 21% of housing loans, which is proportionately much higher than their numbers.

    It appears from the above evidence that CARD has not been 100% successful in limiting credit services to the extreme poor. This might have resulted from the difficulty of assessing the economic situation of the household through the means test.

  3. Financial Viability At The Borrower Level

    CARD charges 20% rate of interest per annum on the amount of loans disbursed and deducts upfront 4% of the loan amount as a service fee. Since the principal is repaid in 50 weekly instalments starting immediately after the disbursement of the loan, the amount of outstanding loan with the borrower is less than half of the amount disbursed. Thus, the effective rate of interest comes to about 44% of the amount available for investment by the borrower (outstanding loan). The credit will contribute to increasing income of the borrowing household only if the rate of return on capital in the enterprise financed with CARD credit is higher than this effective rate of interest. To assess the financial viability of the credit program at the member level, it is therefore necessary to estimate the rate of return on investment in enterprises financed with the loan.

The remaining part of the report will be published in Grameen Dialogue#33