MICRO-CREDIT SCHEMES FOR REHABILITATION OF

DISABLED PERSONS

'Savings and credit scheme' is a common financial tool used by all groups of people who save when there are excess funds and take loans when there is a sudden need for finances. For operating these 'micro-credit systems', a small amount of savings is periodically collected from a large number of people to create a corpus, which is then used to provide loans for emergencies, for investments, and for expenses related to life events like marriages, funerals and so on.

Types of operations: (1). Savings followed by loans. (2). Loans followed by savings. (3). Savings followed by investment for a period of time, followed by loans (like in pension funds). (4). Mixture of any of these types of operations.

Factors that improve the viability of savings and credit schemes: (1). Clarity of conditions under which loans can be taken. (2). Clarity of conditions under which withdrawal from the scheme can be made. (3). Knowledge of how long the scheme will be active. (4). Knowledge about the ownership of the funds. (5). An interest rate close to the rate of inflation. (People who save will expect higher interest than the rate of inflation, while those who take loans will expect lower interest than the rate of inflation. If interest given for saved funds is less than the rate of inflation, other sources of savings with higher interest rates will be more competitive and attract the available funds. If interest on loans is too low, those who take loans will default because they have got the money cheap and do not want to part with it.) (6). Ability to save and take loans in amounts convenient to the individual at any time. (7). Ability to complete transactions in places convenient to the participants. (8). Schemes run by organisations with high credibility, consistency and transparency are preferred, because trust is one of the major parameters in deciding if persons will join the group or not. (9). Schemes that have a singular goal of economic development of the participants, rather than multiple goals, are more likely to succeed, because in schemes with multiple goals, certain goals conflict with the economic goals leading to high default and collapse of the scheme. (10). Schemes which have a steady source of funds to make up the differential between the interest on savings and lending, and the operational costs.

Special features of savings and credit for disabled persons: Savings and credit schemes are used for economic development of poor people by excluding the people above the poverty line from the scheme. The promoters also generally fund the differential between the interest earned and the interest spent, along with the operating costs. However the disabled persons who are the poorest in this poor group are often selectively excluded. They are marginalised because of many reasons unique to their situation: (1). They are low on creditworthiness. (2). Their mobility is poor and hence their access to the credit groups is poor. (3). They lack entrepreneurial skills, and are unable to invest the loaned money without extensive prior training. (4). They need disability specific supports such as aids and appliances, vocational skill training and so on, which are not easily accessible. (5). They lack motivation and often expect charity grants rather than loans. (6). The non-disabled people do not understand the earning potential of disabled persons, resulting in their exclusion. (7). Family members of disabled persons sometimes utilise the loans for their own purposes rather than for the disabled person's income generation. (8). Disabled people find it difficult to access the limited resources available for micro-credit programmes, because of the competition from the people who are not disabled. (9). Traditional attitudes and stigma prevent disabled persons to be included in the group activities including self-help groups. (10). Disabled people tend to default repayment more often than people without disability. (11). Loans given to people who are already running an enterprise tend to have better repayment chances than loans given to those who start an enterprise for the first time, and disabled people in general are first time entrepreneurs. (12). Women with disability tend to find it more difficult to access loans than men with disability, because of their double handicap.

With a certain degree of disability specific planning, savings and credit schemes can be as effectively used for economic development of disabled persons as of other non-disabled people. However, in the process the disabled persons and their families should not be over-exposed to the schemes, to become permanently indebted to it, to the exclusion of other aspects of their development.

Critical comments on micro-credit systems in Bangladesh: (1). Micro-credit schemes have been pioneered by Bangladesh, and this country has done astonishingly well with the Grameen Bank founded in 1976. (2). The Grameen Bank's success has inspired another 750 NGOs in Bangladesh to operate the micro-credit system with international donor funds. (3). The conventional institutional agricultural credit system has failed in Bangladesh, because political interference has reduced recovery rate of institutional loans to less than 20%. (4). Grameen Bank which lends only to poor people, owning less than half an acre of land, has a recovery rate of 95%. (5). Typically a group of 5 to 10 people provides a group guarantee for any individual who takes loans, which results in social pressures to pay back, and this is more effective than the legal pressures. (6). Grameen Bank in Bangladesh charges interest at 15 to 20%, which is closer to the inflation rate plus the cost of operation and has less defaulters, while the institutional loans with lower rates of interest have more defaulters. (7). However, the viability of the micro-credit system is limited, since the operational costs of this system are high and in Bangladesh, interest rates of about 30% is required to break even. (8). The system also collapses in times of natural calamities because of the large scale defaults from borrowers who are very poor. (9). Most NGOs in Bangladesh depend on international donors for subsidies and grants to make up the deficits in operational costs. (10).Women are found to be more reliable in repayment, and unlike what is generally believed, they are capable of entrepreneurial activities. (11). A study from Bangladesh suggests that only 5% of the borrowers have been lifted above the poverty line, due to the very small size of loans (around Rs. 4000/-) that is inadequate to produce any impact on poverty alleviation. (12). Micro-credit system is used to promote house-hold self employment in Bangladesh. But soon, when the economy modernises, this sector is likely to shrink, and give way to larger production units with hired labour and mass production methods.

Is the micro-credit system viable in the long run? Will it require a permanent subsidy out of charity funds? Is the high operational cost, a pointer towards poor sustainability of this system? Does it really produce adequate impact on poverty alleviation to justify its continuance Is economic backwardness a necessary pre-qualification for successful household self employment using micro-credit system? If so, which situations are appropriate for micro-credit operations?

Maya Thomas and M.J Thomas
J-124, Usha's Apts, 16th Main, 4th Block, Jayanagar,
Bangalore - 560 011, India.
Tel & Fax: 91-80-6633762,
Email: thomasmaya@hotmail.com

Friday Meeting Transactions

Associate Publication of Asia Pacific Disability Rehabilitation Journal

Vol.1 No.2 1999

Editor:

Dr. Maya Thomas

J-124, Ushas Apts, 16th Main, 4th Block, Jayanagar, Bangalore - 560 011, India

Tel and fax: 91-80-6633762

Email: thomasmaya@hotmail.com

Printed at:National Printing Press 580, K.R. Garden, Koramangala, Bangalore - 560 095 Tel: 080-5710658