Microcredit and the Rural Poor: A Review of the Maharashtra Rural Credit Project

Publication Date: 2002
Published by: Journal of microfinance
Document Type: Journal Article

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What determines the effectiveness of microcredit schemes?

The paper states that the effectiveness of a microcredit scheme such as the Maharashtra Rural Credit Project (MRCP) is likely to depend on whether it has the flexibility to induce the participation of the poorest, and whether it enables them to acquire the basic skills needed to benefit from it. It reviews the MRCP scheme and focuses on the process of implementation and its implications for targeting, empowerment of women, and trade-off between coverage of the poorest and sustainability of the scheme. It draws attention to the deficiencies in the design and implementation of the scheme that limit the participation of the poorest and the benefits accruing to them. Moreover, it argues that there is a risk of overstating the trade-off between the coverage of the poorest and sustainability of the MRCP if these deficiencies are over-looked. Major findings indicate that:

• When key correlates of poverty are applied, the nonpoor beneficiaries of individual loans under the scheme are more than the poor;
• Exclusion of the poorest was partly a result of their own lack of awareness about the MRCP and diffidence about their ability to repay loans;
• The loan processing time was much longer for the poor and the affluent secured much larger loans;
• There are indications of male dominance in the selection and the use of the assets;
• Combining financial services with some forms of insurance (e.g. against illness and accidents) would make the MRCP more attractive to the rural poor.