Successful Rural Finance Institutions

This paper presents the performance of four state and donor supported rural financial institutions (RFIs):

• Badan Kredit Kecamantan (BKK);
• Bank Rakyat Indonesia Unit Desa (BUD);
• Grameen Bank;
• Bank for Agricultural and Agricultural Cooperatives (BAAC).

The paper focuses on policies, modes of operations, incentives, and financial results of these Asian programmes that are considered exceptionally successful. It states that the performance of the RFIs reviewed has been significantly above average when the clientele served is taken into account or when compared with the performance of other programmes operating in the same country. Efficient financial policies, innovative delivery mechanisms, and skilled management have resulted in their better financial and outreach performance.

The paper concludes that:

• An RFI's financial performance should be evaluated in the context of the clientele served, for which the typical loan size and loan characteristics may serve as proxies;
• Low loan and deposit sizes increase an RFI's administrative cost significantly and thus reduce self- sustainability when on-lending rates are not adjusted to compensate for the cost and risk involved;
• There is no blueprint on the appropriate time period and pace of phasing out support;
• Emphasis should be placed on savings mobilization.

[Adapted from author]