WDP-58 World Bank Discussion Papers Making the Poor Creditworthy A Case Study of the Integrated Rural Development Program in India Robert V Pulley RECENT WORLD BANK DISCUSSION PAPERS No. 1. Public Enterprises in Sub-Saharan Africa. John R. Nellis No. 2. Raising School Quality in Developing Countries: What Investments Boost Learning? Bruce Fuller No. 3. A System for Evaluating the Performance of Government-Invested Enterprises in the Republic of Korea. Young C. Park No. 4. Country Commitment to Development Projects. Richard Heaver and Arturo Israel No. 5. Public Expenditure in Latin America: Effects on Poverty. Guy P. Pfeffermann No. 6. Community Participation in Development Projects: The World Bank Experience. Samuel Paul No. 7. International Financial Flows to Brazil since the Late 1960s: An Analysis of Debt Expansion and Payments Problems. Paulo Nogueira Batista, Jr. No. 8. Macroeconomic Policies, Debt Accumulation, and Adjustment in Brazil, 1965-84. Celso L. Martone No. 9. The Safe Motherhood Initiative: Proposals for Action. Barbara Herz and Anthony R. Measham LAlso available in French t9F) and Spanish (9S) No. 10. Improving Urban Employment and Labor Productivity. Friedrich Kahnert No. 11. Divestiture in Developing Countries. Elliot Berg and Mary M. Shirley No. 12. Economic Growth and the Returns to Investment. Dennis Anderson No. 13. Institutional Development and Technical Assistance in Macroeconomic Policy Formulation: A Case Study of Togo. Sven B. Kjellstrom and Ayite-Fily d'Almeida No. 14. Managing Economic Policy Change: Institutional Dimensions. Geoffrey Lamb No. 15. Dairy Development and Milk Cooperatives: The Effects of a Dairy Project in India. George Mergos and Roger Tadte No. 16. Macroeconomic Policies and Adjustment in Yugoslavia: Some Counterfactual Simulations. Fahrettin Yagci and Steven Kamin No. 17. Private Enterprise in Africa: Creating a Better Environment. Keith Marsden and Therese Belot No. 18. Rural Water Supply and Sanitation: Time for a Chanqe. Anthony A. Churchill, with the assistance of David de Ferranti, Robert Roche, Carolyn Tager, Alan A. Walters, and Anthony Yazer No. 19. The Public Revenue and Economic Policy in African Countries: An Overview of Issues and Policy Options. Dennis Anderson No. 22. Demographic Trends in China from 1950 to 1982. Kenneth Hill No. 23. Food Import Dependence in Somalia: Magnitude, Causes, and Policy Options. Y. Hossein Farzin No. 24. The Relationship of External Debt and Growth: Sudan's Experience, 1975-1984. Y. Hossein Farzi n No. 25. The Poor and the Poorest: Some Interim Findings. Michael Lipton No. 26. Road Transport Taxation in Developing Countries: The Design of User Charges and Taxes for Tunisia. David Newbery, Gordon Hughes, William D.O. Paterson, and Esra Bennathan No. 27. Trade and Industrial Policies in the Developing Countries of East Asia. Amarendra Bhattacharya and Johannes F. inn No. 28. Agricultural Trade Protectionism in Japan: A Survey. Delbert A. Fitchett No. 29. Multisector Framework for Analysis of Stabilization and Structural Adjustment Policies: The Case of Morocco. Abel M. Mateus and others No. 30. Improving the Quality of Textbooks in China. Barbara W. Searle and Michael Mertaugh with Anthony Read and Philip cohen (Continued on the inside back cover.) 5, 8- ~ World Bank Discussion Papers Making the Poor Creditworthy A Case Study of the Integrated Rural Development Program in India Robert V Pulley The World Bank Washington, D.C. Copyright C 1989 The World Bank 1818 H Street, N.W Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printingJuly 1989 Discussion Papers are not formal publications of the World Bank. They present preliminary and unpolished results of country analysis or research that is circulated to encourage discussion and comment; citation and the use ofsuch a paper should take account of its provisional character. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. Any maps that accompany the text have been prepared solely for the convenience of readers; the designations and presentation of material in them do not imply the expression of any opinion whatsoever on the part of the World Bank, its affiliates, or its Board or member countries concerning the legal status of any country, territory, city, or area or of the authorities thereof or concerning the delimitation of its boundaries or its national affiliation. Because of the informality and to present the results of research with the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to Director, Publications Department, at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to photocopy portions for classroom use is not required, though notification of such use having been made will be appreciated. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list and indexes of subjects, authors, and countries and regions; it is of value principally to libraries and institutional purchasers. The latest edition is available free of charge from Publications Sales Unit, Department F, The World Bank, 1818 H Street, N.W, Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iena, 75116 Paris, France. Robert V. Pulley is at present an economist in Country Department I of the World Bank's Europe, Middle East, and North Africa Regional Office; he was with the India Department of the Asia Regional Office when this paper was written. Library ofCongress Cataloging-in-Publication Data Pulley, Robert V., 1959- Making the poor creditworthy : a case study of the Integrated Rural Development Program in India / Robert V. Pulley. p. cm. -- (Wcrld Bank discussion papers ; 58) Bibliography: p. ISBN 0-8213-1267-7 1. Integrated Rural Development Programme (India) 2. Credit- -India. 3. Poor--India. I. Title. II. Series. HG3729.I42P86 1989 332.2--dc2O 89-16413 CIP EXECUTIVE SUMMARY India's Integrated Rural Development Program (IRDP) is among the world's most ambitious efforts at credit-based poverty alleviation. The IRDP was initiated a decade ago and has reached 27 million poor households through commercial banks which provide finance for investment in income generating assets. Credit is matched by capital subsidies of 33-50Z on household investment. Government spent Rs 4.7 bln on such subsidies in 1987-88, an amount which may increase in future years. The program has increased the asset holdings of about one quarter of all rural households in India. This paper examines the impact of the IRDP and the long-term viability of credit-led approaches to poverty alleviation. Success is assessed against the program's objectives including productivity of investments, real income gain by households, and credit repayment. Drawing on new data from the first panel survey of beneficiaries over a four-year period, the analysis identifies household characteristics, program features, and economic conditions that contribute to success. The paper also examines the extent to which the IRDP's structural objective of assuring that the poor have continuing access to institutional credit and banking services -- a goal of Indian credit policy since the early 1950s, is being achieved. The paper shows that providing some poor households with capital to invest in income generating assets can be an effective means of raising their incomes. Nevertheless, even where beneficiaries have succeeded in self-employment and repaid credit according to schedule, the program has not led to their continued access to banking services. With the interest rate on IRDP fixed by government at a rate below the banks' costs and interest rates on all priority lending in rural areas held below market clearing levels, banks choose not to lend additional funds after their obligation to achieve IRDP targets is satisfied. Although the high rates of interest and recovery observed in informal credit markets indicate that poor borrowers do pay for credit at a rate which covers costs, informal markets do not cater to the demand for long term investment capital. Honeylenders are unwilling to accept such risk except in exchange for long term labor contracts (i.e., bonded labor) to assure repayment, a condition prohibited by law. The paper points out that gains in productivity of investment and credit recovery can be made by altering certain delivery features of IRDP, but argues that the existing structure of incentives facing banks and borrowers are responsible for critical shortcomings. Low interest rates and large capital subsidies, although attractive to the poor in the short- term, are found not to be in their long-term interest since they distort investment scale and choice, preferences for self-employment, encourage misappropriation, and cause banks to limit their future lending to such clients. These facts together with the general environment of financial indiscipline which leads to high overdues (592) on IRDP loans threaten to marginalize large segments of the rural poor from institutional credit. The paper argues that future access to credit is essential not only to finance new investment to move households toward (and gradually over) the poverty threshold, but also to provide working capital to offset declining yields that occur on most existing IRDP assets. -iii- -iv- To overcome these problems, flexible instruments are needed. The paper suggests these should be: a) an interest rate which covers bank transaction costs and risk premia; b) a line of credit extended by commercial banks that guarantees the poor access to increasing finance as long as borrowers demonstrate creditworthiness by timely repayment; and c) interest rebates to protect the poor during their early relations with the banking system. Rebates, which would decline to zero with repeat borrowing over a pre-determined period of time, are a preferred means of subsidizing disadvantaged borrowers over the current system of capital subsidies since they encourage credit repayment and can be phased out gradually as income and asset holdings increase. Subsidies are justified on income distribution grounds, but also to offset market imperfections which would otherwise force the rural poor the pay the price of "smallness" when banks pursue cost recovery as recommended. The thrust of these changes is to move from the current system where bank actions are driven by the supply of subsidy funds and government enforcement of beneficiary lending targets to one where banks regain authority and responsibility for lending and recovery, borrowers exercise greater discretion over the size and timing of investment decisions, and eventually pay market rates of interest. Such transitions have proved enormously difficult in other developing countries, thus the framework of interest rebates and assured credit for borrowers that repay is designed to provide government with the maximum flexibility in determining the path and speed of adjustment. Although precise estimates of impact depend on the slope of this trajectory, the following generalized results can be expected from adopting the proposed changes. (i) The profitability of rural branches would improve, particularly for regional rural banks which have a large proportion of outstanding advances in this category. (ii) Poor borrowers would be protected from the increased interest rate to the extent that they service their debts through periodic (e.g., biannual) rebates of interest. (iii) Government expenditures on the capital subsidy would be redirected toward the rebate. The fiscal burden of subsidy payments would decline substantially in the medium term and ultimately to a low steady state level which reflects only the entry of new poor borrowers to the institutional credit window through IRDP. (iv) The marginal transaction costs banks incur in delivering credit to the poor should fall. Although there would be initial and possibly higher set-up costs associated with establishing each line of credit, the approach implies an "automaticity" which would reduce the cost of appraising small loans, overseeing procurement of assets, and intensive investment monitoring required in the current guidelines. This would moderate the required increase in interest rates [see (i)]. (v) The administrative costs incurred by government in managing the program would fall as a result of devolving greater responsibility to the banks for the IRDP and other steps such as improved identification of beneficiaries (on the basis of more transparent selection criteria). (vi) Recovery of bank capital should improve since incentives to repay would be enhanced through guaranteed access to future credit. Nevertheless, future bank losses would be strictly contained by cancelling lines of credit for those who misuse loans or fail to service debt obligations. This package of adjustments recognizes that not all poor households are good users of credit or appropriate targets for self- employment approaches to poverty alleviation. For those that can make productive use of such opportunities, efficient use of subsidies and special mechanisms to identify those who would otherwise pay the price of market imperfections may be necessary. By raising income and capital absorption for poor households, the need for directed credit for individuals becomes temporal. As long as there are poor people, however, there will be a need for programs like IRDP which represent a special window to the banking system for first-time borrowers. Adjustments are needed in IRDP to help secure its past successes and take it through the next important stage in its development, that is, making the poor creditworthy. Assuring access to capital for the poor who prove themselves to be responsible borrowers must become an important policy objective not only for government, but also for commercial banks seeking to expand their client base. -vi- ACKNOWLEDGEMENT 1. I am grateful to many individuals in government and research institutes for the support and cooperation they extended during the early stages of this study. In particular, I benefitted from the insights of Indrajit Khanna, D. Bandyopadhyay, N.J. Kurian, Zafar Saifullah, Kamal Kant Jaswal, S.S. Meenakshisundaram, Meera Saxena, and many officials at the National Bank for Agriculture and Rural Development and in District Rural Development Agencies (DRDAs) in Maharashtra, Karnataka, and Uttar Pradesh. I also wish to thank B.K Joshi, M.S. Ashraf, and the staff of Giri Institute for collecting the survey data on which this study is based and Mrs. B. Kamala and colleagues at Canara Bank for their interesting comments on rural banking. 2. During the analysis and writing of this paper, I received helpful comments and advice from many colleagues in the Bank. In particular, I wish to thank Samuel Lieberman, Roger Slade, Abdul Haji, David Greene, K. Subbarao, Jim Hanson, Dan Ritchie, and Margret Thalwitz. Finally, I am grateful to Lily Zandniapour for research assistance and to Maria Mogol who patiently typed the manuscript. TABLE OF CONTENTS Page I. Introduction ............................................... 1 II. Guidelines and Target Approach .. 3 III. Growth of Expenditures .. 4 IV. Genesis of Credit-based Poverty Alleviation Strategies ... 6 V. Evaluating IRDP Success .. 11 A. Distribution of Benefits ............................... 14 B. Viability of Investments i. Direct Productivity ............................... 16 ii. Retention of Investment ........................... 18 C. Changes in Household Income . . 27 i. Crossing the Poverty Line ......................... 27 ii. Relative Improvement in Income .................... 28 D. Repayment and Long-term Access to Credit . . 31 i. Credit Mobilization ............................... 32 ii. Overdues and Leakage .............................. 35 iii. Factors Contributing to Repayment Performance ..... 40 iv. Sustained Access to Credit ........................ 43 VI. Conclusion ................................................. 47 Bibliography .53 Annex I - Regression Results on Productivity of IRDP Investment . 59 Statistical Annex .61 -vii- I. INTRODUCTION 1. Significant reductions in relative poverty have been achieved in India during the last 15 years in line with government's strong commitment to growth and equity, but the number of Indians living below the poverty line remains high -- about 300 million. Approximately 40Z of India's population were still below this threshold in 1983. The Integrated Rural Development Program (IRDP) was initiated in selected districts during 1978-79 and quickly became the preeminent national program in the Sixth Plan's accelerated attack on rural poverty. The IRDP provides subsidized credit to families below the poverty line to finance productive investment in self-employment ventures. This is expected to yield incremental income sufficient to move households above the poverty threshold. Real expenditures to date are on the order of Rs 77 billion, approximately USD 6 billion. 2. The rich literature on IRDP has produced starkly differing conclusions on its success. Disagreements arise from different conceptions regarding objectives. Most studies have focused on a single or partial indicator of success or failure such as crossing the poverty line, targeting to eligible beneficiaries, productivity of the investment or credit recovery. This study links three critical components of success: distributional impact, productivity of the investment, and credit repayment to banking institutions. In addition, it highlights what framers recognized as the principle structural constraint on rural asset creation and employment for the poor -- sustained access to term credit from institutional sources. 3. Another feature of this study is an emphasis on long-term performance indicators. Past evaluations, based on two-year periods have not established the medium and longer-term viability of the program.l/ This study presents national statistics based on the two-year Concurrent Evaluation,2/ but draws heavily on new panel data with a longer reference period from 12 districts of Uttar Pradesh. The complete data set in U.P. covers 960 beneficiary households from 48 blocks, and 192 villages. 1/ There is a large body of excellent work on IRDP which I have drawn on in carrying out this study. Most of these studies also draw on the results of the national Concurrent Evaluation, but based on a two-year, as opposed to four-year period examined in this study. See, for example, H. Rao, N.J. Kurian, Copestake, Dantwala, Bandyopadhysy in bibliography. Many important studies on IRDP are cited in the bibliography although not all are referred to in the text. 2/ Dept. of Rural Development, Ministry of Agriculture. Concurrent Evaluation of IRDP: Main Findings of the Survey. See reports for October 1985-September 1988 and January- December 1987, New Delhi. The two surveys covered more than 26,000 households in different blocks and the second round also included some who received a second dose of assistance. Only the second round was based on a random sample thus making it useful in obtaining unbiased estimators in multivariate analysis. Some results for U.P. from both rounds ar- presented in the appendix, but only round 2 will be highlighted in the text and used in the models for this reason. -2- Surveyors reinterviewed beneficiaries in May 1988 that had received assets 4-5 years earlier and whose investments were still "intact" after the first round of interviews at the two-year point.3/ The follow-up was carried out at the end of one of the worst droughts in recent years in districts that were all affected to varying degrees. 4. With the help of logit analysis, it is possible to test various hypotheses regarding household characteristics, implementation features, and general economic conditions that contribute to productivity, and repayment objectives of IRDP. The factors that contribute to long-term viability in credit-based approaches to poverty alleviation are emphasized. Although model findings are relevant to Uttar Pradesh, results can be tested elsewhere using similar methods. 5. Chapter 2 briefly describes IRDP. Chapter 3 traces the growth of IRDP expenditures and discusses the scope for further increases in the Eighth Plan. Chapter 4 reviews the genesis of credit-based poverty alleviation efforts in India, noting particular features that framers originally had in mind for IRDP and where the program may have diverged from those concepts. Chapter 5 examines measures of success in IRDP and identifies factors that contribute to high impact. Chapter 6 summarizes findings and presents a framework for the program that should result in efficiency gains and assured access to capital for creditworthy poor. 6. Drawing conclusive results from IRDP data suffers from the difficulty of estimating rural household income. Beneficiaries may underestimate their resources to satisfy the income-based selection criteria and when surveyed after two years, sometimes mistrust the investigator or have imperfect recall of pre-IRDP earnings. The Concurrent Evaluation attempts to correct for the former by comparing the income of record at the time of inclusion in the program and the pre-IRDP income as estimated two years later by the investigator. This study utilizes income estimates made by surveyors since incomes reported by beneficiaries at the time of program selection are judged to seriously overstate the impact of the program. This choice, however, may introduce another bias arising from the ex post nature of these estimates since investigators may tend to impute positive change over the period of observation.4/ Income estimates after four years are likely to be seriously affected by the drought. 3/ Annex table Al traces the sampling system used for the data set in U.P. 4/ Surveyors in this instance estimated the Oprosent household income", which was two years after inclusion in IRDP, and then inputted the pre-IRDP income by questioning the beneficiary further. An attempt to overcome the possible bias this may give toward positive chango was made in the follow-up round by asking investigators to assess family income after four to five years without reference to either of their previous estimates. Survoyors returned to the fiold with only beneficiaries' names, addresses, and the type of investment made under IRDP. The dues position on the loan component was also confirmed for each household with the lending institution to avoid misrepresentation. -3- II. GUIDELINES AND TARGET APPROACH 7. The essence of IRDP is to provide a capital subsidy and complementary credit at below market interest rates to households below the official poverty line to finance productive investments in income- generating assets. These investments are expected to yield incremental income sufficient to permit repayment of credit and to lift recipient households above the poverty line. In principal, there are few restrictions on what can be financed. In practice, banks and other officials tend to restrict the choice to a list of predetermined options which includes milch animals, bullock pairs, animal-drawn carts, pumpsets for irrigation, retail shops and other micro-enterprises. Moreover, most credit is not disbursed in cash, but in kind thus further restricting borrower discretion. Although the poverty threshold is Rs 6400 p.a. for the Seventh Plan (1985-90), the maximum qualifying family income is Rs 4800 to ensure that the worst-off are given preference. At least 30% of total beneficiaries should belong to SC or ST and 302 should be females. In 1987-88, 43Z of assisted beneficiaries were SC/ST, but only 17Z were female.5/ 8. Selection of beneficiaries is entrusted to block level staff who are instructed to survey households, prepare a list of qualified beneficiaries, and submit it to the traditional "Gram Sabha" or village assembly for approval. Block officials are to assist those selected in choosing viable investments, completing loan applications, and submitting them to the banks who are under pressure to approve them. Interest rates are fixed at 10% and repayment periods, minimum financing, and type of investments are also predetermined by the National Bank for Agriculture and Rural Development (NABARD) though they are sometimes ignored. NABARD provides automatic refinance at 6.5% for all IRDP loans. At loan approval, bank credit is matched by the government capital subsidy, which varies from 25% to 50Z depending on households' socio-economic characteristics such as landholding (small farmers receive least subsidy) or tribal status (highest). Despite this preference for the relatively disadvantaged, the largest subsidies often go to better-off beneficiaries as their ability to absorb credit is generally higher. Small farmers, the best-off occupational group in U.P., received an average subsidy of Rs 1640 while casual landless laborers received only Rs 1425. The current system of subsidy allocation thus provides most to those who need it least. 9. Physical and financial targets are determined for each district and block in the country by government administrators. The assumed Incremental Capital Output Ratio for the Seventh Plan is 2.7. Availability of subsidy funds, rather than demand for credit, generally drives the system and measures of performance are input based. For example, releases of government funds are tied to the pace of expenditures and program monitoring is based on the amount of funds expended and numbers/types of beneficiaries reached each year. There is no necessary relationship between these indicators and the desired output of the IRDP, that is, sustained self-employment leading to poverty alleviation and access to credit. A critical flaw in the current approach is the lack of performance or output based indicators on which to base future allocations. Recent 6/ National Seminar on Poverty Alleviation Programs, Department of Rural Development, New Delhi, February 12, 1988, p. 48. -4- reforms in the allocative mechanism that increase funds for states with higher incidence of poverty still establish block and beneficiary targets without reference to the capacity of beneficiaries to absorb, and bankers'/administrators' ability to dispense loans and monitor the quality of lending. The target-driven system also fails to fully account for differences in investment opportunities among blocks and districts. Variations in asset-related infrastructure, inputs, services, marketing/sales opportunities all influence the numbers of poor that can be effectively served through IRDP and the average ICOR prevailing in given areas. 10. A major weakness of IRDP is its assumption that poor families' demand for credit and self-employment is primarily a function of their low asset position. The poor are not homogeneous, however, in their ability to utilize credit for investment. A poor household's need for assets and income is distinct from its demand for credit to finance them or the household's suitability for self-employment. Demand for credit for self- employment is a function not only of expected net incremental family income from the investment, but other factors such as previous indebtedness, preferences for current vs. future consumption, skill base, and entrepreneurship. III. GROWTH OF EXPENDITURES 11. Real expenditure on IRDP has increased 14Z per year on average since 1980-81. This exceeded the 8.5Z real growth in Central Plan expenditures (Table 3.1). Term credit accounted 62Z of investment in 1987/88 with the balance covered in equal shares by central and state government budgets. The bulk of government allocations flow to beneficiaries as a capital subsidy on assets, but lOZ of investment is provided to the District Rural Development Agencies (DRDAs) to cover certain non-staff administrative expenses and 1OZ are discretionary funds for financing small asset-related infrastructure.6/ Between 1980/81-1987/88, real IRDP investment, including bank credit and budgetary outlays, amounted to Rs 77 billion (USD 6 billion). Delivery costs of banks and staff expenses for the estimated 60,000 public employees at the district and block level that have varying levels of responsibility for the program were 8.3Z of total investment. 8/ Districts are exp.cted to cover expenses for the Training of Rural Youth in Self- Employment (TRYSEM) program from the IRDP infrastructure funds. -5- Table 3.1: Real Investment in rRDP (All-India) (Bins. Rc) 1980-81 81-82 82-83 83-84 84-86 86-86 86-87 87-88 Cumulative Total Credit 2.9 4.3 6 a 6.7 6.4 7.2 6.4 44.9 Government Subsidy 1/ 1.6 2.4 3 3.2 3.7 383 4.8 4.7 26.2 Bank admin. expenses 2/ .2 .3 .5 .S .6 .4 .6 .6 3.5 Government personnel xpenses / .2 . .4 .4 .4 .4 .5 .4 2.9 Total 4.9 7.3 9.8 10 11.3 9.5 12.5 12 77 Central Plan Expenditures 90 94 106 114 126 14a 156 169 988 1/ Includes State and Central Government outlays. Excludes personnel-related expenditures. Includes some funds for asset-related infrastructure and non-staff expenses incurred by blocks. 2/ Estimated at 5X of total outlays, based on national statistics of Conara Bank. 3/ Extrapolation. Based on estimates made for 1988 in typical block for U.P. of Rs 86,000 (x5143 blocks) = .44 billion, 4X of outlays in 87-88. Note: See Annex tables A2-4 for detail, Sixth Plan 1980-86, Seventh Plan 1985-90. 12. The Sixth and Seventh Plan targets were 15 and 20 million households respectively.7/ Although current estimates by the Department of Rural Development indicate that perhaps only 17-18 million will be reached during the Seventh Plan, it is expected that the target will be raised to 30 million households during the Eighth Plan. Such a large increase (75Z) raises serious questions as to whether the already strained system can cope without further reductions in the quality of implementation. If the Public Accounts Committee recommendation that average per beneficiary investment increase to Rs 7000 is adopted, the cost escalation implied by such an increase is also significant since outlays averaged only Rs 4470 per beneficiary in 87/88 in current Rp terms. Government contends that despite continuous increases, average investment levels have remained insufficient to move most households over the poverty line (see annex table A2). 13. The expected increase in beneficiaries raise the issue of whether saturation levels are already being reached in some areas. The panel survey in U.P. permits measurement of village saturation. On average, 22Z of the village population had benefitted from IRDP in the districts surveyed.8/ This ranged from 3Z in one village to 612 in another. High 7/ Coverage now exceeds 27 million rural families, approximately 13S million rural people. This figure includes 6 million families that received a Osecond dose' of assistance during the Seventh Plan because they failed to cross the poverty line. 8/ Measured as the number of households in the villago included in IRDP X average family sizo (6)/village population. -6- saturation in certain villages has also led to increasing competition among the small-scale self-employment ventures that IRDP finances. Households in U.P. reported that ten other people on average in their village had received assets similar to their own through IRDP. The average number of similar schemes in the village not financed through IRDP was 21. Thus the program has already become a significant contributor to village production/services in its selected areas of finance. Increases of the magnitude being discussed for the Eighth Plan may be questionable on grounds of administrative feasibility and quality, but also, may exacerbate the low and declining yields for the most common investments. IV. GENESIS OF CREDIT-BASED POVERTY ALLEVIATION STRATEGIES 14. Programs to promote assured access to banking services for the poor in rural areas have been evolving since the early 1950s. Rural credit and poverty alleviation have thus become inextricably linked in India over the past three decades. IRDP is merely the latest and largest in a long series of programs and institutions established to reduce perceived exploitation of the poor by informal money lenders. The All-India Rural Credit Survey (AIRCS) published by the Committee of Direction in 1954 was the first to reveal the high degree (88Z) of rural dependence on higher cost non-institutional credit.9/ Inadequate supply of institutional credit was then identified as a major constraint on increasing productivity in rural India. A primary hindrance at that time was assumed to be the lack of banking infrastructure thus State Bank of India was established in 1955 to increase flows by opening rural branches. Division between urban lending dominated by private commercial banks, and rural lending which was generally the responsibility of cooperatives nevertheless continued until 1969 when banks were nationalized. An important justification given for the nationalization was to force commercial banks to extend their reach to rural areas in general, and rural poor in particular. The number of rural branches of commercial banks grew thereafter from 1,832 in 1969 to over 30,000 at present, 56Z of the total branches in the country. The Committee also identified the lack of collateral as a handicap for rural households in obtaining credit and suggested that banks base their creditworthiness appraisal on the expected returns to the investment rather than assets of the household. 15. In 1977, the All India Rural Credit Review Committee (AIRCRC)10/ revealed some improvement in institutional credit from 1951-71 for cultivator households, but the situation for non-cultivators worsened 9/ Only 12% of rural household debt was owed to institutional sources at that time with the remainder supplied by landlords, monoylenders, traders, relatives and friends. See A.D. Gorwala. Reserve Bank of India (1964), All India Rural Credit Survey, Report of the Committoe of Diroctor, Bombay. 10/ Rosorve Bank of India (1977), All India Dobt and Investment Survey (1971-72), 'Indebtedness of Rural Households as of June 30, 1971 and Availability of Institutional Financel, Bombay. -7- despite the spread of banking infrastructure.ll/ Even moneylenders were generally unwilling to provide medium or long-term credit to this group except in exchange for equally long labor contracts and Primary Agricultural Cooperatives (PACs) were tailored to cultivators' demand for short-term crop finance. Other programs such as the Small and Marginal Farmers' Development Agencies (SFDA/MFAL) were launched in the 70s and focused on increasing the supply of term credit as a bureaucratic means to overcome productivity constraints.12/ In general, programs continued to benefit rural households with land or other collateral. 16. There was a marked difference between these agencies, which emphasized facilitating rural growth through credit and technology adoption and a new view, also emerging in the early 70s, of growth with social justice through credit. Adherents of the latter strategy in academia and government began to see banks not simply as profit maximizers channeling investment to the most productive uses, but as underutilized institutions to be activated for affirmative action, social engineering, and redistribution of wealth. This change in perception was first manifested by the Differential Interest Rate (DIR) scheme foisted upon the newly nationalized commercial banks in 1971. Under the DIR, public sector banks were instructed to channel at least 12 of their outstanding advances into productive ventures for families with incomes and landholdings below a certain threshold. Many banks saw DIR lending with its highly subsidized interest rates and overdues generally exceeding 50Z as the social cost of doing business and seldom exerted themselves on recovery.13/ The DIR scheme 11/ Share of debt owed to institutional sources increased from 12% (1961) to 31.6X (1971) for cultivator households, but for non-cultivators the share of debt owed to money lenders, relatives, friends and other informal sources actually increseod from 88X to 90X during the period. Forty percent of rural households (78 million) fell into the category of non-cultivators or had assets less than Rs 2500 in 1971. Further analysis demonstrated that the lower a household's asset base, the larger is the share of debt incurred for consumption and the higher the average interest rate. 12/ SFDA/MFAL were centrally-sponsored registered associations with a mandate to channel subsidies and increase the flow of investments to small/marginal farmers and agricultural laborer through banks, PACs and other intermediaries. Farmers Service Societies (FSS) and Large Agricultural Multipurpose Cooperative Societies (LAMPS) were also set up to extend the size and range of services provided by credit cooperatives to areas such as marketing, storage, extension, and input supply. 13/ The interest rate in DIR is set at 4X and banks are expected to cover losses through cross subsidies. Eligibility criteria for DIR operative in 1986 were that family income be below Rs 7200 pa. in urban/semi-urban areas or Rs 6400 in rural, that the borrowers employ no outside labor, and if SC/ST, operational holding should not exceed 1 acre irrigated or 2.5 acres non-irrigated land. No collateral or third party guarantees are required and assets purchased are hypothecated to the bank. -8- shattered the traditional view that banks should earn a net positive return on individual loans in favor of cross subsidization to underwrite expected losses on priority rural credit. Although the interest rate on IRDP was higher than DIR (10% vs. 4Z), it offered beneficiaries not only below market interest rates, but also capital subsidies -- a new variant on rural credit. 17. Another new institution, the Regional Rural Bank (RRB), was established in 1975 to augment the supply of credit and provide a low-cost alternative to rural branches of commercial banks that would lend exclusively to the poor using simplified procedures.141 The Banking Commission which recommended their formation in 1972 called for 49Z local ownership of RRBs and 51Z by sponsoring commercial banks thus combining the ownership-cum-responsibility strengths of cooperativism with the efficiency of commercial banks. The government ignored this critical dimension, allotting 50% ownership of the RRBs to the central government, 35% to sponsor banks, and 15Z to state governments. No equity remained for local borrowers/depositors -- a factor that may continue to negatively affect both appraisal standards and repayment ethics in these institutions. Recent directives by the Ministry of Finance are likely to worsen the situation since central government ownership through the National Bank for Agriculture and Rural Development (NABARD) has been increased to 60% and state governments' share to 20%. Although commercial banks are certain to be pleased that the drain on their profitable operations arising from below market interest rates and low recoveries of RRBs may diminish, as a result in this change which reduces their stake from 35% to 20%, financial discipline in lending to the poor can be expected to deteriorate further. RRBs will increasingly be viewed as an arm of government rather than independent institutions which are subject to the consequences of their own decisions. 18. The 1981 report of the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) cemented the profound shift in the perception of banks' social role.15/ It argued that in order to foster growth with social justice, credit must be made available to the poor. Appraisal standards for the poor were to shift from emphasis on collateral toward assessment of the viability of the investment itself. Although cooperative credit institutions had been urged to accept this concept more than two decades earlier, institutional credit continued to discriminate against the assetless poor by requiring collateral or third party guarantees for most loans. CRAFICARD traced the 14/ Datta, B. 'Regional Rural Banks,' EPW, Sept. 1, 1978. Despite the five-fold rise in the number of rural branches of commercial banks to 36% of their total offices between 1989-77, such branches represented only 9% of deposits and 8x of advances. 15/ Report of the Committee to Review Arrangements for Institutional Credit for Agricultur- and Rural Developmnt (CRAFICARD), Reserve Bank of India, Bombay, 1981. For an excellent review of the CRAFICARD study, see S. Tendulkxr, Rural Institutional Credit and Rural Development, Indian Economic Review, Vol. XVIII, No. 1, 1983, pp. 101-137. -9- basic cause of poverty to the low resource base of the rural poor, their continued heavy dependence on non-institutional credit for consumption finance, and lack of access to medium and long-term finance for productive investment. It postulated that the poor, if given access to credit for investment in productive assets (physical and skills), would increase their incomes through self-employment. 19. CRAFICARD provided the conceptual underpinning for expanding IRDP yet many of its key recommendations were not incorporated into the program. It envisaged a household approach to poverty eradication spearheaded by banks that would classify poor households into three groups: those who could be made viable with loan assistance; those that would need loan plus a capital subsidy to become viable; and the non-viable poor who require special assistance in the form of social security. CRAFICARD's target groups were small and marginal farmers, agricultural laborers, rural artisans, and Scheduled Castes/Tribes (SC/ST). IRDP did adopt an income standard for eligibility, but provided no means to separate out those who could become "viable" through credit. The Committee noted that new delivery mechanisms were necessary to supply the poor with credit because dispersion and small loan size raised transaction costs. Organizing poor households into functional groups would help banks achieve economies of scale thus improving the efficiency of such operations. This dimension was largely forgotten in IRDP. Planners continued to focus on the lack of security and income which constrain the poor in obtaining access to credit rather than devising innovative means to offset the higher costs inherent in delivering banking services to the poor. Given unrealistically low fixed interest rates on priority rural credit, the high costs associated with lending small amounts to large numbers of scattered borrowers were the primary cause of market failure. The committee recognized that an individual, scattered or ad hoc approach to lending which did not take into account an area plan and the demand for credit could result in increasing indebtedness of the poor instead of credit serving as an instrument for poverty alleviation, yet the IRDP emphasis on targets, expenditures and supply of credit for individual households did not foster an integrated or demand-led approach to lending. 20. The special characteristics of the rural poor including illiteracy, unfamiliarity with modern business practices, underemployment and lack of assets required that banks provide a supervised and personal service using rural-oriented, and preferably locally-recruited, staff. Simplifying procedures was essential if the poor were to evolve as future clients for the commercial banks -- a long-term goal. Aside from IRDP, however, which banks see as a special program, other areas of financial services have not been simplified to any great extent and few banks have made attempts to recruit motivated staff for these positions. CRAFICARD admitted that concessional interest rates for the poor and the staff intensive approach to rural lending would mean that banks could not cover costs even with efficiency gains captured through group lending. It therefore suggested cross subsidizing high cost-low interest loans to the rural poor with low cost-high interest bearing loans in urban and industrial areas. For cooperatives or RRBs whose exclusive domain is rural, (thus opportunities for cross subsidizing are limited), it was expected that lower cost structures and growing clientele would allow full cost recovery. If this failed, however, more explicit subsidies would be considered. -10- 21. CRAFICARD stated that assets financed should generate sufficient income for households to repay the loan with interest and leave a surplus for improving their standard of living. This was to be the yardstick by which success would be measured, but IRDP recovery has usually been relegated to secondary importance at best by bureaucrats selecting beneficiaries for the program. Rising overdues in rural cooperatives were viewed by the Committee as a mortal danger for the entire rural institutional credit system as it might choke off liquidity and future refinance. State governments were chastised for encouraging lax recovery by banning coercive action against defaulters, or occasionally writing off debts before elections. Positive and negative incentives were recommended to rectify the situation. First, interest rates should be increased slightly, but cooperative banks should offer a rebate to those who repay on time. Second, it suggested a presumption of willful default with criminal penalties unless a borrower proved otherwise, publishing lists of defaulters, (particularly landholders) and applying criminal sanctions on anyone who incited borrowers to default. Both recommendations were largely ignored and as the Committee predicted, overdues averaging 60% threaten IRDP with extinction. Eligibility criteria based on recovery position that now govern NABARD refinance also threaten to reduce liquidity in rural institutional credit. The most serious consequence of a failure to improve financial discipline in rural lending is that a large and rising proportion of poor will be excluded from the banking system since delinquency on IRDP debts is causing them to be classified as defaulters. 22. Credit schemes operated by the banking system for poverty alleviation have proliferated in recent years. In addition to IRDP which is the largest, banks also provide credit on favorable terms and subsidies to other programs in the government's 20 Point Program for Development.16/ The most recent institutional response to the problem of how to provide integrated credit delivery to the poor with lower transaction costs is the "Service Area Scheme' (SAS) effective for all banks January 1, 1989. This approach is a quantum step beyond the earlier "Lead Bank Scheme', which attempted to coordinate bank activity within a district since it assigns 15-20 villages exclusively to each branch for lending purposes. Banks are expected to survey forward and backward linkages available in their service area and then offer finance for viable investment. This continues the government's preoccupation with supply-driven credit and micro-level planning, but where districts and blocks have apparently failed in the past to ensure adequate linkages, banks have now been given this task. 1S/ These include the Self-Employment Programs for Educated Unemployed Youth (SEEUY), Self-Employment Program for Urban poor (SEPUP), Composite Loans to Artisans, Village, and Cottage Industries, credit to beneficiarios under the Drought Prone Areas program, Rehabilitation of Bonded Laborers, loans for wolfare institutions and handicapped wishing to invest in income generating activities, the Special Component Plan for SC/ST, housing loan schemes, and the Development of Women and Children in Rural Areas (DWACRA). For each program, there are stipulated interest rates (10-16.6%), margin and security requirements, and target groups. -11- 23. The risks inherent in the SAS must be weighed against potential efficiencies that might be realized. First, in the context of rural India, where bank officials have been known to demand "consideration money" from borrowers for sanctioning loan applications, the scheme creates monopoly lenders. Concentration of financial services in one bank is patently anti- competitive and not in the long-term interests of the poor with their weak bargaining position. Second, the SAS increases exposure of banks to default risk since lending will be limited to particular areas which may be disproportionately affected by unexpected adverse economic shocks such as drought, flood, etc. Banks cannot be held responsible for the results of their lending decisions when unable to cushion themselves against such risks. Third, the SAS is designed to improve banking services by reducing the area coverage, but the impact on efficiency is uncertain since it will likely be necessary for banks to open new offices to achieve the required ratios of villages per branch. V. EVALUATING IRDP SUCCESS 24. Viewed against the historical backdrop of the development of rural credit in India, it is evident that the original intent of IRDP was to provide access to efficient and non-collateralized sources of institutional credit for the rural poor. Once this access is assured, household demand and absorptive capacity should then govern credit flows. The successful results of such an intervention, are first, an increase in asset holdings of disadvantaged households; second, a viable investment that provides sustained income from self-employment; and third, repayment of credit leading to future access to banking services for the poor. These are the three principal objectives against which IRDP success should be judged. 25. Table 5.1 presents an array of success criteria to emphasize the point that judgment regarding outcome is a function of how many of IRDP's multiple objectives are imposed simultaneously. For example, the targeting or distributional objective of including only households with incomes below Rs 4800 p.a. is satisfied in 69Z of cases nationally (Column 1). Retention for at least two years, a proxy for a viable investment whose benefits likely exceed costs, results in a similarly impressive result of 72Z success (Column 2). Imposing more difficult conditions of credit repayment and income gain sufficient to raise households above the poverty line within the two-year period triggers a dramatic decline. For example, only 29% of households retained investments for two years and repaid credit on time (Column 3). Applying government's official criteria of raising eligible beneficiaries above the poverty line gives even more dismal results. Although 72 of beneficiaries satisfied this criteria (Column 4), only 12 managed to do so while maintaining a perfect repayment record (Column 5). -12- Tabl. 6.1 Measuros of Success for IRDP1/ Major States X Eligikl) X Invest nte X Intact and No X Eligible X Eligible and Benef. Intact ' Credit Overdue and Crossed and Crossed Poverty > Pov-rIy Line and No Credit ; L;n* bX Overdue Andhra Pradesh s8X 75X 34% 9% 1% Arunachal Pradesh 73% s1X 38% 4X 4% Assam 27% 70% 6% 10% 2X Bihar 76X 86X 18% 3% 1% Gujarat 78X 88% 43% 4% 0% Haryana 71% 46% 1S% OX 0% Himachal Pradesh 87X 86X 46X 29X 3% Jammu and Kashmir 97% 80X S0% 19% 0% Karnoteka 8SX 64% 28X 4X 1X Kerala 89% 74X 19% 6% 0% Madhya Pradesh 81% 73% 27X 6X OX Maharashtra 83% 69% 30% 10% 1% Orissa 83% 68X 19% 7X 2% Punjab 30% 77% 57% 18% OX Rajasthan 72% 48% 1S% 9X 1% Tamil Nadu 83% 63X 28X 3X 1X Uttar Pradesh 64% 79X 41% S% 1% West Bengal 46% 97% 23X 8% 1% Average Major states 70% 73% 29% 7% 1% Other States A UTs 2/ 63% s8X 28X 8% 5% NATIONAL AVERAGE 69% 72X 29X 7% 1% 1/ National Concurrent Evaluation of IRDP, Round 2, 1987, DRD. 2/ Manipur, Megalaya, Nagaland, Tripura, A A N Isi, Chandigarh, Dadra & NH, Delhi, Goa, Lakshwadeep, Mizoram, Pondicherry, Sikkim 3/ Proportion of IRDP investments that remained fully operational after two years 4/ Proportion of beneficiaries with pre-IRDP income <=Rs 4800 S/ Proportion of beneficiaries with pre-IRDP income <=Rs 4800 and income >=Rs 6400 after two years in current price terms Note: See annex table AS for additional detail 26. A major weakness in all these measures is that they are based on short-term data (two years) when many of IRDP's objectives are longer term. It is unrealistic to assume that most poor households can propel themselves out of poverty over a short period of time. The effectiveness of IRDP investments in achieving its objectives is a proposition that can only be tested over a longer period. Table 5.2 presents results after four years from the panel survey in U.P. In addition to the longitudinal analysis this permits, the new survey also enables one to develop a new typology of success based on the program's multiple objectives. Each of the three major objectives on reaching the disadvantaged, demonstrated viability of self-employment as revealed by asset retention, and satisfactory repayment are shown as partial success criteria. -13- Table 5.2: IRDP Success in U.P 1/ -----------------Partial Criteria---------------- Disadvantagl) Retention of Overdues Composite Households Investment Rs 4800. See table 5.3. -14- in the program, are engaged in sustained self-employment activities and repaid credit. For at least these households that succeeded on all indicators, one would expect that future institutional credit would be forthcoming yet less than 7Z of these households (1Z of beneficiaries overall) returned to the bank and were granted additional loans outside of IRDP (Annex Tables A27-28). Thus while the program has succeeded to a certain degree in getting non-collateralized institutional credit to the disadvantaged, it has happened only once. Even the highest standards of performance have not earned these households sustained access to the system. Administrative costs incurred by banks and government on IRDP, earlier estimated at 82 of investment, appear much more expensive when viewed against success in the program's structural challenge of providing assured access to institutional credit. 30. The partial criteria outlined above will be examined separately in order to identify the important explanatory variables that contribute to success for each. This approach underlines the fact that credit-based poverty alleviation is a complex process which requires a simultaneous attack on many different fronts if it is to succeed. The point of the analysis is to identify these factors. The three general criteria: distribution of assets, viability of investments, and recovery/access to credit will be discussed, first for the country as a whole, and second, for U.P. in particular. Because the published national data is too aggregated and short-term to explain these contributing factors satisfactorily, the data from U.P. will be relied on to provide meaningful results that can then be tested in other areas. The official objective of crossing the poverty line will also be examined along with a more realistic variant -- that is, relative improvements in household income. A. DISTRIBUTION OF BENEFITS 31. A repeated criticism of IRDP is that it is not reaching the genuine poor. Although the situation varies by state, evaluative data indicate that the program on a national basis is achieving its welfare objectives (Table 5.3). GOI classifies rural poor into four categories based on income criteria. Of the estimated 222 million rural poor below the poverty line in 1984-85 on an All-India basis, 22 were considered 'destitute", 14% "very very poor", 38Z "very poor", and 46Z 'poor". One- quarter of IRDP beneficiaries nationally fall into the destitute category. The program thus appears to be achieving its affirmative action goal of assisting the poorest first. Only 8Z of beneficiaries were judged to be above the income cutoff (Rs 4800) thus officially ineligible (Annex Table A6). If the other criteria on land holdings, education, and social status employed in the U.P. survey to determine disadvantaged status were available for the national sample, this proportion would become negligible (paragraph 27). The conclusion from these results is that the program is currently directed to relatively disadvantaged households in rural India, even in states/territories which show a high degree of official leakage according to overly strict income-based measures. -15- Table 5.3: Income Distribution of IRDP Beneficiaries Income Rural Population Beneficiaries U.P.3/ Range Below Poverty Line of IRDP (All India)I/ (All India)2/ 1984-8S Destitute 50Z) in 77Z of cases (Table 5.10). Table 5.9: Retention of IRDP Schemes in U.P. (Logit Regression - Dependent Variable Retention IRDP Investment for 4 Years) Wald Explanatory Variables Coeff Chi-Square P r Statistic Intercept -3.12 2.3 .12 Pre-IRDP Occupation 1.17 9 .003 .1S Pre-IRDP Income Group/ .0003 8.5 .003 .15 Divisibility of Investment -2.4 24 .0000 .28 Passbook issued? (Yes=1) 1.4 13 .0002 .2 87/88 Drought impact -5.6 10 .001 .17 Incidental Costs of Invgqtment2/ -.02 8 .004 .15 Primary School CoveragoI .0/ 6.7 .009 .13 Village Tendency to Default4/ -.84 4.5 .03 .09 Intensity of Market Search(days) .52 4.3 .04 .09 Model Chi-Square = 78 w/9 df(-2 log L.R.) P =.0000 R =.45 Somers DYX = .87 Retention = 1 (134) 219 Observations Retention = 0 (85) 1/ Pre-IRDP mean income level estimated for each category of beneficiaries (i.e., Destitute/Very Very Poor, Very Poor, Poor, and Above Poverty Line) as a four-way discrete classification. 2/ Amount expended by beneficiaries on visits to bank, block, other offices in the process of obtaining the asset. 3/ Number of primary schools per 100,000 population in district. 4/ Default villages identified as those where 40X or more of beneficiaries had repaid no credit during the first two years. 20/ Nineteen beneficiaries that were reported to have moved or died during the follow-up survey were dropped from the sample since their status could not be determined. Since the follow-up survey round in U.P. covered beneficiaries that had assets intact after the first round of interviews, only data generated from the first round of interviews could be utilized to construct variables. For future panel surveys, beneficiaries that lost the asset during the first two years should also be covered if possible since this would likely provide additional explanatory power in modeling. 21/ The model calculates maximum likelihood estimates for the parameters associated with each of the explanatory variable. Partial r statistics indicate the contribution of each variable. (r=0 signifies no contribution). (r=(( MLE chi sq - 2)/ -2L(O) )) 1/2. P-erson correlation coefficients for the variables are calculated and presented in annex table AlS along with their significance levels. -24- Table 5.10: Predicted Versus Actual Outcomo for IRDP Invostmont Retention in U.P. Predicted Actual: Not Rotainod Retain-ed Not retainod for 4 yoars 52* 33 Rotainod 18 1160 *Corroct Prodictions = 168 (77X) Incorroct = S1 Source: Annex Table A1S for detail. 46. Variables can be classified according to beneficiary characteristics, those specific to the investment and program implementation, and those that capture inter-district variations in economic conditions. Among the beneficiary characteristic variables, the significance of occupation indicates that classification as marginal farmers and agricultural laborers, groups that are less endowed with land and/or skills and experience in self-employment than small farmers, artisans, and non-agricultural self-employed, reduces the likelihood that investments will be retained over the longer term. Closely linked to this is the estimate of pre-IRDP income of the beneficiary household. Higher income prior to inclusion in the program increases the likelihood that the assets will be retained over the longer term. This supports the hypothesis that beneficiaries that have the greatest liabilities in terms of short term vulnerability to unanticipated shocks are less likely to derive long- term welfare gains from IRDP investments. 47. Beneficiaries' motivation to pursue self-employment is also significant in determining the likelihood of retention. Some households are motivated primarily by the capital subsidy and may not be counted on to devote their full efforts to maintaining assets in full working condition. It is impossible to measure this motivation directly, but a proxy, "intensity of market search", was constructed based on the number of days beneficiaries spent on trips to the market prior to procuring the IRDP asset. A longer search increased the probability of long-term retention. Even for those who were forced to spend more time due to supply constraints for assets in the local market, a longer search indicates a degree of household persistence and motivation. The hypothesis is that such beneficiaries are less likely to pursue IRDP for short-term inducement by the capital subsidy. Beneficiaries that undertook a more intensive search may also have succeeded in procuring higher quality assets. 48. Although pre-IRDP income, resource endowment and motivation are important, the type of investment financed is also very influential in the model. A dummy variable contrasts investments that are highly divisible (Divisibility=l) (i.e., bullock pairs, implements, small animal husbandry) with dairy, irrigation, and secondary/tertiary schemes which are not as susceptible to decapitalization. Banks should give more careful attention to appraisal of these types of investments since they are characterized by a high failure rate. Neither the size of the investment, nor its breakdown into credit and subsidy components, had any impact on retention. Raising the level of per beneficiary investment as suggested by some observers is thus not likely to improve the long term success of households in maintaining assets. -25- 49. Corruption in IRDP is also likely to have a negative impact on the probability of retention. A proxy for differential rates of administrative misappropriation was constructed from data reported by households on the costs they incurred on visits to the block, bank and other offices in the process of obtaining the asset. Higher costs reduced the likelihood of investment retention. This may be because beneficiaries that have been forced to pay consideration money feel less obligated to retain investments. Administrators, bankers, or suppliers that have accepted such payments are in a weak position to criticize beneficiaries for their decision to dispose of investments. 50. Other features of program implementation that influence long-term retention are the actions and attitudes of banking intermediaries. Failure to issue a loan passbook, which occurred in 35Z of cases in U.P., is a proxy for bank seriousness in loan appraisal and follow-up. This indicates that some banks ignored established standard commercial lending practices and guidelines of the IRDP. Such laxity resulted in lower probability of investment retention. The likelihood of passbook issuance is not systematically related to either the pre-IRDP income level of the beneficiary or the size of loan. Average credit extended was actually somewhat higher for the non-passbook group. Many bankers claimed in informal discussions that the decision to issue a passbook mainly reflects manpower availability at the branch level. They also claim that they are increasingly issuing passbooks despite serious staff constraints. Since data on this question is not tabulated in the two rounds of the Concurrent Evaluation, this trend is difficult to verify. The main point is that better attention to standard lending practices by banks would probably improve the probability of retention. 51. Village tendency to default is a dummy variable which indicates those villages where 40Z or more of beneficiaries had made no repayments on IRDP credit during the first two years of observation. The hypothesis that asset retention is influenced by the village propensity to default rests on the assumption that beneficiaries in such villages tend to view subsidized credit as government largess rather than an obligation to earn a positive return on the investment and repay loans through self-employment. This attitude reflects other factors and may, for example, be a manifestation of political interference in rural credit or lax attitudes on the part of some banks. Greater attention to repayment ethics, however, is needed to improve the climate for sustained self-employment. 52. Two district variables are also significant in influencing success. The 87188 drought variable indicates that such unanticipated economic shocks are likely to have a very negative influence on the probability of asset retention. Beneficiaries will reduce asset holdings when demands for cash rise unexpectedly. One district level variable which is significant in explaining differential success is primary school coverage. This variable is mainly of use as an indicator of social infrastructure more generally, but is difficult to interpret since it is probably associated with other indicators of district development status. The implication, however, is that districts better endowed with social -26- infrastructure create better environments for success in self-employment.22/ 53. In order to determine the strength of different variables in improving sustainability for target beneficiaries, simulations were run in order to calculate the probabilities of retention as explanatory variables take on different series values. Because they require logarithmic transformation, this is the clearest means to understand coefficient estimates in logit models. Table 5.11 presents the assumptions for the 'best" and 'worst" case scenarios for asset retention based on the estimated equation. Between the extremes of 0X and 99.9Z probability calculated in the model for these two cases, it is clear that there are policy levers available to affect the likelihood of retention without compromising the goal of assisting the most disadvantaged rural population. Table 5.11: Calculated Probabilities of Retention Variabl- Best Case Worst Case Intermediate Case Occupation Not Marg Form/Ag Laborer Marginal Former/Ag. Laborer MF, AL Pro-IRDP Income Group Above Poverty Line Destitute/VV Poor Destitute, VVP Divisibility of asset Low High Low Passbook Issued Yes No Yos 87/88 Drought 29X shortfall 77X shortfall 59% (moan) Incidental costs of Investment 0 Rp200 42 (mean) Primary School Coverage 81 57 68 (mean) Village Tendency to Default Low high Low Intensity of Markot Soerch 10 de O d 2 days (mean) Probability of R-tentionl/ 9 SXex 1/ Probabilities are calculated by substituting assumed values of the variables into the following term .sxBX2. S3Xn and using the estimated coofficients found in table S.9. Taking the extreme values in the range for each variable results in probabilitios of 99.9 or 0%. Changing the assumptions in this way allows the modol to be used to estimato sensitivity of retention to different factors. 54. The intermediate case shown in column three indicates that even for marginal farmers and agricultural laborers in the lowest pre-IRDP income group, the probability of retention can be raised to 66Z by changing certain parameters. First, if the program can exclude those who are not really motivated toward self employment (i.e., those attracted by subsidy), it would improve the sustainability of investments. Second, beneficiaries should invest in assets not highly subject to decapitalization (e.g., small animal husbandry). Third, banks should issue passbooks and carry out careful appraisal and follow-up. Finally, the case assumes that costs beneficiaries incur on trips to the bank, block, and other offices prior to 22/ Several variablos that were tried in the model were interesting in that they did nothing to improve retention likclihood. The involvement of Gram Sabha in selection of beneficiaries made no contribution. Delays in extending tho assistance by the block or bank had no impact except where they resulted in monetary costs to th- beneficiary (i.e., administrativo misappropriation). Tho size of the investment, term of the loan and the type of payment schedule (monthly, yearly etc.) were also insignificant. Sovoral district lovel indicators were introduced to test the hypothesis that infrastructure or development status influenco retention. The proportion of irrigated area, valuo of agricultural GDP, prevalence of pucca roads, wero all found to bo insignificant. Block or evon village level indicators would be more usoful for tosting such rolationships. -27- procuring the asset, the proxy for administrative misappropriation, can be reduced to the average for the sample. Although it is not easy to affect the susceptibility of district to drought nor their endowments of social infrastructure in the short term, the case assumes that the levels for these variables equal the mean for the sample. The likelihood of asset retention for an IRDP household facing these conditions would increase to 66Z for the priority target group. 55. The results of this analysis together suggest that very poorest households are more vulnerable to unanticipated economic shocks and thus more likely to reduce asset holdings during periods of distress. The probability of retention is thus systematically related to pre-IRDP income and resource endowment. IRDP should promote sound investments to raise income and simultaneously reduce the short-term vulnerability of the poorest households. Assuring continuous access to efficient sources of institutional credit to finance investment as well as consumption is an important means of promoting this latter objective since it substitutes for higher cost informal sector lending which probably continues to represent the bulk of credit supplied to the very poor. Banks have an obligation to assess the creditworthiness of borrowers, but the initial decision to invest, the amount of credit demanded, and the type of self-employment sought cannot be micro-managed by planners, administrators or bankers since only households can realistically assess the opportunity costs they face. If steps can be taken to improve the likelihood of retention for such households, they may be in a good position to derive long-term gains in income as shown in the next section. C. CHANGES IN HOUSEHOLD INCOME 56. A successful poverty intervention should produce consistent real gains in total household income. The main hypothesis of this section is that crossing the poverty line is a flawed measure of success. It is relative, as opposed to absolute increments in income, that are critical for determining success. Hence, successful beneficiaries are those that retain their assets and derive sustained positive net income from self- employment. i. Crossing the Poverty Line 57. Applying government's official criteria of crossing the poverty line indicates that the program has failed in its objective. On an all- India basis, 13? of beneficiaries had crossed the poverty line of Rs 6400 two years after inclusion in IRDP. For the priority target group (pre-IRDP income 18 months. 70. Disaggregation shows that rapid growth of refinance has been accompanied by a change in both the responsibility and composition of lending within the program. State Land Development Banks (LDBs) and Cooperative Banks together represented one quarter of NABARD disbursements for IRDP as recently as 1983 (Table 5.17). By 1987, their share had dropped to only 11Z. Combined with the large increase in disbursements overall, this shift resulted in a significant increase in the responsibility of Regional Rural Banks (RRBs), many of whom have showed increasing financial weakness. The share of RRBs grew from 27X in 1982-83 to 43Z in 1986-87 and the absolute level of refinance to these institutions more than tripled. Refinance for commercial bank (CB) lending for IRDP doubled in absolute terms during this period, but their share of refinance remained relatively constant at 45Z. Land Development Banks continue to be unenthusiastic about the program due to uneasiness over the no-security strictures imposed for loans less than Rs 10,000. Cooperative Banks have been unenthusiastic as well since their lending has traditionally been geared to short-term crop loans. The reticence of these two actors has left CBs and RRBs as channels for almost 90% of refinance under the program. These trends are particularly troubling for RRBs, many of whom are now in a weak financial position. Their increasing role in IRDP with its attendant overdues is of cours an important cause of this weakness. Table 5.17: NABARD Refinance for IRDP by Agency (Rs Bins) 1982-83 1988-87 State Land Development Banks .16 (7%) .1 (3%) Cooperative Banks .3 (17%) .3 (8%) Commercial Banks .9 (47%) 1.72 (46%) Regional Rural Banks .5 (27%) 1.65 (43%) Total 1.86 3.8 Source: NABARD -34- 71. The results of the Concurrent Evaluation show that RRBs' 43Z share of NABARD refinance for IRDP may exceed their share of IRDP loans. Commercial banks extended 68Z of IRDP loans on an All-India basis, RRBs 26Z, and cooperative banks 6Z.27/ While RRBs appear disproportionately dependent on NABARD refinance, commercial banks finance the program to a greater extent through internal resources, a factor which yields considerably higher real losses per loan due to the higher cost of these funds given equal recoveries. 72. Rapid shifts in the composition of lending have also taken place during this period. In 1983, more than 90Z of refinance was for primary sector schemes such as bullock pairs, minor irrigation, and animal husbandry. Planners have sought to shift the emphasis increasingly to secondary and tertiary sectors in order to promote rural diversification and opportunities for the rural poor who have no access to land to support agriculturally-based investments such as pumpsets for irrigation. This is evident from the statistics in table 5.18 which show refinance for village- based industry, services and business (ISB), rising rapidly from only 8Z in 1983 to 45Z in 1987. RRBs have taken the leading role in this area currently providing some 60Z of all refinance for ISB. In terms of the absolute numbers of schemes, ISB has grown rapidly from 6Z in 1980-81 to 59Z in 1987-88. Tabl- 5.18: NABARD Refinance for IRDP by Sector/Agency (Rs m no) 1982-83 1986-87 ISB Other ISB Other Land D-velopment Banks - 180 - 100 Cooperative Banks 10 (3X) 300 110 (34%) 210 Commercial Banks 40 (6X) 840 570 (33%) 1150 Regional Rural Banks 100 (20%) 400 990 (60%) 680 Tota 1 150 (8X) 1700 1870 (44%) 2120 Source: NABARD 73. The increase in ISB lending as well as the increasing amount of refinance accounted for by RRBs may partly reflect new regulations governing banks' eligibility for refinance imposed by NABARD in July 1986. Eligibility criteria were expected to improve financial discipline by rewarding institutions with recoveries above 75Z with unlimited access to 27/ The shares are not directly comparablo since Concurrent Evaluation data RRBs relates to the absolute number of IRDP loans, as opposed to total IRDP credit extended. -35- refinance and penalizing those with high overdues with reductions. The selective manner in which NABARD has chosen to apply the criteria combined with the sectoral shift in investment under IRDP have, however, reduced their potential impact in this area. Officials in NABARD have argued that the eligibility criteria were intended to discipline agricultural advances, thus recoveries on IRDP investment in secondary and tertiary sectors (ISB) should be excluded when banks compute their overdues position. This distinction is tenuous at best. For example, official guidelines classify investment in bullock pairs as primary agriculture. If a cart is also financed, it becomes a service thus classified as ISB. Others argue that the "newness" of the ISB lending initially warrant a more flexible approach. Regardless of the rationale, exemption of ISB from the eligibility criteria governing refinance distorts lending preferences and reduces financial discipline. Closing this loophole would have a particularly strong influence in choking off liquidity for many RRBs which have been increasingly dependent on both refinance and ISB lending in IRDP. ii. Overdues and Leakage 74. Obtaining reliable estimates on the level of IRDP overdues is difficult given the many incentives banks and administrators have to minimize this problem.281 The new NABARD eligibility criteria are one example, but banks were misrepresenting overdues long prior to their introduction. Two major factors have permitted this situation to continue. First, reschedulings have taken place making it difficult to track the original dues position. This may improve banks' balance sheets, but offers uncertain benefits to IRDP borrowers since it raises the cost of the investment. Second, the capital subsidy on IRDP investment not only distorts borrowers demand for credit, it has allowed lenders to underestimate the extent of overdues. 75. The latter is most clearly revealed in a NABARD study conducted for 119 bank branches in 15 states to determine the extent to which banks were distorting overdues. The study found thet many banks were considering the full amount of the investment including the subsidy portion as a loan on their books thus boosting priority sector advances, then adjusting the subsidy as recovery on the loan. This gave the favorable illusion of 38X overdues on IRDP lending reported by banks in the sample. Once the government subsidy was removed from the recovery stream, however, overdues rose to 68Z (table 5.19). The only states where significant distortions were not uncovered were Rajasthan, W. Bengal, and Kerala. This also helps to explain why overdues positions reported in the Concurrent Evaluation may underestimate the extent of these losses. 3 Averago overduos for round 1 and round 2 survey groups in U.P. by income group and national statistics from Concurrent Evaluation, and reasons given by beneficiaries for overdues are found in Annex tables A20-A23. -36- Table 6.19: Statewise Comparison of IRDP Overdues in 1984 Proportion of Overdues when Overdue* when Subsidy Counted Grant Subsidy only repayments Against Loan is included by borrowers Recovery in Recovery are considered (Reported Overdues) Haryana 100% 20% 63X Tamil Nadu 100% 44% 83% Bihar 100% 0% 78% Orissa 97% 3S% 73X Maharoshtra 92% 40% 67x Gujarat 90% 25X e9% Karnataka 62X S3X 84% Madhys Pradesh 62% 0% esx Punjab 44% 39% 64X Andhra Pradesh 30% 47% 64% Uttar Pradesh 30% 40% e3% Assam 26% 43% 76X Rajasthan 4% 59X 82x West Bengal 1% 40% 41X Kerala OX S1% 51% Total 38X 68x Source: Study on Overdues in Respect of Loans under the IRDP,6 Economic Analysis and Publications Department, (mimeo), NABARD. 76. No claim is made that this relatively small sample based on 1984 data represents the present situation for India. The 68Z overdues itself represents an upper bound since recovery demand would also be reduced slightly if the subsidy were not included in the amortization schedule. Improvements in IRDP implementation that have taken place since that time have also reduced banks' justification for this practice. Banks claimed that they were pressured to accelerate IRDP disbursements though the subsidy from government had not yet been received in their accounts. In such instances, they considered their bridge finance for the subsidy portion as an advance. Regardless of the justification for the practice, it led to borrower confusion over what was owed uLaw when. The main point is to highlight the difficulty of obtaining reliable estimates on overdues. 77. Most banks report lower recoveries on average from IRDP loans than on other agricultural lending, a factor which affects their lending preferences. Table 5.20 shows that commercial bank overdues for IRDP were 59Z of demand at the end of June 1986, higher than the overdues of 46Z recorded for agricultural lending. Overdues on both types of lending are, however, extremely high. Some overdues are eventually collected, but this still implies financial costs. Better recoveries would increase the rate of turnover of a given quantum of credit, allowing more borrowers to gain access without necessarily increasing the stock of capital. -37- Table 6.20: Bankwise Comparison of Overdues as of June 1986 Name of the Bank IRDP Overdues % Overdues in Agrjqultural Lending % State Bank of Travancor 46% 44% Punjab National Bank 48% 42% Indian Overseas Bank 48X 33X Punjab A Sind Bank 46% 32% Canara Bank 47% 31% Bank of Baroda 49% 50% State Bank of India (for year ending 30/6/87) 53% 45X Dona Bank S4% 64X Indian Bank 55% 49% Syndicate Bank SS% 36% State Bank of Saurashtra 55% 52% Allahabad Bank 59% 61% Bank of India (for half year ending 30/6/86) ee% 50% Vijays Bank e9% 57% Bank of Maharashtra 89% 67% State Bank of Mysore 72% 57% Union Bank of India (for half year ending 30/6/86) 73% 43% State Bank of Patiala 74% 34% UCO Bank 76% 64% Total 69% 46% 1/ Direct finance by public sector banks for agriculture as of June 1986. Source: NABARD Note: For Concurrent Evaluation estimates of overdues by state, see Annex table A25. 78. Poor recoveries stem from the incentives faced by both banks and borrowers. From the banks' perspective, fixed interest rates, inadequate margins, hiring ceilings and strong administrative and political pressure to achieve beneficiary targets, necessitate an emphasis on quantity rather than quality of lending. Government rewards banks and administrators for meeting disbursement and beneficiary targets, not output or performance- based indicators such as asset retention or recovery. 79. Data provided by Canara Bank, one of the largest and most efficient commercial lenders involved in IRDP, demonstrate why this is the case. Banks that meet overall recovery eligibility can obtain NABARD refinance at 6.5Z for IRDP. Assuming other commercial bank resources, which represent 55Z of IRDP credit disbursement, are raised at a cost of 102, then the weighted average cost of funds for the program is on the order of 8.5Z. The annual cost of servicing an IRDP loan for Canara is 5Z. With the interest rate for the borrower fixed by the government at 1OZ, Canara incurs a 3.5Z net loss on covering minimum costs even if all beneficiaries repay. Although Canara has one of the lowest overdues percentages on IRDP in the country, it still reports recent recovery at only 512. Unlike block and district offices which receive direct central subvention for the additional expenses they incur in administering the program, the bank must underwrite these losses through other earnings and claims from the Deposit Insurance and Credit Guarantee Scheme, which eventually compensate them for 65Z of losses due to default. Faced with -38- these realities and the need to maintain profits, banks will naturally try to minimize their losses on IRDP transactions by cutting costs as well as limiting future advances to such customers. This partly explains their. failure to observe such standard practices as issuing passbooks in some instances.29/ These omissions in turn lead to weak appraisal and lower recoveries. Borrowers are sometimes not even fully aware of their repayment obligations. 80. Reasons for low borrower motivation to repay include their 'Lack of felt responsibility for the decision to invest. If they are induced to take on a certain size loan in a particular sector because of the capital subsidy or planners' expectation that it will raise them above the poverty line, they will feel little obligation to repay if returns are not as high as expected. The political climate in which rural credit operates is also sometimes detrimental to good repayment ethics. This is best represented by the notorious "loan melas" or credit jamborees that have been held in some states. Melas are public meetings where thousands of households are provided bank loans under the IRDP and similar schemes at ceremonies presided over by politicians. Political operatives are often involved in selecting beneficiaries and submitting applications to banks. Despite heavy criticism, melas are used as a populist tool to promote a legitimate objective - institutional lending to poor and deserving households. Although the proportion of rural credit distributed through melas is probably small, the wide publicity they receive and the blatant involvement of politicians has encouraged people to believe that government sponsored loans are a "grant" - that is, borrowers believe that their loans will be forgiven if they wait long enough. Bankers correctly claim that they cannot appraise the huge numbers of loans in the short period preceding each mela. Thus, melas are the perfect "no-fault" mechanism for rural credit delivery. By encouraging financial irresponsibility, they ultimately threaten those they are intended to help - the poor, who become defaulters and henceforward debarred from the banking system. Although there are no published figures, bankers claim that recoveries on loans dispensed through melas are as low as 20-25Z. 81. Another factor affecting repayment is the expectation of loan forgiveness. Surveyors reported in U.P. that a large number of families with overdues mentioned that promised debt forgiveness during the last election in neighboring Haryana influenced their decision not to repay. Given their expectation that a similar step could be forthcoming in U.P., many felt it would be foolish not to wait. Increasing politicization of rural credit through melas or politically motivated write-offs create rational expectations among borrowers that government-sponsored credit carries little or no repayment obligation. Such interference thus strains the credibility of the banking system generally and has deleterious consequences beyond those loans they directly affect. 29/ It is the staff costs incurred in th- process of passbook issuance that is important here--not the cost of the passbook its-lf. -39- 82. Finally, there are few if any rewards for those borrowers that do exercise responsibility in their decisions to borrow and repay credit. Even where borrowers have repaid on time, survey evidence presented in the next section indicate that few IRDP beneficiaries have independently received subsequent non-IRDP sponsored loans from banks. 83. In addition to the leakage caused by high overdues, the capital subsidy has also been criticized for encouraging beneficiary and administrative misappropriation in IRDP. Beneficiaries who behave rationally would maximize their short-term gains by taking the maximum loan and subsidy for purchase of an asset, and selling it immediately. After repaying the loan, they then pocket the subsidy. If there are no gains to be made from repayment of the credit itself such as assured access to future lending, the borrower may also default on the credit portion. Such misappropriation of self-employment opportunities by wrongly motivated beneficiaries was estimated at 12Z in U.P. (Figure 5.2). Government audit reports also point out many cases of collusive lending whereby the same asset such as milch animals were passed from beneficiary-to-beneficiary with bankers, suppliers, and households sharing the repeated capital subsidy and favorable interest rate on loans. These 'revolving cows" are estimated to account for 25-30Z of all loans given for this purpose. Since procurement of assets are decided by a Purchase Committee in which bankers and block administrators exercise decisive roles and most loans are given in kind, the government itself attributes this leakage directly to "delinquency on the part of these officials."30/ The increased purchase power allowed by the capital subsidy also results in inflation in the price of assets. Some inflation may be justified by local supply conditions, but frequently administrators and suppliers feel they deserve a share of the subsidy and inflate prices to reflect this margin. These factors indicate that the net benefits that IRDP beneficiaries derive from the capital subsidy are considerably less than the actual amounts transferred. 84. The capital subsidy also distorts beneficiaries preferences for self-employment and demand for credit. Beneficiaries are persuaded to take up self-employment when the expected changes in total household income may not warrant such a switch. In addition, they often take on credit proportionate to the maximum allowable subsidy rather than basing the decision on their ability to utilize and repay credit. The availability of the subsidy has not proven to be an important variable in long term retention of IRDP assets or recoveries as shown in the next section. If the government believes that subsidies are nevertheless justified on equity grounds, more efficient means are needed which reduce leakage and preserve the incentives to repay without distorting preferences for self-employment and demand for credit. 85. Government recognizes this and is currently considering two options - the first is to replace the front-end capital subsidy with an equivalent ex post transfer that would be credited to the borrowers' account at the end of the loan amortization. This would amount basically to an accounting change since the beneficiary would still receive the full asset value (including subsidy) at the outset. It would neither discourage O/ nMalprectic.s in th- Implementation of Poverty Alleviation Programs,' Department of Rural Development, 1988 (mimeo). -40- selling of the asset to reap short-term gain or encourage better loan repayment since the subsidy could not be effectively repossessed. The second proposed solution is to replace the capital subsidy with a more heavily subsidized interest rate such as the 42 offered under the Differential Interest Rate (DIR) scheme. This may help to reduce leakage, but would increase the disincentives banks face in efficiently managing the program since their margins would be further reduced. Such a step might require large direct subsidies to the banks to cover costs. Adopting cost- plus type subsidies for commercial banks would weaken rather than improve badly needed financial discipline in rural credit. A less distortionary means of subsidizing disadvantaged borrowers would be an interest rebate of the type suggested by CRAFICARD.31/ This will be discussed in Section iv. iii. Factors that Contribute to Repayment Performance 86. The Concurrent Evaluation queried households as to the cause of the overdues, but like the question on why some households had disposed of assets, the results are likely to be biased. Fifty four percent reported that delays in income generation from the scheme had led to poor repayment, 9Z blamed unanticipated household economic shocks, 33Z claimed repayment schedules were too tight, and 31 other reasons. The government has blamed banks for poor results for failure to adhere to recommended lending terms and conditions such as adequate finance including working capital or tight repayment schedules. Although three years is the minimum term required for IRDP loans, 12Z of beneficiaries nationally had tighter schedules imposed. The U.P. surveys and follow-up offer an opportunity to look further into the factors explain good recovery performance in IRDP. Repayment of debt is critical if poor households are to demonstrate creditworthiness and hence prove themselves deserving of future access to institutional credit. Bad repayment performance on the other hand may permanently jeopardize this access since it proves to banks that such borrowers are poor credit risks. Fifty eight percent of households in U.P. showed no overdues after two years -- a proportion that was virtually unchanged two years later. 87. In order to determine factors that contribute to differential recovery performance among households, a logit model was fitted to the U.P. data set. Logit analysis was used to identify those factors which contribute to overdues < 5Z after four years in the program for households that had assets intact for at least two years. The sample thus excludes those beneficiaries that misappropriated IRDP by disposing of the asset in order to reap the subsidy. The model predicts success accurately in 73Z of cases (success = 1 when overdues < 5Z). The results are presented in Tables 5.21 and 5.22. i/ Op. cit. CRAFICARD. -41- Table 5.21: Logit Model on Repayment Performance for IRDP in U.P. Explanatory Variables Coefficients Wald Chi- P r Square Statistic Intercept -.37 .26 .B Destitute/Very very poor household -1.4 6.1 .01 .13 Very poor household -.8 2.3 .13 .03 Poor household -.11 .04 .83 0 Casual laborer -.76 3.8 .05 .08 Traditional family occupation .87 3 .08 .07 Return on investment .85 3.6 .05 .08 Mode of Disbursement 2.08 11.8 .0007 .2 Participant in credit camp 1.1 3.3 .06 .07 Marketing Facilities Adequate .74 3.4 .06 .08 Model Chi Sq = 49 w/ 9 d.f. (-2 log LR) P=0 Somers DYX = .67 R=.3B Good repayment (overdues < 6%) = 1 (104) Bad repayment = 0 (75) Table 5.22: Predicted Vs. Actual Outcome for Repayment Performance in U.P. Actual Predicted Did not Repay Did Repay Would not repay 48* 27 Would repay 21 83* Total 69 110 *Correct Predictions = 131 (73%) False Positive Rate = 25% False Negative Rate = 30% Note: Soe Annex table A24 for detail. 88. Variables capturing household characteristics include dummies on pre-IRDP income group and the dummy variable on occupation, that is, whether or not the beneficiary was an agricultural or non-agricultural casual laborer as opposed to other occupation such as small/marginal farmers, artisans, or non-agricultural self-employed casual laborer. Negative signs on the coefficients indicate that classification as destitute or casual laborers reduce the probability of good recovery. The dummy on whether the investment supplemented a traditional family occupation versus a new activity is significant and positive. In 64% of cases in the sample of those that retained investments for at least two years, IRDP self-employment complemented traditional skills. -42- 89. The other variables relate more generally to implementation features. Bank actions and attitudes again play an important role in success. The Mode of Disbursement variable has a strong impact and contrasts IRDP loans which had in-kind components with those disbursed in cash. Seventy nine percent of cases had in-kind components. The fact that cash disbursement significantly improved the probability of recovery is interesting, but somewhat puzzling (annex table A25). The cash disbursement variable may be correlated with those types of investments that yield higher cash flows hence this may have a positive impact on recovery. For example, all bullock pairs, 95Z of pumpsets, and the bulk of small animal husbandry schemes were disbursed mostly in-kind (annex table A27). Investments with higher cash components included dairy (24z) and tertiary investments (43Z) (e.g., retail shops). The latter also lend themselves more naturally to cash disbursement since they are often mostly working-capital loans. Still the contrast in recovery results between schemes that appear to be comparable except for disbursement (e.g., dairy, tailoring) mode may point to gains from greater use of cash loans. The traditional justification for in-kind loans is that many poor borrowers will finance consumption if not held in check. Treating poor borrowers differently from other bank borrowers by requiring in-kind disbursement could, however, reduce the probability of repayment for several reasons: first, borrower receiving cash have the latitude to invest funds according to his/her preferences thus increasing their bargaining power and the possibility of purchasing a quality asset. Cash disbursement may also imply greater legitimacy of debt obligations. Informal sector lenders generally disburse in cash and trust the borrower to make the right purchase decision when faced with the certainty of strict repayment obligations. Finally, in-kind transfers through Purchase Committees may also permit more leakage in the form of payoffs between suppliers, bankers, and administrators to creep into the program. 90. A study group established by the Reserve Bank recommended that cash disbursement be tried in IRDP to contrast with the predominant pattern of direct payment to vendors. The main rationale for this was to give borrowers greater discretion over the type of investment and a requisite freedom to negotiate price. Asset purchase would still be verified by bank field staff to prevent beneficiary misutilization of funds. Twenty two blocks were selected in January 1986 to experiment with cash disbursement. Information from one evaluation study carried out by Canara Bank six months after the new system was adopted indicated some encouraging results. The most important were that beneficiaries were able to save 10-15Z on asset costs on livestock loans as a result of their better bargaining position and somewhat lower, but still positive savings on ISB purchases. Approximately this same amount was classified as leakage in that it went toward consumption. The study, however, considered this as a benefit since households were able to satisfy their urgent consumption needs without resorting to sale of the asset. A second benefit was a dramatic decrease in the lag time on loan disbursement from 35 days on average to 7 days on agricultural loans, 18 to 11 days on ISB, and a reduction in bills and receipts that had to be tracked by bank staff on loans. The decision to dispense with asset provision through Purchase Committees thus appears to have resulted in efficiency gains. Finally, there is supporting evidence for the finding that cash disbursement improved recoveries, particularly for agricultural loans. Recovery on IRDP loans for agriculture was 75Z under the new system versus 58Z on loans disbursed through Purchase -43- Committees.321 Data from other studies are necessary before those results can be generalized, but these findings are encouraging. 91. Household participation in a "credit camp" prior to credit sanctioning increased the likelihood of repayment in U.P. These camps held for small groups are not to be confused with loan melas, which did not take place in the survey districts in U.P., and are widely believed by banks to have a strongly negative impact on loan recovery. Banks and block officials are requested in the program guidelines to hold credit camps to inform beneficiaries of the program's benefits, and discuss the viability of different investment options, repayment obligations and facilitate disbursement. Banks are expected to achieve greater efficiency in rural credit extension by handling applications of numerous and scattered small borrowers simultaneously. The transparency of the camp environment also helps to prevent corruption and leakage from taking place. Only IOZ of households in the sample took part in a credit camp. Increasing prevalence of credit camps would contribute to better recovery in the districts surveyed. 92. Other measures of follow up by both bank and block officials were estimated in the follow-up survey, and found to be insignificant. Households were questioned as to whether bank or block officials had ever visited their house subsequent to receiving the IRDP asset and if so, how many times. In 80Z of cases, a bank officer visited their home and in 92Z of cases, a block official had also visited to follow up on the investment. Most received less than two visits (Annex table A26). Given the wide prevalence of bank and block follow-up for most households and hence the low dispersion of the variable, it is not surprising that the variable is insignificant for the sample. Still, this good performance may account for the better recoveries of the total sample compared to some other states in India. Since this series of questions has not been asked elsewhere, this hypothesis cannot be tested. 93. Finally, the return on the investment itself and existence of adequate marketing facilities increase the probability of repayment. The return on investment reflects real annual net return on the asset after two years/original investment while the marketing variable is a dummy constructed from a question on the survey as to whether beneficiaries considered local marketing facilities adequate (Adequate = 1). This underlines the need for banks and borrowers to exercise greater care in assessing market potential and local demand prior to investing, particularly as local saturation increases through continued IRDP-financed investment. iv. Sustained Access to Credit 94. There appear to be concrete measures that could be taken by banking institutions to improve recoveries. The major hypothesis of this section is that satisfactory repayment performance, however, does not ensure that individuals will get further credit from banks. If such access is not assured for good performers, IRDP will fail in its structural goal of providing the poor with sustained access to credit and amount to a one- time government-sponsored loan. 2_/ Cansrs Bank. 'A Review of Cosh Disbursosnt for Loans und r IRDP in Wdadkkancherry Block (Kerala),, December 24, 1986. -44- 95. The results of the follow-up survey in U.P. show that sustained access to credit has not been achieved. Households were asked whether they had returned to the bank for another loan through regular bank channels and if so, how many were approved. Although 58Z of beneficiaries had no overdues thus proving themselves creditworthy, and 44Z had further demonstrated long term viability of self-employment through retention of investment, only llZ of beneficiaries subsequently returned to the bank for additional loans. Worse, only two thirds of this small number of households, 7? overall, received additional credit. This is only lZ of the original sample group (Annex tables A27-28). IRDP planners believed that the primary constraint on extending institutional credit to the poor was lack of assets and assured income to secure the loan. For those that retained assets and repaid debt, IRDP has addressed these issues. Why then are successful households not graduating to the status of regular bank customers? 96. Three explanations are plausible. First, the demand for term credit by poor families may have been significantly overestimated. It may also be that for certain needs such as consumption or emergencies where there is demand, poor households correctly perceive that banks would be unwilling to lend. Second, beneficiaries may still perceive that they lack the collateral and wherewithal to complete applications and obtain approval for standard bank loans. Security has not been dispensed with nor application procedures streamlined in most other areas of bank lending. IRDP may also have perpetuated an unfortunate notion that one must be "selected" in order to receive bank credit. Third, banks may still see IRDP borrowers as a special aberration in their normal lending operations. Once they have given the single required loan, the bank has discharged its obligation. They do not see former IRDP borrowers as part of an expanding and viable rural client base and future lending would again be under duress. The explanation is likely to be a combination of all three factors. 97. The primary explanation for the third factor is the failure of IRDP to solve the market imperfections which marginalize the poor from institutional banking services. This stems from a fundamental misconception about why banks have historically preferred not to lend to the very poor. It is not only their lack of assets and income for collateral, though this has served as an effective and acceptable bank rationale prior to IRDP. Their reticence stems from inadequate fixed margins that make such loans a losing proposition regardless of the recovery performance. The question in rural lending for banks is often not whether, but how much they will lose. With continued pressure to achieve aggregate profits yet bound to lend at negative returns for priority sectors, banks will follow a loss minimizing strategy on their rural business. Even where IRDP has helped poor households to achieve real advances, the smaller loan size which characterize repeat borrowers' demand for credit and locational disadvantages they suffer usually imply that banks will incur higher costs in servicing these accounts. While they are eligible for a one-time loan under IRDP which has relatively attractive subsidized refinance available through NABARD,33/ graduating beneficiaries 33/ Or somettimes a osecond dose' if beneficiaries have not exceeded the maximum subsidy and crossed the povorty line or banks have not followed specified terms and conditions on lending. -45- would require an increasing mix of other higher cost bank resources. With margins fixed on rural lending generally and given a choice between two borrowers with similar probabilities of repayment, banks will continue to find it less costly to limit their exposure to small borrowers. 98. Although the constraints on interest margins which make IRDP lending unattractive affect the rural credit system generally, the impact is more heavily felt by the poor. Since costs of lending to this group are unavoidably higher, they will be the first ignored. Charging the poor an interest rate sufficient to cover costs incurred might be considered discriminatory since such borrowers cannot easily overcome the handicaps imposed by their 'smallnessm and locational disadvantage. If banks are expected to take up such lending enthusiastically and provide necessary staff and overhead to achieve quality results, mechanisms must be found to lower costs and banks must be compensated with higher margins. IRDP as presently constituted does nothing to overcome the disincentives banks face in doing business with the poor. 99. Certain banks have implemented innovative pilot schemes which have achieved success in sustained lending to the disadvantaged. Two programs established by Canara Bank, the Rural Change Agent program and the Rural Service Volunteer (RSV) program operate on the principle that bank staff must be sought out which have special motivation to work and live in a rural village. Canara RSVs make loans, mobilize deposits, and organize beneficiaries to press for education and other social services from government. In the RSV villages, Canara makes it clear that it is willing to extend additional credit as long as households repaid previous tranches -- an incentive for borrowers which it feels contributes high recoveries (902+). Each RSV handles about 120 active accounts underlining the staff intensity required for high quality rural lending to the poor. The costs that would be necessary to achieve this level of staffing for all rural lending would be high. With the fixed margins on agriculture and hiring ceilings that banks face, such a reallocation of staff would be disastrous for profits. Canara itself looks on the program more as a social service rather than an approach which it could replicate throughout the branches given fixed staff resources and inadequate margins available on all rural lending. 100. Clearly, the problems of the IRDP and similar schemes are inextricably linked to the problems of the rural credit system. Continuous access to efficient sources of credit for working capital, new investment, and consumption are essential if the poor who desire to be self-employed are to sustain the initial momentum gained through the IRDP investment and to ultimately cross the poverty line. Encouraging continued lax standards of credit appraisal and recovery represent moral hazards that are not in the interest of the poor since the outcome will tend to confirm the common view that they are not creditworthy. The future costs of excluding from the credit system, on grounds of default, the millions of households in the targeted self-employment programs may be very high. 101. One means of reducing the distortions associated with the capital subsidy and improving bank/borrower incentives to manage and repay credit is to replace the front-end capital subsidy with an interest rebate, payable periodically (say six monthly) to eligible borrowers that maintain a perfect repayment record. This has been tried on a pilot basis with the Small Scale Enterprise Program which provides loans to micro enterprise -46- loans in Calcutta through commercial banks.34/ The rebate system could operate as follows. First, interest rates would be raised to allow adequate margins for the banks. This is essential to give banks the incentive to improve the quality of lending and continue lending to borrowers that prove creditworthy. Second, the short-term impact of higher interest rates would be offset for disadvantaged small borrowers by refunding a portion of the interest from their debt repayment. A 100l rebate of interest might be paid for example on a borrower's first loan, but this proportion would decline quickly with subsequent loans soon reducing the effective subsidy to zero. Borrowers who do not repay according to schedule would receive no rebate. 102. Coupled with the increase in margins and interest rebate, banks should adopt a line of credit approach that ensures that borrowers who regularly repay loans would be automatically eligible for credit, without collateral, at any time up to their assessed credit limit. The assessed limit could be based on their ability to absorb and repay loans, rather than distance from the poverty line. For first time borrowers, these credit limits could be set rather low, but be raised by a fixed percentage as they demonstrate their creditworthiness through meeting repayment obligations. For those that have already borrowed under IRDP and repaid according to schedule, their line of credit would be set somewhat above the amount previously collected. These changes would reduce the marginal transaction costs of lending to the poor and help create a demand-driven mechanism for extending credit. Lending against a list of restricted options with pre-determined unit costs would be unnecessary. The system of administratively-determined targets for IRDP based on the number of beneficiaries could be replaced with portfolio composition targets for banks.35/ A built-in performance indicator would be the incidence of repeat borrowing. Outlays of subsidy for rebates would also indicate that increasing numbers of.new borrowers are being brought into the system, investing and discharging their debts responsibly. 103. Other changes needed to improve the banking services provided to the poor include relaxing the hiring ceilings imposed on banks, or alternatively, encouraging them to use local NGOs to assist them in making and recovering loans. This has been tried very successfully by Bank of Baroda with the micro-enterprise lending in Calcutta. NGOs can also be effective in organizing borrowers into credit groups, but such services should be paid for. This could be done as a proportion of recovery to reinforce financial discipline. Organizing credit and recovery camps can help reduce transaction costs of banks, improve the transparency of lending and recovery, and increase borrower understanding of their obligations and the rewards (i.e., future credit) stemming from responsible credit usage. 104. In addition to banks enforcement of standard operating practices such as loan passbook issuance and adopting cash disbursements to increase borrower discretion, banks should standardize the periodicity of repayments in order to help borrowers better understand their obligations and reduce 34/ The SSEP is a component of the World Bank sponsored project in Calcutta (CMDA III). L/ Portfolio composition targets exist for banks for many different schemes. For example, banks are required under the Differential Interest Rate (DIR) Program to maintain 1% of th-ir total advances in auch loans. -47- administrative costs. Evidence from the Bangladesh Grameen Bank, which operates on the basis of small credit groups, suggests that more frequent loan repayment periods are associated with better recovery. Grameen Bank follows the line of credit approach in lending in the sense that borrowers that have repaid can take out an additional loan. The bank itself leaves it up to the borrower to decide on the best use of funds and does not try to appraise investment proposals in the traditional sense. The positive incentive of future access to credit in Grameen Bank is combined with a powerful negative incentive to ensure that borrowers use funds wisely and repay. If any one of five members in the credit group defaults, the entire group becomes ineligible for future loans. This system has helped Grameen achieve remarkable recoveries exceeding 98Z.361 VI. CONCLUSION 105. Although many of the results on longer term viability of IRDP presented in this study relate to a single state, the analytical tools used to test various hypotheses can be employed elsewhere through the Concurrent Evaluation if panel surveys are conducted. The results for U.P. indicate that IRDP has achieved some notable success in increasing the asset holdings of large numbers of disadvantaged rural households. Almost 60% of investments have been retained for 4-5 years indicating their economic viability. Only 44Z of disadvantaged beneficiaries, however, have succeeded maintaining assets over this period, and repaying credit to banks. Even for many viable investments, diminishing yields may appear after a few years and income gain is rarely sufficient to move households above the poverty line. General economic conditions and economic shocks such as drought have an important impact on the probability of success in self-employment ventures as with other types of income. 106. Poorer households have more difficulty in maintaining investments, but it cannot be stated with certainty that investments in self-employment are only suitable for certain better off classes of beneficiaries since results are varied. Investments must, however, be tailored to the demands of the households, thus grounded in their own knowledge of the opportunity costs they face. Beneficiaries are in the best position to assess the availability of local inputs, infrastructure, and services, and to determine their capacity to absorb credit and take up self-employment. If they have an a priori understanding that repayment will be strictly enforced and their demand for credit is not distorted by subsidy inducements, then they are more likely to form feasible investment plans. 107. The most important failure of IRDP is its inability to ensure continued access to institutional credit for disadvantaged rural households. This is primarily a function of the prevailing structure of incentives which ensure that even for those who succeed by most criteria, IRDP may be the first and only time such households receive term credit from banks. Unless constraints which continue to block access of the poor to institutional finance are effectively addressed, the window of opportunity to banking services offered by IRDP will remain closed. The 36/ For a comprehensive review on Grameen Bank, see Mahabub Hossain, *Credit for Alleviation of Rural Poverty: The Gramen Bank in Bangladesh', IFPRI, February 1988. -48- welfare gains derived thus far by beneficiaries of IRDP are likely to be short-lived without the opportunity to replenish working capital and undertake additional investment using term credit. Gains are likely to diminish on most of the initial IRDP investments after a few years even if properly managed and households will be forced to rely on higher cost informal sector lenders for credit and consumption needs. Longer term credit necessary for investment in assets requiring longer gestation is unlikely to be available even from non-formal sources. 108. In order to promote success in IRDP's major objectives of increasing asset holdings of the most disadvantaged, financing viable employment, providing real income gain and credit recovery to prove borrowers creditworthy, several changes are necessary in the program. The overall thrust of this package is to shift the incentives faced by banks and borrowers, improve the efficiency of expenditures in subsidy and investment, and create a more demand-driven mechanism for credit delivery. Financial discipline would be improved as banks are given margins necessary to operate the program and borrowers are given strong incentives to act responsibly in using and repaying credit. The emphasis of the approach is to stress the quality rather than quantity lent as is currently the case in IRDP. 109. The main changes needed are as follows: (a) Replace the objective of crossing the poverty line through a single investment with the aim of ensuring that sustained access to credit contributes positive income gains that gradually shift poor households over the poverty line. Long term retention and recovery would be key indicators of success. (b) Replace the system of centrally determined targets based on the number of beneficiaries, with portfolio composition targets for banks and establish lines of credit for disadvantaged borrowers with simple guidelines. Borrowers who regularly repay loans would be automatically eligible for additional credit, without collateral, at any time up to their assessed limit. The assessed limit for any borrower would be based on their ability to absorb and repay loans, rather than their distance from the poverty line and could be raised automatically as borrowers demonstrate their creditworthiness. Borrowers that default would have their access to credit curtailed. Such negative incentives are necessary to ensure that borrowers invest in productive assets (e.g., group discipline of Grameen Bank). These changes would help to create a demand driven mechanism for lending, sustained access to credit for the poor and hence, lending against a restricted list of options with predetermined unit costs would be unnecessary. This system should also result in lower transaction costs for banks as strict appraisal of individual investment proposals would be unnecessary. As long as borrowers repay, they would be given access to credit. (c) Replace the existing front-end capital subsidy with an interest rebate periodically payable to eligible borrowers that maintain a perfect repayment record. These rebates would be covered by redirecting the existing subsidies paid by government. -49- (d) Replace the income eligibility criterion with one based on more transparent criteria, possibly a simple occupational classification (e.g., casual laborers, marginal farmers). The objective would be to reduce the cost of targeting and the distortions associated with preparing lists of below poverty line beneficiaries (i.e., estimating household income) while maintaining a focus on the poorest. There should also be a greater focus on access to credit for women. Better off occupational groups (e.g., small farmers) might be provided a line of credit, but would not be eligible for as high a rebate. (e) Increase the margins available to banks on loans under IRDP and similar schemes. This is essential to give banks the incentive to improve the quality of lending and continue lending to creditworthy borrowers. This could be done by raising the interest rate from 10Z to a more realistic level taking into account the cost reductions that may result from the line of credit approach outlined above. Eligible borrowers, however, would continue to be protected in the short-term through the interest rate rebate. (f) Improve the quality of banking procedures and loan recovery by: (i) Relaxing the hiring ceilings imposed on banks and encouraging them to use local NGOs to assist organizing and educating borrowers and in making and recovering loans. Such NGO- provided services should be paid for. (ii) Banks themselves tightening up operations and requiring branches to observe proper banking practices, such as issuing passbooks. Proper creditworthiness appraisal should be stressed by rewarding managers that achieve high loan recovery and repeat borrowing. (iii) Reducing banks' transaction costs, improving the transparency of lending contracts and enhancing borrower awareness of debt obligations by organizing camps to promote both lending and repayment. (g) Replace in-kind disbursement by cash transactions. This might reduce the scope for corrupt practice through procurement, reduce bank transaction costs, increase borrowers choice and bargaining power in dealings with suppliers and increase the probability of repayment. (h) Make all lending under IRDP (including lending to the secondary and tertiary sectors, i.e., ISB) subject to the eligibility criteria governing NABARD refinance. (i) Ban loan melas and political interference in the program. 110. The foregoing changes, if accepted for the IRDP, would necessarily have to be introduced in all other similarly designed schemes which involve credit and capital subsidies to finance self-employment (e.g., SEEUY). Indeed, government might find it more efficient to amalgamate many of the -50- smaller schemes into an enlarged IRDP. Although these changes are predicated on improving efforts to help the poor, the symbiotic relationship of the IRDP and the credit system implies that many of these changes are modifications of that system. 111. The proposed changes in the IRDP and allied schemes would lead to a more efficient use of scarce capital in India by raising the productivity of investments and efficiency of subsidy payments. They would allow poor borrowers increased and sustained access to institutional credit for productive investment. They would also enhance borrowers' freedom to decide on what is a productive investment. In this way, the returns to capital invested through the program would be raised, increasing the output of goods and services and the incomes of poor borrowers. In short, they are consistent with the overall economic objective of growth with equity. 112. At present, the interest rates charged on IRDP loans and rural credit, more generally, are low. Banks cross subsidize rural lending with profits from lending to industry, implying that interest rates to industry are unnecessarily high. Hence, increasing the interest rate for IRDP and similar schemes (the most heavily subsidized rural lending), would result in greater allocative efficiency.37/ Moreover, the higher margins earned by banks on their rural portfolios would raise profitability of rural branches and encourage them to improve the quality of the services they provide thus reinforcing the efficiency with which capital is invested by poor (and other) rural borrowers. This and some of the other proposed changes would encourage greater financial discipline in the formal credit system. Better recoveries (reduced overdues) would also increase the rate of turnover of a given quantum of credit allowing more borrowers to gain access without necessarily increasing the stock of credit. 113. The reduction and eventual elimination of subsidized credit through the replacement of the lump sum capital subsidy with an interest rebate that declines to zero with repeated borrowing, would improve the incentives for borrowers to repay and reduce the subsidy bill to government. Even if recoveries do not respond, the outlay on subsidies (Rs 7.0 billion in 1988-89 on IRDP alone) will fall as the proposed interest rebate ties the subsidy element strictly to timely repayment.38/ To the extent the subsidy bill declines, government resources would be released for investment elsewhere. 37/ This low interest rate policy seems to be founded on the assumption that agriculture needs to be compensated for distortions elsewhere in the economy. However, there is no comprehensive analysis of whether this policy is superior to one based on price incentives. Moreover, low interest rates for the rural economy provide an income transfer to all rural borrowers. This may have a regressive offect on the distribution of income as the largest transfers will go to the largest borrowers - not usually the poorest. Such regressive effects may be reduced by higher interest rates as they would reduce demand for credit by already wealthy borrowers. 38/ Making a second loan dependent on the full repayment of its predecessor hos been shown to be an important incentive to repay (e.g., in Bangladesh and Nicaragua). -51- 114. The proposed changes would also allow government to reduce administrative costs as the need for detailed involvement in credit delivery by government officials would diminish. This follows from increasing beneficiary discretion over decisions concerning when, what and why to borrow, the increased responsibility and the more active lending and recovery posture that would be assumed by banks. 115. Quantitatively, these benefits would probably be substantial, but there would also be costs. Increasing the interest rate for borrowers under special schemes such as IRDP would inevitably lead to a general increase in interest rates for agriculture.391 This would increase the costs of production and would put upward pressure on agricultural output prices. To the extent that prices respond, there would in the short term, be a decline in the consumer surplus which may also affect the poor disproportionately. However, higher output prices and increased rural growth in the longer run should induce a positive supply response which would dampen the negative effects. Moreover, the interest rebate would help to protect the very poor until their incomes rise. 39/ Of course, most rural borrowers already pay much higher rates for informal credit. -53- BIBLIOGRAPHY Aziz, Abdul et. al. "Beyond IRDP: Making Entrepreneurs Out of the Rural Poor." SEDME, September 1986. Aziz, Abdul. "Integrated Rural Development Programme in Karnataka: An Evaluation." (Unpublished). Bangalore: Institute for Social and Economic Change. Bagchee, S. "Poverty Alleviation Programmes in the Seventh Plan: An Appraisal", Economic and Political Weekly (EPW), Vol. XXII, No. 4, January 24, 1987. Bajaj, J.L. and T.S. Papola. Rural Poverty: Issues and Options. Lucknow: Print House, 1985. Bandyopadhyay, D. "Direct Intervention Programmes for Poverty Alleviation in India: An Appraisal", EPW, June 25, 1988. Balaramulu, Ch. "Evaluation of IRDP in Nalgonda District of Andhra Pradesh", Hyderabad: Centre for Economic and Social Studies, 1988. Bell, C. and T.N. Srinivasan and C. Udry. "Agricultural Credit Markets in Punjab: Segmentation, Rationing, and Spillover. (Unpublished), June 1988. Bhagwati, Jagdish N. "Poverty and Public Policy", World Development, Vol. 16, No. 5., 1988. Braverman, A. and J.L. Gausch. "Institutional Analysis of Credit Cooperatives." AGRAP Economic Discussion Papers, No. 1. Washington, D.C.: The World Bank, February 1988. Canara Bank. "Role of Canara Bank in IRDP: An Evaluation in Kolar District", Multi Projects and Development Consultancy Private Ltd., November 1984. Canara Bank. "20-Point Programme-1986: Schemes and Guidelines", Bangalore: F & GA Wing, PCPD Section, 1986. Canara Bank. "Monitoring Study on IRDP in Aligarh District", Bangalore: PCME Section, F & GA Wing. Central Bank of India. "Integrated Rural Development in Chhindwara District of Madhya Pradesh", Bombay: Economic Intelligence Department, 1983. Copestake, James G. "The Integrated Rural Development Programme: Performance During the Sixth 5-Year Plan, Policy Responses, and Proposals for Reform", (Unpublished), June 1988. Copestake, James G. "Refinancing Rural Development in India: A Preliminary Review of NABARD." (Unpublished). Reading: University of Reading, 1988. -54- Copestake, James G. "Loans for Livelihoods: Government Sponsored Credit Schemes in India", (Forthcoming Agricultural Administration and Extension). Reading: University of Reading. Copestake, James G. "The Transition to Social Banking in India: Promises and Pitfalls", (Unpublished), Reading: University of Reading, 1987. Dandekar, V.M. "Agriculture, Employment, and Poverty", EPW, Vol. XXI, Nos. 38-39, September 20-27, 1986. Dantwala, M.L. "Garibi Hatao: Strategy Options", EPW, March 16, 1985. Dantwala, M.L. "IRDP and Village Structure", EPW, May 30, 1987. Datta, B. "Regional Rural Banks", EPW, September 9, 1978. Gadam, Sudhakar. "Evaluation Study of Integrated Rural Development Programme (Sangli District)." (Mimeograph series No. 24). Pune: Gokhale Institute of Politics and Economics, August 1986. Galab, S. "Effectiveness of IRDP in a Drought Prone Region: The Case of Anantapur District." Hyderabad: Centre for Economic and Social Studies, 1987. Ghosh, Arun. 'New Strategy for Rural Development", EPW, July 23, 1988. Government of India (GOI). All-India Rural Credit Survey: Report of the Committee of the Director, A.D. Gorwala. Bombay: Reserve Bank of India (RBI), 1954. Government of India (GOI). All-India Debt and Investment Survey 1971-72, Bombay: RBI, 1977. Government of India (GOI). "Concurrent Evaluation of IRDP: The Main Findings of the Survey for October 1985-June 1986", Department of Rural Development (DRD), New Delhi: Ministry of Agriculture, 1986. Government of India (GOI). "Concurrent Evaluation of IRDP: The Main Findings of the Survey for January-December 1987", DRD, New Delhi: Ministry of Agriculture, 1988. Government of India (GOI). "Evaluation Report on Integrated Rural Development Programme", New Delhi: Programme Evaluation Organisation, Planning Commission, May 1985. Government of India (GOI). "Integrated Rural Development Programme and Allied Programmes of Training of Rural Youth for Self-Employment (TRYSEM) and Development of Women and Children in Rural Areas (Dwacra): A Manual", DRD, New Delhi: Ministry of Agriculture, July 1987. -55- Government of India (GOI). "IRDP: District Oriented Monitoring Studies", (Unpublished mimeos on Orissa, Bangalore, Rajasthan, Andhra Pradesh, Madhya Pradesh), National Bank for Agriculture and Rural Development (NABARD), 1987-88. Government of India (GOI). "Malpractices in the Implementation of Poverty Alleviation Programs", (mimeo), DRD, New Delhi: Ministry of Agriculture, 1988. Government of India (GOI). "National Seminar on Poverty Alleviation Programs (February 12, 1988)", DRD, New Delhi: Ministry of Agriculture, 1988. Government of India (GOI). "Pilot Project for Planning and Management of the Poverty Alleviation Programmes at the Block Level", (mimeo), DRD, Ministry of Agriculture (Study executed by Pradhan), June, 1987. Government of India (GOI). Report of the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAPICARD), Bombay: RBI, 1981. Government of India (GOI). "Report of the Committee to Review the Existing Administrative Arrangements for Rural Development and Poverty Alleviation Programmes (CAARD)", DRD, New Delhi: Ministry of Agriculture, December 1985. Government of India (GOI). "Report of the Study Team on Overdues of Co-Operative Credit Institutions", Agricultural Credit Dept., Bombay: RBI, 1974. Government of India (GOI). "Regional Rural Banks: Report of the Review Committee" (Chairman M.L. Dantwala), Bombay: RBI, 1978. Government of India (GOI). "Report of the Expert Group on Programmes for Alleviation of Poverty", New Delhi: Planning Commission, February 1982. Government of India (GOI). "Report of the Working Group on Regional Rural Banks", (Chairman S.M. Kelkar), New Delhi: Ministry of Finance, 1987. Government of India (GOI). "Statistics on Regional Rural Banks", Bombay: National Bank for Agriculture and Rural Development (NABARD), June 1986. Government of India (GOI). "Studies on Capital Subsidy vs. Interest Subsidy", DRD, New Delhi: Ministry of Agriculture, January 1986. Government of India (GOI). "Study on Overdues in Respect of Loans Under the IRDP", (mimeo), Economic Analysis and Publications Department, NABARD. -56- Government of India (GOI). "Towards a Goal Oriented Management of Production, Projects, and Programmes Report 1986-87", New Delhi: Ministry of Programme Implementation, 1987. Government of Maharashtra. "IRDP Agenda Notes for the State Level Co-Ordination Committee Meeting", DRD, Bombay, December 17, 1987. Government of Maharashtra. "Report of the Evaluation Study on TRYSEM in Maharashtra", Bombay: Directorate of Economics and Statistics, Planning Department, 1984. Government of Uttar Pradesh. "Summary and Conclusions and Recommendations on IRDP Based on Evaluation Studies", Lucknow: State Institute of Rural Development, 1987. Guhan, S. "Aid for the Poor: Performance and Possibilities in India", (mimeo), Madras: Madras Institute of Development Studies, December 1987. Hirway, Indira. Abolition of Poverty in India, New Delhi: Vikas Publishing, 1986. Hirway, Indira. "Garibi Hatao: Can IRDP Do It?", EPW, Vol. XX, No. 11, March 30, 1985. Hirway, Indira. "Reshaping IRDP: Some Issues", EPW, June 25, 1988. Hirway, Indira. "Social Welfare", (Unpublished), Ahmedabad: Gandhi Labor Institute, March 1988. Hossain, Mahabub. "Credit for Alleviation of Rural Poverty: The Grameen Bank in Bangladesh", Research Report 65, Washington, D.C.: International Food Policy Research Institute, February 1988. Institute of Financial Management and Research. "An Economic Assessment of Poverty Eradication and Rural Unemployment Alleviation Programmes and Their Prospects", Madras, April 1984. Karnataka State Janata Party, "Loan Melas-For Whose Benefit?", (Collection of newspaper articles), February 1987. Kavinde, D.J. "Regional Rural Banks", State Bank of India Monthly Review, November 1987. Kolhe, A.K. "Study of IRDP in Ahmednagar District of Maharashtra", (mimeo), September 1984. Kulkarni, P.M. "A Scheme for Alleviation of Extreme Poverty: An Evaluation", (Unpublished), Bangalore: Institute for Social and Economic Change. Kulkarni, P.M. "Rehabilitation of Bonded Laborers in Karnataka", Bangalore: Institute for Social and Economic Change, 1988. -57- Kurian, N.J. "IRDP: How Relevant Is It?", EPW, December 26, 1987. Malhotra, R.N. "The Role of Banking in Rural Development", Reserve Bank of India Bulletin, September 1986. National Institute of Rural Development. "Employment and Income Generation Under IRDP and NREPIDRM: A Study in Karnataka", Hyderabad, 1984. Oommen, M.A. "Differential Interest Rate Scheme: Findings of a Field Study", EPW, May 24, 1980. Ranade, Sudhanshu. Rural Banking Adrift. Jaico: Bombay, 1984. Ranade, Sudhanshu. "Perspectives on IRDP", Bulletin, Madras Development Seminar Series, Vol. XVI, No. 11. Rath, N. "Garibi Hatao: Can IRDP Do It?", EPW, February 9, 1985. Rao, B. Ramachandra. "Priority Sector Advances", The Journal of the Indian Institute of Bankers, Vol. 58, No. 3, July-September 1987. Rao, Hanumantha and P. Rangaswamy. 'Efficiency of Investments in IRDP: A Study of Uttar Pradesh." EPW, June 25, 1988. Rao, V.M. "Changing Village Structure: Impact of Rural Development Programmes", EPW, Vol XXII, No. 13. Rao, V.M. "IRDP and Rural Diversification: A Study in Karnataka" EPW, December 26, 1987. Rao, V.M. "The Interventionist Strategy for Removal of Poverty: Critical Dimensions, Potentialities, and Limitations", (Paper prepared for the Workshop on Poverty, Indian Institute of Management), Ahmedabad, March 22, 1988. Ray, Amal. "Delivery Systems for Rural Development in India: A Field View of Institutional Linkages", Public Administration and Development, Vol. 5, No. 4, 1985. Ryan, J. G. and T.S. Walker. "Against the Odds: Village and Household Economies in India's Semi-Arid Tropics", (unpublished draft; forthcoming), 1988. Sangita, S.N. "Self-Employment Programmes for the Rural Youth: The Role on Non-Governmental Organisations in Karnataka", (Unpublished), Bangalore: Institute for Social and Economic Change, 1987. Shah, C.H. "Rural Development, Poverty, and Poverty Alleviation - An Evaluation of Integrated Rural Development in India", Bombay: (Unpublished), May 1987. -58- State Bank of India. "Twenty-Ninth Report of Estimates Committee", (1985-86), New Delhi. State Bank of India. "Impact of Bank Credit on Weaker Sections in Kerala", SBI Monthly Review, September 1987. State Bank of India. "IRDP: An Impact Evaluation Study", SBI Monthly Review, August 1987. Saxena, A.P. "Concurrent Evaluation of IRDP: Selected Aspects for Administrative Follow-Up", EPW, September 26, 1987. Sinha, M.K. "The Role of Nationalised Banks in Rural Development", State Bank of India Monthly Review, September 1986. Subbarao, K. "Regional Variations in Impact of Anti-Poverty Programs: A Review of Evidence", EPW, Vol. XX, No. 43, October 26, 1985. Tendulkar, S. "Rural Institutional Credit and Rural Development", Indian Economic Review, Vol. XVIII, No.1, 1983. Tripathy, R.N. et. al. "IRDP in Uttar Pradesh (An Evaluation in Gorakhpur District)", (Mimeo), Centre for Micro Planning, Hyderabad: National Institute of Rural Development, 1986. -59- Annex I Page 1 of 2 1. An OLS regression was fitted to the data set in U.P. to determine what factors explain differences in the productivity of investments over the longer term. The dependent variable is net income from the asset in year four/cost of investment. The results are found in table 5.6. All variables are significant at 95Z or above.l/ Table 1: Productivity of IRDP Investments in U.P. (OLS Regression-Dependent Variable Net Income from Asset year 4/Investment Cost) Explanatory Variables Parameter T for HO: Prob>T Parameter=O Intercept .S7 2.1 .03 G.nder(Male.)) 1/ -.43 -3.5 .0006 Occupation .22 3 .002 87/88 Drought 3/ -1.0 -2.9 .004 District Agric Prod./per cap 4/ .0005 4 .0001 Incidental acquisition costs -.003 -2.9 .004 Passbook (Issued=1) .18 2.3 .02 Beneficiary Organization ./ 33 2.9 .004 Type of Inv-stment(ISB=1) .46 5.7 .0001 N=219 Model F =11 /8 df Prob > F .0001 Adj R2 =.27 1/ In addition to the direct beneficiaries in the sample that were classified female (40), this variable captures those beneficiaries classified as male, but that admitted in the follow up survey that the investment was actually managed by their spouse (81). 2/ Agricultural Laborers A Marginal Farmers=0, all others =1. 3/ Measured as the deviation in district rainfall for June/July 1987 from normal rainfall during these months. 4/ Gross value of district agricultural production per capita in 1983/84. 5/ Costs other than direct investment costs that were incurred by beneficiaries on visits to the block, bank, and other offices in the process of obtaining the IRDP asset. This is used as a proxy for differential administrative misappropriation that may have occurred. 6/ Whether he/she was member of an organization of beneficiaries (Yes=1). Note: See Annex table AS for detail / The Glejser test was used to test the assumption of homoscedasticity of the disturbances. On a priori grounds, it was postulated that the drought variable could be source of h-teroscedasticity, that is, drought impact increases, the variation in productivity increases. The result of the test showed that heteroscedasticity does exist and can be overcome by transforming the original model for estimation purposes. This was done by dividing the original relation by the square-root of drought and reestimating the regression. The results of this were that all the transformed variables remained significant and heteroscedasticity was eliminated in the drought variablo. Details are given in annex table Ag. -60- Annex I Page 2 of 2 2. Variables can be classified according to beneficiary characteristics, those that capture inter-district variations and those specific to the investment and IRDP implementation. Among the beneficiary characteristic variables, the gender dummy (male=l) indicates that females were more productive in managing investments. The occupation variable is also significant. Classification as an agricultural laborer or marginal farmer, generally less endowed with pre-IRDP income and land and/or skills and experience in self-employment, has a negative impact on productivity. 3. In addition to household characteristics, two district variables show significance. The impact of the 1987/88 drought had a strongly negative impact on the productivity of investments in U.P. Weather-related shocks are a factor that beneficiaries in large parts of the country are likely to face during any given 4-5 year period. Their negative impact on the ability of vulnerable households to maintain productive investments in self-employment ventures is thus a factor that should be anticipated and planned for accordingly. The measure of district gross agricultural production per capita is also significant indicating that beneficiaries in generally more prosperous rural areas tend to do better in self-employment. This finding suggests that higher investment in agricultural production leading to improved output and income would enhance the prospects of poor households attempting to increase their incomes through self-employment ventures. Households that live in rural areas which suffer from low agricultural output face great handicaps in deriving sustained benefits from IRDP investments. 4. Several variables that capture the impact of specific implementation features are significant. The amount of money beneficiaries expended on visits to the block, bank, and other offices prior in obtaining the asset, a proxy for administrative misappropriation, had a negative impact on productivity. The actions and attitudes of the financial intermediary are also critically important. Failure to issue a loan passbook, which occurred in 352 of cases in U.P., is a proxy for bank seriousness in loan appraisal and follow-up. This indicates that some banks ignored established commercial lending practices and guidelines of the program resulting in lower productivity of investments. A dummy captures the impact of group formation and support on investments. Where organizations of IRDP beneficiaries were formed to represent their interests, productivity was higher. Only 142 of beneficiaries in the sample were involved in such organizations. 5. The ISB variable distinguishes between primary investments in animal husbandry (including animal-drawn carts) and minor irrigation and secondary and tertiary sector investments, known as ISB or Industry, Services, and Business(ISB=1).21 These latter schemes tended to produce higher income per Rp investment. Evidence presented later in section C(ii), however, appears to indicate that less income from these schemes may accrue as an increment to the household. ! Bullock pairs with cart (BBC) are considerod a primary, rather than a tertiary sector investment. -61- STATISTICAL ANNEX Table of Contents Al - Survey Diagram A2 - Direct Costs and Physical Achievements of IRDP (national) A3 - Real Direct Costs and Achievements of IRDP (national) A4 - Government Personnel Costs of IRDP Delivery in Y.P. A5 - Measures of Success (national) A6 - Statewise Distribution of Beneficiaries by Pre-IRDP Income Groups A7 - Concurrent Evaluation of IRDP: Main Findings of the Survey (national) A8 - Regression on Productivity of Investment A9 - Regression on Productivity of Investment (Corrected for Heteroscedasticity) Alo - Sustainability According to Scheme in U.P. All - Sustainability According to Income Group in U.P. (Survey Round 1) A12 - Sustainability According to Income Group in U.P. (Survey Round 2) A13 - Sustainability According to Occupation in U.P. A14 - Sustainability According to Educational Status in U.P. A15 - Logit Regression on Investment Retention A16 - Changes in Income and Productivity of Investment for Beneficiaries that Retained IRDP Assets for 2 years in U.P. (Survey Round 1) A17 - Changes in Income and Productivity of Investment for Beneficiaries that Retained IRDP for 2 years in U.P. (Survey Round 2) A18 - Changes in Real Income and Productivity of Investment by Scheme for Those Beneficiaries that Retained IRDP Assets for at least 2 years A19 - Term Credit Mobilization for IRDP (national) A20 - IRDP Overdues in U.P. (Survey Round 1) A21 - IRDP Overdues in U.P. (Survey Round 2) A22 - Reasons Given by IRDP Beneficiaries for Overdues A23 - Level of Overdues (national) A24 - Logit Regression on Overdues in U.P. A25 - Mode of Loan Disbursements in U.P. A26 - Follow-up by Bank & Block Officials in U.P. A27 - Sustained Access to Credit for IRDP Beneficiaries in U.P. A28 - Sustained Access to Credit for IRDP Beneficiaries in U.P. -62- Annex Al RAm" I sM N (419) Conducted I95-U Olad Ief4iccarin (2401 lt Ito SifficLarin t2;11 2\ Intact lAssub.) Asset Status Intact (I??) Soli 11() Perished (9) Partially Other (it Intact (10) Rusarvey Rownd I (19UI Intact (137) Sold (13) Perished (241 Partially other (21 lbvZ t91 Died (2) Intact MI ROnS 2 N ' 147) ( C4CW19117 Old hn.fclumes (2W) 3\ Nrasfirst kwe OsN Iscd kwe * hsefl~NWcluies (193) 4l heelidwin (351 11 CItact (Asawndi Intact (Assd) Asset Status Intact (191 Sold (2531 Perished (41 Prtially Othe (41 Intact (Ii Resurvey Round 2 (1966I Intact (134) Sold (221 Perished t131 Partially Other (3) RoedW (A) Died (1) Dropped (112) i\ Intact 171 I\ 'OlId' heseficiarin rKiveSd assetS JuIy 13-Sep t4, two yars priwr to sarvey date. In the statistical analyses one od the ohsduntius sa dropped. 2\ 'Ns.' hofficiaries received assets thrne aths prior to survey date. 3% 'Old' eatficiaries received assets July-Septeeher IMi, two years prior to wvey date. In the statistical asalyes one of the osrvatiee Pas dropped. 41 'IN"' henuficiarin rtetivtd atstt ay-July 1917, thre sonths prier to survy. S These wor tmntriciarin that receiVed A scod iem bcaus they did net tross the poverty line during the Sioth Plan. Al Several ottet;Vtioes We dfroped dt ts the fact tat the betmficiaries did l nt rKceive the standard IRIP package. Thnes households rKenlVud n ete se dlindi dr ~ INV and TSMf, but no credit sec ntended by the bhas. DIRECT COSTS AND PHYSICAL ACHIEVEMENTS OF IROP (BILLIONS OF RUPEES) Annex A2 Target 80/1 81/2 62/3 S3/4 84/6 86/6 86/7 87/8 88/9 Total 1) Allocation 1\ 3 2.6 4 4.07 4.07 4.07 6.43 6.13 6.92 40.19 : of which Control 1.27 1.63 2.04 2.07 2.07 2.87 4.28 3.1 3.46 22.69 Growth in Allocation -17X 601 2X -OX -OX 33U 13X 13X 2) Centrol Relaooo 0.82 1.28 1.76 1.94 2.06 N/A N/A 3 8) Total Central Plan Expenditures 2\ 89.94 102.6 119.13 140.38 166.16 199.14 229.4 249.3 267.14 1665 4) Actual Stato A Central Expenditures 1.66 2.64 8.59 4.06 4.72 4.41 6.18 7.19 a4.32 Growth of Expenditure. 67% 36X 18X 16x -71 89X 17X 5) Term Credit Mobilized 2.09 4.67 7.13 7.78 8.67 7.8 10.14 11.59 60.02 Growth of Term Credit Mobilized 62X 53X oX 11X -165 39X 14X Average Annual Growth of Term Credit Mob. 22% 6) Total Investment 4.47 7.31 10.72 11.79 13.29 11.71 16.27 18.78 94.84 (Actual Exponditureo-Torm Credit Mobilixed) Growth of Total Investment 64X 47X 101 13X -12X 391 15X 7) No. of Beneficiaries Covered (million)3\ 2.7 2.7 3.6 3.7 4 3.1 3.7 4.2 27.8 Growth of # of Beneficiaries Covered OX 301 6x 8X -22X 19X 14X No. of SC/ST Beneficiaries Covered (million) 0.8 1 1.4 1.6 1.7 N/A N/A 1.9 Growth of # of SC/ST beneficiaries Covered 265 40X 7X 13X N/A N/A N/A 8) Per Beneficiary Subsidy (Ro) 585 978 1026 1097 1180 1423 1667 1712 Per Beneficiary Credit (Ro) 1070 1730 2037 2089 2143 2366 2741 2760 Per Beneficiary Investment (Ro) 1668 2707 3063 3166 3323 3777 4397 4471 9) Sectorwlse Coverage (X) 4\ (a) Primary Sector 94X 83x 89 S9 55X 42X 40X 411 (b) Secondary Sector 21 6X 16X 1x 16X 16X l61 191 (c) Tertiary Sector 4X 16x 161 2X1 30x 421 361 40X SecondarytTertiory Sector SX 171 32X 41X 461 6SOX UX 69% 1\ Roport of the Committee to Review the Existing Administrative Arrange nt for Rural Development and Poverty Allevistion Programme (CAARD), Dept. of Rural Dovt., Ministry of Agriculture: Dec. 19i6, Annexure III-A. 2\ Source: Expenditure Budget: 1968-89, Vol.1, Annexure III-A. 3\ Report of tho Committee to Review the Existing Administrative Arrangement for Rural Development and Poverty Alleviation Programme (CAARD), Dept. of Rural D-vt., Ministry of Agriculture: Dec. 1996, Annexure III-A. 4\ Sources: Seventh Five Year Plan: 1986-90,Vol.II, Planning Com mlsion, 001, pp.62-63. National Seminar on Poverty Alleviation Progrommes,A Theo Poper,GOI (Dept. of Rural Devt.) Ministry of Agriculture, New Delhi. Feb. 12. 1988. REAL DIRECT COSTS AND ACHIEVEMENTS OF IRDP --- --- --- --- --- --- --- --- --- --- --Annex A3 80/1 81/2 82/3 88/4 84/C 86/6 86/7 87/8 Total 1) Allocation 1\ a 2.28 J.40 8.19 3.17 8.00 3.84 8.97 26.85 of which Central 1.27 1.40 1.78 1.62 1.61 2.11 S.08 2.01 14.79 Growth in Allocation -24X 49X -6x -1X -5X 28X ax 2) Control Releaos 2\ 0.82 1.17 1.57 1.68 1.57 N/A N/A 1.91 3) Total Centrol Plan Expenditures S\ 89.94 93.76 106.18 114.81 126.88 143.25 168.62 158.74 989.02 Central Reloese as a X of Total Central 1% 1X 1X 1X 1X N/A N/A 1X Plan Expenditures 4) Actual State A Central Expenditureo 4\ 1.68 2.41 3.06 3.18 3.68 3.26 4.34 4.85 26.14 Growth of State A C-ntral Expenditurres 63% 27% 4X 165 -12X 84X 7X Average Annual Growth in Actual Expenditures 16X 6) Term Credit Mobilized 6\ 2.89 4.26 6.06 6.06 6.68 5.38 7.18 7.6 48.01 Growth of Term Credit Mobilized 47X 42X OX 105 -19X 838 4X Average Annual Growth of Term Credit Mob. 16X 6) Total Investment 6\ 4.47 6.67 9.12 9.24 10.86 8d.8 11.61 12.15 72.14 Growth of Investment 49X 37X 1X 12X -17X 88x 6X Average Annual Growth of Total Investment 16X Term Credit Mob, as a X of Total Inv. 66X 64X 6eX 66x 66X 62X 62X 62X Average Annual Growth of Torm Credit Mobilized as a X of Total Inv. -1X 7) No. of Beneficiaries Covered (million)7\ 2.7 2.7 8.6 3.7 4 8.1 3.7 4.2 27.6 No. of SC/ST Beneficiarieo Covered (million) 0.8 1 1.4 1.5 1.7 N/A N/A 1.9 8) Per 8-noficisry Subsidy (Rn) 686 893 871 859 920 1048 1178 1107 Per Beneficiary Credit (Rc) 1070 1678 1731 1638 1670 1785 1941 1786 Per Benoficiary Invostment (Rs) 1666 2470 2606 2497 2568 2784 8111 2893 1\ The volues are deflated by the Agricultural Laborers Cenorxl Index with 1960/81 base prices. 2\ The values are deflated by the Wholesale Price Index with 1980/81 base prico. 3\ The expenditures are defited by the wholeosle price index with 1980/81 bae prices. 4\ The expenditures are deflated by the Agricultural Laborers General Index with 1980/81 base prices. 6\ The values aro deflated by the Agricultural Laborers CGnerol Index with 1980/81 bnse prices. 8\ The values are deflated by the Agricultural Laborers General Index with 1960/81 base prices. 7\ Report of the Committee to Review the Existing Administrative Arrangements for Rural Development and Poverty Alleviation Programme (CAARD), Dept. of Rural Development, Minih.ry of Agriculture: Dec. 1986, Ann-xure 111-A. -65- Annex A4 GOVERNMENT PERSONNEL COSTS OF IRDP DELIVERY IN U.P. Ave time spent Annual Cost on IRDP Annual of IRDP (hrs/day) Proportion Salary (Rs) Delivery (Rs) District Level _ - ---------- ----------- ------------ District Magistrate negligible Chief Development Officer 0.25 4% 45,000 1,607 Project Director 1 14% 36,000 5,143 Block Level Block Development Officer 2 29% 3U,000 10,286 VDO/VLW 2.5 38X 17,000 6,071 ADO (ISO) 7 100X 20,400 20,400 ADO (Agriculture) 1 14% 20,400 2,914 ADO (Cooperatives) 1 14% 20,400 2,914 ADO (Panchayate ) 0.6 7% 20,400 1,467 ADO (Statistics) 1 14% 20,400 2,914 ADO (Harijan Kalyan) 2 29X 20,400 5,829 IRDP Clerk 7 100X 14,000 14,000 Jr.Engineer (Minor Irrigatio 0.5 7% 36,000 2,571 Veterinary Officer 2 29X 38,000 10,298 Total 342,400 86,393 Source: Discussions with officials involved in implementation. Annex A5 MEASURES OF SUCCESS FOR IRDP 1/ X Elig. and X Elig. and X Intact and X Intact cnd X Elig. and Crossed P.Lin- Crossed P.Line X Eligible X Invostoents Some Repayment No Credit Crossed Pov, and Repaid and No Credit Major Stat.s Ben-f. 4/ Intact 3/ of Credit Ov-rdue Line 5/ Some Credit Overdue Andrah Pradesh sex 76X 6X3 34x 9x 7X 1X Arunachal Pradesh 7S3 613 "/A 839 4X 0o 4X Asm 27X 7ox 41X 6x lOX 7X 23 Bihar 76X 86x 63X lx JX 2X 13 Gujarat 7sx 6sx 791 43X 4X 4X OX Haryana 713X 46 40X 163 OX OX OX Himchal Pradesh 673 6s5 7ax 46X 293 27X 3X J am u A Kashmir 87x 60X 76X 60X 19x 193 ox Karnataka 65x 643 483 26X 4X 3X 1X Kerala 89x 74X 69X 193 SX 6X 0o Madhya Pradesh six 73X 60o 273 6x 6X ox Maharashtra Sax 6x 5sx aox 101 9x 1X Orissa 83x 6ex 483 19x 73 6X 2X Punjab 301 77X 74X 67X lx 18X OX Rajasthan 72X 4sx 36X 15X 9x aX 1X Tmil Nadu sax 63X 49s 28x 3x ax 1X Uttar Pradesh 54X 79s 63X 41X 6X 4X 1X West Bengal 46X 97x 76X 23X 83 6X 1X AVERAGE MAJOR STATES 70X 73% 68X 29X 7X ox 1X Other States A UTv 2/ 53a sex 25X 29X ax 3X 6X ----- 3-- _- NATIONAL AVERAGE 69x 72X 5X 29X 7X ax 1X 1/ National Concurrent Evaluation of IRDP, Round two, 1967, DRO. 2/ Manipur, Megalay., Nagaland, Tripura, A A N Inl, Chandigarh, Dadra & NH, DOlhi, Coo, Lakshwadeep, Miroram, Pondicherry, Sikkim 3/ Proportion of IRDP investments that remained fully operational after two years 4/ Proportion of Benoficiaries oith pro-IRDP income (=Rs 4600 6/ Proportion of Beneticiaries with pre-IROP income (=Ro 4800 and incom )=Rs 6400 after 2 years in current price terms -67- Annex A6 Statewise Distribution of Beneficiaries by Pre-IRDP Incom Groups Rogion/State S In Target Range X Above Target Range ________________ _((=Rs 400) (Re 4600) NORTH Jamu and Kashmir 99X OX Himachal Pradesh 94X 3X PunJab 90X 8X Haryana 94X 6X NORTH CENTRAL Utter Pradesh 66X 9X Bihar 87X 115 Madhya Pradesh 94X 4X EAST West Bengal 896 9X Orissa 94X 4X NORTHEAST Assa 62X a3x Nagaland 82X 17X Sikikim 100X OX Megholoya 96X OX Tripura 6SX 13X Manipur 76X 21X WEST Maharastra 93X 4X Rajasthan 89X 6X Gujarat 973 1X SOWTH Andhra Pradesh SoX 12X Tamil Nadu 9CX 3X Karnataka 933 SX Kerala 97X OX UNION TERRITORY Andamn I Nicobar Islands 61X 36X Arunachal Pradesh 933 SX Chandigarh 695 30X Dadra & Nagar Havoli 100X OX Delhi 12X 87X Goo 96X 2X Lakshadwoep 90X 9X mizors 67X 30X Pondicherry 823 17X = = TOTAL 90X 8X Source; Concur. Eval. of IRDP: Theo Main Findings of tho Survey for Jan. 87-Sep. 87, Dept. of Rural DOevt. Feb. 1986. -68- Annex A7 Concurrent Evluattion of IROP: Main Findings of the Survqy Income from the Aost in Curront prices Region/State X of Intact X Crossing the 601- 1001- Ascot. Poverty Line 1\ 0 Re. 1-S00 Re. 1000 2000 >2000 Re. NORTH Jamru and Kashmlr so0 lox lSX 1X 6X 27x 49X mimachal Pradesh 6SX 26X 2sx 6x eX lx 40% Punjab 77X 13X 231 oX 6x 31X 41X Haryana 46X 1X 49x 2X 181 17X 14X NORTH CENTRAL _____________ -- - - - - - -------------- ______ ______ --------- ----__- --------- Uttar Pradesh 79x SX 121 4X lx 39x 26% Bihar 86x 2X 171 14X 35X 24x 11% Madhya Pradesh 73X 3X 22X ex 14X 26X 33X EAST West Bengal 971 ex 31 6a 10X lX 62X Orlssa 686 ex 23X 91 1ox 16x 36X NORTHEAST -- - - - - -- - - - - -…-- -… - - - -- - - - - -- - Assam 70X 9X 37X 1SX 16X 91 20X Nagaland 69x oX 5C1 15X 10X 10X 10% Sikkim 100X O OX 0X 15X 80X 6X Meghalaya 33X 5X 47X 14X 16x ex 16X Trlpura IOOX OX OX O1 ex 7X 851 Manipur 33X 4X 57X 21X 11X 7X 41 WEST Maharaatro 8sx 8X lex 11X 16x 201 34X Rajasthan 46X SX 4ex 13X 1JX 17X 11% Gujarat ssX 2X sX ex 26x 44X 171 SOUTH Andhra Pradesh 75X S 13X 4X 10X 23x 49X Tamil Nadu 6ax 2X 33X ex 14X 22X 26% Karnataka 84X 4X 131 25x 22X 22x 14% Kerala 74X 4X 1SX 25X 291 24X 7X UNION TERRITORY Anda-an A Nlcobar Islands 73X OX 0OX lOX 3X 17X 401 Arunachal Pradeeh s1x 2X 40X 29x 20X ex sx Chandigarh 1001 OX O0 ON 10X 80X 10X Dadra & Mager Havoll 100X OX OX OX 301 6ox 101 Dolhi s6x ox 40X lox 10X lOX 30X oas 1OOX 19x 6x 25X ex 6x 68% Lakshadweep SOX ox 33x ox 6x 50X 8% Mizorm 54X 12X 32X 7X 14X 20X 271 Pondicherry 70X OX 25X lOX 30X 15X 20% 2=9==080 ==2 -=-= =======__ TOTAL 72X 6X 221 lOX 17X 24X 26x Sourc-: Concur. Eval. of IROP: The Main Findings of the Survey for Jan. 67-Sep. 87, Dept. of Rural D.vt., Feb. 1988. 1\ Percentage of persons with Initial incom less than Re. 3500 crossing the poverty line of Rs. 6400. Annex A8 Regression on Productivity of Investment Page 1 of 3 SAS DEP VARIABLE: NEW ANALYSIS OF VARIANCE SUM OF MEAN SOURCE DF SQUARES SQUARE F VALUE PROB>F MODEL 8 23.03229871 2.87903734 11.128 0.0001 ERROR 210 54.33130791 0.25872051 C TOTAL 218 77.36360662 ROOT MSE 0.5086458 R-SQUARE 0.2977 DEP MEAN 0.423147 ADJ R-SQ 0.2710 C.V. 120.2054 PARAMETER ESTIMATES PARAMETER STANDARD T FOR HO: VARIABLE DF ESTIMATE ERROR PARAMETER=O PROB > jTj INTERCEP 1 0.57143723 0.26580185 2.150 0.0327 DROUGHT2 1 -0.99900160 0.34356843 -2.908 0.0040 ISB 1 0.46003196 0.08034883 5.725 0.0001 f OCCI 1 0.22515445 0.07416734 3.036 0.0027 0 15_10 1 0. 17863415 0.07815914 2.286 0.0233 GENDER 1 -0.43142159 0.12294408 -3.509 0.0006 III_5 1 0.33109617 0.11552114 2.866 0.0046 AGDP 1 0.000520742 0.000130252 3.998 0.0001 13_7 1 -0.003731763 0.001286250 -2.901 0.0041 Legend Drought2 - 87/88 Drought (deviation from normal district rainfall for June/July 1987) ISB - Type of Invostment (Industry, Services and Busin-es = 1) OCCi - Occupation of Beneficiary (Agricultural Laborers and Marginal Farmrs = 0) Is 10 - Passbook Issued (=I) Gender - (Male = 1) 11156 -Beneficiary Organization (whether there was an organization of beneficiaries - Yes=l) AGDP - District Gross Agricultural Production Per Capita 83/84 I3 7 - Incidental Acquisition Costs Annex A8 Page 2 of 3 SAS VARIABLE N MEAN STD DEV SUm MINIMUM MAXIMUM NEW 219 0.42314704 0.59571716 92.6692010 0.00000000 4.78320000 DROUGHT2 219 0.59146119 0.11712011 129.5300000 0.29000000 0.77000000 ISB 219 0.33333333 0.47248449 73.0000000 0.00000000 1.00000000 OCCi 219 0.42465753 0.49542332 93.0000000 0.00000000 1.00000000 15 10 219 0.64840183 0.47856312 142.0000000 0.00000000 1.00000000 GENDER 219 0.90867580 0.28872955 199.0000000 0.00000000 1.00000000 111_5 219 0.13698630 0.34462059 30.0000000 0.00000000 1.00000000 AGDP 219 1110.63013699 288.28882244 243228.0000000 663.00000000 1706.00000000 13_7 219 41.23744292 28.96974481 9031.0000000 0.00000000 200.00000000 PEARSON CORRELATION COEFFICIENTS / PROB > IR: UNDER HO:RHO=O / N = 219 NEW DROUGHT2 ISB OCCI I5_10 GENDER 11l5 AGOP I3_7 NEW 1.00000 0.03254 0.29828 0.19109 0.16946 -0.25973 0.19085 0.08882 -0.12084 0.0000 0.6320 0.0001 0.0045 0.0120 0.0001 0.0046 0.1904 0.0743 DROUGHT2 0.03254 1.00000 0.23652 -0.08585 0.13852 -0.09777 0.41666 0.08501 -0.09463 0.6320 0.0000 0.0004 0.2057 0.0406 0.1493 0.0001 0.2102 0.1628 ISB 0.29828 0.23652 1.00000 0.17637 -0.02705 -0.04483 -0.02817 -0.22179 -0.01452 s 0.0001 0.0004 0.0000 0.0089 0.6906 0.5092 0.6784 0.0010 0.8308 0 OCCi 0.19109 -0.08585 0.17637 1.00000 -0.16061 0.01581 -0.07361 0.03624 0.25375 0.0045 0.2057 0.0089 0.0000 0.0174 0.8160 0.2781 0.5937 0.0001 15_10 0.16946 0.13852 -0.02705 -0.16061 1.00000 -0.20025 0.29338 -0.13494 -0.16005 0.0120 0.0406 0.6906 0.0174 0.0000 0.0029 0.0001 0.0461 0.0178 GENDER -0.25973 -0.09777 -0.04483 0.01581 -0.20025 1.00000 -0.15030 0.07531 0.09858 0.0001 0.1493 0.5092 0.8160 0.0029 0.0000 0.0261 0.2671 0.1459 l_5 0.19085 0.41666 -0.02817 -0.07361 0.29338 -0.15030 1.00000 0.04724 -0.10895 0.0046 0.0001 0.6784 0.2781 0.0001 0.0261 0.0000 0.4868 0.1079 AGDP 0.08882 0.08501 -0.22179 0.03624 -0.13494 0.07531 0.04724 1.00000 0.25507 0.1904 0.2102 0.0010 0.5937 0.0461 0.2671 0.4868 0.0000 0.0001 13_7 -0.12084 -0.09463 -0.01452 0.25375 -0.16005 0.09858 -0.10895 0.25507 1.00000 0.0743 0.1628 0.8308 0.0001 0.0178 0.1459 0.1079 0.0001 0.0000 Annex A8 Page 3 of 3 SAS DEP VARIABLE: ARES ANALYSIS OF VARIANCE SUM OF MEAN SOURCE DF SQUARES SQUARE F VALUE PROB>F MODEL 1 0.81362015 0.81362015 6.350 0.0125 ERROR 217 27.80371742 0.12812773 C TOTAL 218 28.61733757 ROOT MSE 0.3579493 R-SQUARE 0.0284 DEP MEAN 0.3426593 ADJ R-SO 0.0240 C.V. 104.4622 PARAMETER ESTIMATES PARAMETER STANDARD T FOR HO: VARIABLE DF ESTIMATE ERROR PARAMETER=O PROB > 'Ti INTERCEP 1 0.03414352 0.12479655 0.274 0.7847 OROUGHT2 1 0.52161625 0.20699594 2.520 0.0125 -J Annex A9 Regression on Productivity of Investment (Corrected for Heteroskedasticity) SAS DEP VARIABLE: NNEW ANALYSIS OF VARIANCE SUM OF MEAN SOURCE OF SQUARES SQUARE F VALUE PROB>F MODEL 8 105.99236 13.24904461 30.302 0.0001 ERROR 211 92.25652945 0.43723474 U TOTAL 219 198.24889 ROOT MSE 0.6612373 R-SQUARE 0.5346 DEP MEAN 0.5614657 ADJ R-SQ 0.5170 C.V. 117.7699 NOTE: NO INTERCEPT TERM IS USED. R-SQUARE IS REDEFINED. PARAMETER ESTIMATES PARAMETER STANDARD T FOR HO: VARIABLE DF ESTIMATE ERROR PARAMETER=O PROB > IT, NDROUGHT 1 -0.65214081 0.24937460 -2.615 0.0096 NISB 1 0.51968251 0.07803331 6.660 0.0001 NOCCi i 0.23442543 0.07153472 3.277 0.0012 N15_10 1 0.23756110 0.07042427 3.373 0.0009 NGENDER 1 -0.21992666 0.10605212 -2.074 0.0393 N1Il 5 1 0.27167617 0.11961715 2.271 0.0241 NAGDP 1 0.000609683 0.000118878 5.129 0.0001 N13_7 1 -0.003212048 0.001222688 -2.627 0.0092 Annex A10 Sustainability According to Schem Moved/Did/No Intact After Partially Intact After Sold After Perished After Other After Answer After Schem 2 Years 4 Years 2 Years 4 Years 2 Yoars 4 Years 2 Yoars 4 Years 2 Years 4 Years 4 Years NOB Bullocks/Small Animal Husbandry 1\ SSX 31X 12X 19X 29X 386 ex 7T Gs 7X eX 42 Minor Irrigation 2\ 16X 88X eX ex ox 13X eX ex ex ex ex 24 Animal Drawn Carts 91X 69X ex 12X 8X 12X ex 3X Ss ex ex 3C Dairy Units 89X 6x eX ex 5X 23x 7X 12X ex ex ex 44 Other Primary Agriculture 3\ UX a33 eax 33o ex 33X ex ex ex Ss ex S Other Secondary/Tertiary 83a 69X 1X 2X 13X 18X 1X 1X 1X 4X OX 76 33 33333 3333 3=333 =3333 33=3= 3== 353= =33=3 a 33=33 Total (X) 82X 69X 4X 7X 1lX 21X 2X 6X 1X 2X SX 226 Note: Only old beneficiarieo who were located both in the second and fourth year are included (226). Sample: UP Survey Round 2. 1\ Animal Husbandry includes goat, fishery, and piggery units. 2\ Minor Irrigation includes tube-wells, pump-sets, dieosl engines/electric motors, and others. 3\ Other primary agriculture includes horticulture, Implements and others. Sustainability According to Incoe Group Annex All ------------------------------_------___ &loved/D i od/ Intact After Partially Intact After Sold After Perished After Other After Othor Aftor Pr--IRDP Ineo 2 Years 6 yoers 2 Y-ere 6 Y-oro 2 Yeoro 6 Years 2 Years 6 Yars 2 Years 6 Yaors 6 Years NOB OeetAtut* (1-2266) 73X 360 31 4X 10% 19X 7X 28X ox 6% GM 67 Very Very poor (2265-3600) 8SX SOX 6 191 3X ox 2X 9X 3X 4X 3% 116 Vory Poor (3661-4800) soX 609 2X 4% 7X 14X 2X 7% oX 2X 2X 42 Poor (4802-6401) s3x 631X oX 13 13X 261 01 0 ox as ox t Above Poverty Line (6401- ) 71X 43% ox es 14X 14X 14X 141 OX X 291 % ==;rmU 3=3n 3= sss:c in=3 === 3===== -==sC 7aia m Total (1) 62X 671 41 7X 71 13% 4X 14X 3% 4X 4X 239 Note: Only old beneficiaries are included (239). Sample: UP Survey Round 1. Annex A12 Susteinability According to Income Group Mov*d/Died/No Intact After Partiolly Intact After Sold After Perlshed After Other After Answer After Pre-IRDP Income 2 Years 4 Years 2 Years 4 Years 2 Years 4 Years 2 Years 4 Years 2 Yoaro 4 Years 4 Years NOS Dostitute A Vory Very Poor (o- 76X 461 6% eX 13X 26X 3% 131 2X 2X 6a 63 Very Poor (3601-4800) 77X 69X 6X 61 15X 2ex 1X 8X 1X 2X 3X 74 Poor (4801-6400) 87X 64X 2X ox 9X 22X 2X ex OX 2X X 53 Above Poverty Line (6461- ) 94X 76X ex 6x 3X llX eX eX 3X 6X 3X 38 3=3=3== =3=3= 3=33 =3= ==== ===== ==== ==3 ==3= =3=== 3s= =3.x Total (X) 82X 69X 4X 7X l1X 21X 2X 8X 1X 2X 3X 226 Note: Only old beneficiaries who were located In both the second and the fourth year are Included (226). Sample: UP Survey Round 2. (j Annex A13 Sustalnability According to Occupation Moved/Died/No Intoct After Partially Intact After Sold After Perished After Other After Answer After Occupation 2 Years 4 Years 2 Year* 4 Years 2 Years 4 Years 2 Yeors 4 Years 2 Years 4 Years 4 Yeors NOS Small Formr 98X 75X ex 3x ex 15% es 6X 3X 3% lW 40 Marginal Farmr 77X 69% 3a 7X 19W 26% ex 4% 1W 2% 1W 69 Agricultural Labour 78X 47X 7X lx 16W 23X 5X 13X ex 3X 3W 66 Non-Agricultural Casual Labour 79% 46W eX 12X 8X 16x ex eX 4% 4X 13X 24 Non-Agricultural Self Employed 82X 73X 0% 0W 18X 23X ex ex ex ex sx 22 Artisan lOO% 76X OX ox ex ox ex 26X ex ex S% 4 Other Sax 71% ex ex ex 14% 14W 14X e% ex *% 7 Total (W) 82% 69X 4% 7X 11W 21X 2X es 1W 2X 3W 226 Note: Only old beneficiaries who were located in the second and fourth year are included (226). Sample: UP Survoy Round 2. Sustainability According to Educational Status ----- ----- -- ------- -- ----- -- - - _Annex A14 Intact After Partially Intact After Sold After Perished After Other After Educational Status 4 Years 4 Years 4 Years 4 Years 4 Years NOB Illiterate 70X eX 14% 7X 3X 106 Literate without formal education 79X 2X 12X 7X 0% 43 Literate with formal education 87X OX 7X 7% OX so Average 76X 4X 12X 7% 2X 179 Note: Only old benefeficiaries are included.Of these beneficiaries, 179 had intact *ss-ts after 2 years and were resurveyed after 4 yars. _ Source: UP Survey Round 2. Annex A15 Page 1 of 3 Logit Regression on Investment Retention SAS LOGISTIC REGRESSION PROCEDURE DEPENDENT VARIABLE: INTACT4 RETENTION AFTER 4 YEARS Legend 219 OBSERVATIONS 85 INTACT4 = O Xsche - Type of Investment (highly divisible assets such 134 INTACT4 = I as bullock pairs, small animal husbandry, and 0 OBSERVATIONS DELETED DUE TO MISSING VALUES agricultural implements = 1) Is 10 - Passbook Issued (Yes=1) VARIABLE MEAN MINIMUM MAXIMUM S. D. Drought2 - 87/88 Drought (Deviation from normal district rainfall for June/July 1987) XSCHE 0.200913 0 1 0.401601 OCCi - Beneficiary Occupation (Agricultural Laborers and 15 10 0.648402 0 1 0.478563 Marginal Farmers = 0) DROUGHT2 0.591461 0.29 0.77 0.11712 Incm - Pre-IRDP Income Group of Beneficiaries as OCCI 0.424658 0 1 0.495423 estimated by Surveyor (i.e., Destitute/Very very INCM 4789.07 2967 7948 1669.89 poor, Very poor, Poor, Above Poverty Line) 13_7 41.2374 0 200 28.9697 13 7 - Incidental Acquisition Costs SCH 68.5708 57 81 6.82671 Scl - District Primary School Coverage (No. of primary DEF 0.273973 0 1 0.447017 schools per 100,000 population) 13 6D 1.86758 0 10 0.896373 DEF - Village tendency to default (where 40X or more beneficiaries had repaid no credit during first two years of program). -2 LOG LIKELIHOOD FOR MODEL CONTAINING INTERCEPT ONLY= 292.54 13 6D - Intensity of Market Search (No. of days) MODEL CHI-SOUARE= 65.27 WITH 9 D.F. (SCORE STAT.) P-O.O - | CONVERGENCE IN 6 ITERATIONS WITH 0 STEP HALVINGS R= 0.451. 00 MAX ABSOLUTE DERIVATIVE=0.1537D-04. -2 LOG L= 215.00. 1 MODEL CHI-SQUARE= 77.55 WITH 9 D.F. (-2 LOG L.R.) P=0.0 VARIABLE BETA STD. ERROR CHI-SQUARE P R INTERCEPT -3.12398203 2.03681550 2.35 0.1251 XSCHE -2.39782933 0.48801453 24.14 0.0000 -0.275 I5_10 1.39430765 0.38030455 13.44 0.0002 0.198 DROUGHT2 -5.46591981 1.73402202 9.94 0.0016 -0.165 OCCI 1.17866576 0.39824167 8.76 0.0031 0.152 INCM 0.00033291 0.00011394 8.54 0.0035 0.149 13_7 -0-01937043 0.00679101 8.14 0.0043 -0.145 SCH 0.06587325 0.02542613 6.71 0.0096 0.127 DEF -0.84021422 0.39784670 4.46 0.0347 -0.092 13_6D 0.52085171 0.25072349 4.32 0.0378 0.089 Annex A15 Page 2 of 3 SAS LOGISTIC REGRESSION PROCEDURE DEPENDENT VARIABLE: INTACT4 RETENTION AFTER 4 YEARS CLASSIFICATION TABLE PREDICTED NEGATIVE POSITIVE TOTAL NEGATIVE 52 33 85 TRUE | . l POSITIVE l 116 134 TOTAL 70 149 219 SENSITIVITY: 86-6% SPECIFICITY: 61i2% CORRECT: 76.7% FALSE POSITIVE RATE: 22.1% FALSE NEGATIVE RATE: 25.7% C=0.838 SOMER DYX=0.675 GAMMA=0.676 TAU-A=0.322 Annex A15 Page 3 of 3 SAS VARIABLE N MEAN STD DEV SUM MINIMUM MAXIMUM INTACT4 219 0.61187215 0.48844038 134.000000 0.00000000 1.00000000 XSCHE 219 0.20091324 0.40160125 44.000000 0.00000000 1.00000000 I_ 10 219 0.64840183 0.47856312 142.000000 0.00000000 1.00000000 DROUGHT2 219 0.59146119 0.11712011 129.530000 0.29000000 0.77000000 OCCi 219 0.42465753 0.49542332 93.000000 0.00000000 1.00000000 INCM 219 4789.07305936 1669.88926023 1048807.000000 2967.00000000 7948.00000000 13_7 219 41.23744292 28.96974481 9031.000000 0.00000000 200.00000000 SCH 219 68.57077626 6.82670585 15017.000000 57.00000000 81.00000000 DEF 219 0.27397260 0.44701684 60.000000 0.00000000 1.00000000 13_6D 219 1.86757991 0.89637347 409.000000 0.00000000 10.00000000 PEARSON CORRELATION COEFFICIENTS / PROB > :R: UNDER HO:RHO=O / N = 219 INTACT4 XSCHE 15_10 DROUGHT2 OCCi INCM 13_7 SCH DEF 13_6D INTACT4 1.00000 -0.32557 0.19848 -0.06381 0.15347 0.17924 -0.11438 0.12039 -0.16203 0.11257 RETENTION AFTER 4 YEARS 0.0000 0.0001 0.0032 0.3473 0.0231 0.0078 0.0913 0.0754 0.0164 0.0966 XSCHE -0.32557 1.00000 0.10670 -0.19254 -0.13107 0.02237 0.04911 0.01152 0.12636 -0.07867 DIVISIBILITY OF INVESTMENT 0.0001 0.0000 0.1154 0.0042 0.0528 0.7420 0.4697 0.8654 0.0619 0.2463 15_10 0.19848 0.10670 1.00000 0.13852 -0.16061 0.05688 -0.16005 0.11647 -0.04083 0.02998 OD BANK PASSBOOK ISSUED 0.0032 0.1154 0.0000 0.0406 0.0174 0.4023 0.0178 0.0855 0.5478 0.6590 0 DROUGHT2 -0.06381 -0.19254 0.13852 1.00000 -0.08585 -0.00804 -0.09463 0.11456 -0.13473 0.03943 DROUGHT 87 0.3473 0.0042 0.0406 0.0000 0.2057 0.9058 0.1628 0.0908 0.0464 0.5617 OCC1 0.15347 -0.13107 -0.16061 -0.08585 1.00000 0.11628 0.25375 0.02430 0.19720 -0.16202 0.0231 0.0528 0.0174 0.2057 0.0000 0.0860 0.0001 0.7206 0.0034 0.0164 INCM 0.17924 0.02237 0.05688 -0.00804 0.11628 1.00000 0.14800 -0.05501 -0.04054 0.09655 PRE-IRDP INCOME 0.0078 0.7420 0.4023 0.9058 0.0860 0.0000 0.0285 0.4179 0.5507 0.1544 13_7 -0-11438 0.04911 -0.16005 -0.09463 0.25375 0.14800 1.00000 0.15543 0.10937 0.00705 ADMINISTRATIVE MISAPPROPRIATION 0.0913 0.4697 0.0178 0.1628 0.0001 0.0285 0.0000 0.0214 0.1065 0.9174 SCH 0.12039 0.01152 0.11647 0.11456 0.02430 -0.05501 0.15543 1.00000 -0.01390 -0.11203 NO OF PRIMARY SCHOOLS PER LAKH OF POP. 0.0754 0.8654 0.0855 0.0908 0.7206 0.4179 0.0214 0.0000 0.8379 0.0982 DEF -0.16203 0.12636 -0.04083 -0.13473 0.19720 -0.04054 0.10937 -0.01390 1.00000 -0.13800 0.0164 0.0619 0.5478 0.0464 0.0034 0.5507 0.1065 0.8379 0.0000 0.0413 13_6D 0.11257 -0.07867 0.02998 0.03943 -0.16202 0.09655 0.00705 -0.11203 -0.13800 1.00000 0.0966 0.2463 0.6590 0.5617 0.0164 0.1544 0.9174 0.0982 0.0413 0.0000 Changoe in Income and Productivity of Investment for Annex A16 Beneficiaries that Retained IRDP Assets for 2 Years Averago Real Housohold Incose Gain Average Rool Income from Por Anuu. the Asset Per Anuum ICOR 1\ Avorage After Avo. X After Ave. X After After After After Incooe Lovel in R. m Inv. (Rx) 2 Years Change 6 Years Change 2 Years 6 Years 2 Years 6 Years Destitute A Very Very Poor (0-3600) 189 2929 1678 72X 1464 C1X 2485 1711 1.2 1.7 Very Poor (8601-4800) U8 8062 2289 68X 226 7X 3791 1769 0.8 1.7 Poor (4801-6400) 7 4404 2503 48x -319 -60X 361 2604 1.2 1.7 Above Poverty Line (6401- ) 3 3888 460 6S -2860 -37x 2872 2841 1.2 1.2 - ==M- === _ -= - _ = Total 185 8016 1808 67% 1078 46X 2760 1776 2760 1775 oo Sample: UP Survey Round 1. Tho sample includes old beneficiaries who had Intact assets In the second year and who were resurveyed after five yonrs.It excludes thoso who moved, died, or were not located. 1\ Averago Investment/ Avorage Real Income from the Asset Annex A17 Changes in Income and Productivity of Investment for Seneficiaries that Retained IRDP Assots for 2 Years Average Real Nousehold Income Gain Average Real Income from Per Anuum the Asset Per Anuum ICOR 1\ Average After Ave. X After Ave. X Aftor After After After Zl,cs Levol in R. N Inv. (Re) 2 Years Change 4 Years Change 2 Years 4 Yearu 2 Years 4 Years .___-_____ ___ --_- -------- ---- _ _ -------- -------- ------ _______ _ ------ _ -------- -- -- -- -- -- ---- -- - Deetitute A Very Very Poor (0-3600) 46 8942 2007 713 1064 89o 2683 1294 1.5 8 Very Poor (3601-4800) 55 8576 1458 U 6% -66 OX 2748 1787 1.3 2 Poor (4801-6400) 46 5078 1621 83X -1076 -18X 8160 1600 1.6 3.4 Above Poverty Line (6401- ) 88 4655 1967 265 -2362 -86x 2940 2080 1.5 2.2 === X - -, ZS Tot l 179 4233 1781 42X -661 -1X 2870 1684 1.6 2.6 Saple: UP Survey Round 2. The sample Includes old beneficiarlee who had Intact ascot. in the second year and who were resu-yed after four yeors. It excludee those who moved, died, or were not located. 1\ Average Inv-stment/ Average Real Income from the Asoet Annex A18 Changes In Real Income and Productivity of Investment by Scheme for Those 8eneficiarieo that Retained IROP Assets for et Least 2 Years Average Real Incoe from Average Real Household the Asset Per Anuum Income Gain Per Anuum Average Real Total Income ICOR 4\ Avorage After After After After After After After After Scheme N Inv. (Re) 2 Years 4 Years 2 Years 4 Years 2 Years 4 Years 2 Yearc 4 Years DIullocks/Sm ll AnIlI Husbandry 1\ 28 2528 1006 1102 1087 -1678 S690 679 2.5 2.8 Minor Irrigation 2\ 24 3041 8212 1967 2287 414 7686 5816 2.5 4.1 Animal Drawn Carts J0 5435 8489 1976 1980 -406 6987 4601 1.6 2.7 Dairy Units a9 8294 2629 1217 2125 -168 6710 4421 1.8 2.7 Other Prlmry Agriculture J\ 8 4666 4821 769 1578 -2106 7140 8401 1.1 0.1 Other Secondary/Tertiary S0 8862 8818 1847 1678 -706 6177 8694 1.0 1.6 8 o _w~ _ _ -____ Total 179 4288 2670 1684 1781 -"61 8692 4849 1.6 2.6 Sample: UP Survey Round 2. The sample includes old beneficiaries who had Intact asosts In the second year and were resurveyed in the fourth year. It excudes the" who meved, died, or wore not located. 1\ Animll Husbandry Includes goat, flshery, and piggery unite. 2\ Minor Irrigation Includes tube wells, pump-setn, diesl engine/electric meotors, and others. *\ Other Primry Agriculture Includes horticultur*, lmplemeto and others. 4\ Average Investment/ Average Real Income froe the Asset Per Anum. Annex A19 TERM CREDIT MOBILIZATION FOR IRDP --------------------------------- (Re Bin) 1979/S0 60/81 81/82 82/83 63/14 84/86 3S/66 66/87 67/66 68/89 39/90 Total Torm Credit Mobil. for IROP 2.69 4.87 7.13 7.73 3.57 7.3 10.1 9.31 of Which: Bank Deposits 2.76 3.7 5.28 5.43 6.03 3.54 6.36 5.34 X of Term Credit Mobilized 9CX 79X 74X 70X 59X 48X 63 C4X Refinance from NABARD 1\ 0.04 0.13 0.97 1.85 2.3 3.64 3.76 3.79 4.47 X of Term Credit Mobilized 4X 21X 26X sox 41X 52X 37X 46X Total NABR Refinance Disbureement 4.9 6 6.6 8 .9 10.6 11.8 13.5 14.62 IRDP Retinance as X of Total NABARD Refinance 8X 16X 27X 26X 3JX 32X 26X 3OX Total Bank Credit Mobil. for Agriculture 16.9 19 24.3 26.6 29.1 83.6 2\ 39.3 46.3 of Which: Schematic Refinance from NABARD 44X 471 44X 46X 48X 44X 43X 42X IRDP as X of Bank Credit Mobil. for Ag.(LT) 465 40X 36X 263 3X5 3OX Source: NABARD Annual Reports, IBRO Staff Appraisal Report for NABARD Credit Project, Jan. 24, 1916,p.72. 1\ The National Dank for Agriculturo and Rural Development (NABARD) was established In 1982. Until that tim, refinance for IRDP was provided by the Agricultural Refinance and Development Corporation (AROC) 2\ 67-88 and beyond are NABARD projections. Annex A20 IRDP OVERDUES Average Overdue- for Average Level of Overdue- in Average Overdues Beneficiaries with Rs for Beneficiarios with Incom Level In Rs. N for All Beneficiaries 1\ Overdu-s>O Ovordues)0 After After After After After After 2 Years 6 Yoars NOB 2 Years NOS 6 Yoars NOB 2 Years NOB 5 Yoara Destitute A Very Very Poor (0-3600) 189 325 19X U6 67X 44 sox 66 1126 44 1667 Very Poor (3601-4800) 86 26X 19X 13 71X 12 58X 18 1260 12 1911 Poor (4801-6400) 7 19% 8X 2 68X 1 63X 2 1891 1 4483 Abovo Poverty Line (6401- ) 8 27X Os 1 81X 0 0% 1 2174 0 0 MS= S== = = = == -===-=- Totel 186 80X 18X 82 88X 67 60X 82 1178 67 1760 Sample: UP Survey Round 1. It includes old beneficiarias who had intact assets in the second year n and who were resurveyed after five years, excluding those who had moved, died, or were not located. 1\ Overdues as a proportion of credit ropaymnt demand Annex A21 IRDP OVERDUES Avorage Overdues for Average Level of Overdue. in Average Overdue. Beneficiaries with Rs for Beneficiaries with Incoe Levol in Rs. N for All Beneficiaries 1\ Overduos>O Ovordu-s>O After After After After After Aftor 2 Years 4 Yoers NOB 2 Yers NOB 4 Yearn NOB 2 Yoear NOB 4 Years Dostitute S Very Very Poor (0-3600) 45 39X 33X 27 66X 26 69X 27 1093 25 1496 Very Poor (3601-4800) 55 31x 261 24 70X 26 64X 24 1023 26 1201 Poor (4801-6400) 46 23X 17X 16 65X 16 61X 16 1076 16 1836 Above Poverty Line (6401- ) 3 14X 16X 9 s53 11 46X 9 789 11 983 = =3 = = e === = == = s= Total 179 28X 23X 76 665 77 64X 76 1031 77 1360 Samplo: UP Survey Round 2. It includes old bnoeficiarIes who had Intact assets in the second ye r and who were resurv-yod atter four yars, oxcluding those who had moved, died, or were not located. 1\ Ovorduos as a proportion of credit repaymont demand -87- Annex A22 REASONS GIVEN BY IRDP BENEFICIARIES FOR OVERDUES ------------------------ Reasons for Overduoe After 2 Years 1)Delay In Income Generation from the Scheme 22 (2O1) 2)Return from the Scheme not Adequate to Enable Regular 39 (351) Payment 3)Lack of Marketing Facilitioe 6 (51) 4)Income from the Scheme Spent on Unforseen Circumstances 41 (31X) (i.e. Illneos of Family Members, Death, etc.) 5)Had to Repay Old Dues Out of the Earnings from the Scheme 3 (3X) 6)Tho Repayment Schedul- Was Not in Tune with the Income I (1x) eneration of the Schme No Anmwer 1 (1) Tota 11i (LO0) Sample: UP Survey Round 2.The sample Includes old beneficlarloe. Notes Figures In parentheses reproent percentages of the total number of benefici ine. In each category. -88- Annex A23 LEVEL OF OVERDUES Region/State Ovordueo>1 Overdues>251 Overdues>1001 OverduesmO A (=260 Re. I (.1000 Ro. A (=2000 Rc. Ov-rduon>2000 Ru. NORTH Jmumu and Kash ir s9X 10X 14X 8X 10X HiecheI Pradesh 69X 6X 22X 10X 3X Punjab 71X 2X 9X 14X 5X Haryana 27X 2X 20X 27X 23X NORTH CENTRAL Utter Pradesh s1X 4X 18X 17X 10X Blher 24X 5X 30X 26X 15X 4adhys Pradesh 31X 7X 30X 26X 7X EAST ____~~~~---- - ------____ ----------- _ ___________ ------__ _____-_______ West Bongal 26X 13X 39X laX 101 Orissa 32X 13X 37X 1SX 2X NORTHEAST Asses ex 6x 35X 32X 19X Nagaland 100X OX OX OX OX SIkkl- 301 OX 20X 25X 25X Meghalaya 100X OX OX OX OX Tripura 151 15X 48X 17X 7X Manipur 74X OX 2X 21X 4X WEST Maherastra 43X aS 25X l6x eX Rajasthan 33X 9X 33X 19X 7X Gujarat 50X 5X 28X 14X 3X SOUTH Andhra Pradesh 421 12X 27X 13X ex Tmil Nadu 441 lOX 20X 17X 10X Karnataka 361 6X 26X 26X eX Korolo 27X 17% 321 17X ex UNION TERRITORY ----- - - -- - - - -- - - - - - -- - - - - - - - - - - - - And*san & Nlcober Islands 331 3X 20X 27X 17X Arunochal Pradesh 97S 1% 1X 1X OX Chandigarh 36X 0% 101 401 1SX Dadra A Nagar Hav*ll 60X 10X 10% 101 101 Delhi 655 01 101 25X 101 Goa 63X 13X 13X OX 13X Lakuhadweep 68% eX 26% OX 8X Mizoram lOOX 01 Ox o0 0% Pondlcherry 30X 15% 20% 20% 16% c_ -=_ _- TOTAL 421 7X 25X 181 9X Source: Concur. Evel. of IRWP: The Main Findings of the Survey for Jan. 67-Sep. 87, Dept. of Rurnl D.vt., Feb. 1988. Annex A24 Page 1 of 3 Logit Regression on Overdues SAS LOGISTIC REGRESSION PROCEDURE DEPENDENT VARIABLE: OVE CLASSIFICATION TABLE PREOICTED NEGATIVE POSITIVE TOTAL NEGATIVE ' 48 j 27 75 TRUE l l l POSITIVE 21 I 83 104 TOTAL ! 69 1 110 ! 179 SENSITIVITY: 79.8% SPECIFICITY: 64.0% CORRECT: 73.2% FALSE POSITIVE RATE: 24.5% FALSE NEGATIVE RATE: 30.4% C=0.785 SOMER DYX=0.571 GAMMAO.572 TAU-A=O.279 C0 l0 Annex A24 Page 2 of 3 SAS LOGISTIC REGRESSION PROCEDURE DEPENDENT VARIABLE: OVE 179 OBSERVATIONS 75 OVE = 0 104 OVE = I Legend 0 OBSERVATIONS DELETED DUE TO MISSING VALUES FAMOCC - Whether the investment was in lin- with a VARIABLE MEAN MINIMUM MAXIMUM S. D. traditional family occupation (Yos = 1) CAMP - Whether the beneficiary participated in FAMOCC 0.636872 0 1 0.48225 a credit camp (Yes = 1) CAMP 0.0949721 0 1 0.293999 ICOR - Real Return on Investment Year 4 ICOR 0.85657 0.0998944 5.03468 0.734979 OCC - Casual Laborers = 1 (Agricultural and OCC 0.659218 0 1 0.475302 Non-Agricultural) MKT 0.731844 0 1 0.444242 MKT - Whether marketing facilities in aroa are HAND 0.212291 0 1 0.410076 adequate (Yes = 1) INCI 0.251397 0 1 0.435033 HAND - Whether the loan/subsidy were disbursed to INC2 0.307263 0 1 0.462653 the beneficiary in cash (partly or fully = 1) INC3 0.256983 0 1 0.438196 or had an in-kind component INCI - Pre-IRDP Income estimated by surveyor, destitute or very very poor -2 LOG LIKELIHOOD FOR MODEL CONTAINING INTERCEPT ONLY= 243.43 INC2 - Pre-IRDP Income, Very poor INC3 - Pr--IRDP Income, Poor MODEL CHI-SQUARE= 39.91 WITH 9 D.F. (SCORE STAT.) P50.0000. CONVERGENCE IN 6 ITERATIONS WITH 0 STEP HALVINGS R 0.357. 0 MAX ABSOLUTE DERIVATIVE=0.5069D-07. -2 LOG L= 194.49. MODEL CHI-SQUARE= 48.94 WITH 9 D.F. (-2 LOG L.R.) P=0.0000. VARIABLE BETA STD. ERROR CHI-SQUARE P R INTERCEPT -0.37258512 0.72380087 0.26 0.6067 FAMOCC 0.67240471 0.38414294 3.06 0.0800 0.066 CAMP 1.09957786 0.60147130 3.34 0.0675 0.074 ICOR 0.65455812 0.34341153 3.63 0.0566 0.082 OCC -0.76379854 0.40140198 3.62 0.0571 -0.082 MKT 0.73943587 0.39988655 3.42 0.0644 0.076 HAND 2.08890527 0.61288597 11.62 0.0007 0.199 INCI -1.42836823 0.57677508 6.13 0.0133 -0.130 INC2 -0.82359389 0.54605751 2.27 0.1315 -0.034 INC3 -0.11593017 0.55439521 0.04 0.8344 0.000 Annex A24 Page 3 of 3 SAS VARIABLE N MEAN STD DEV SUm MINIMUM MAXIMUM OVE 179 0.58100559 0.49477846 104.00000000 0.00000000 1.00000000 FAMOCC 179 0.63687151 0.48225039 114.00000000 0.00000000 1.00000000 CAMP 179 0.09497207 0.29399873 17.00000000 0.00000000 1.00000000 ICOR 179 0.85657039 0.73497883 153.32609911 0.09989444 5.03468000 OCC 179 0.65921788 0.47530174 118.00000000 0.00000000 1.00000000 MKT 179 0.73184358 0.44424214 131.00000000 0.00000000 1.00000000 HAND 179 0.21229050 0.41007646 38.00000000 0.00000000 1.00000000 INCI 179 0.25139665 0.43503294 45.00000000 0.00000000 1.00000000 INC2 179 0.30726257 0.46265331 55.00000000 0.00000000 1.00000000 INC3 179 0.25698324 0.43819581 46.00000000 0.00000000 1.00000000 PEARSON CORRELATION COEFFICIENTS / PROB > |R| UNDER HO:RHO=O / N = 179 OVE FAMOCC CAMP ICOR OCC MKT HAND INCI INC2 INC3 OVE 1.00000 0.11220 0.08199 0.23127 -0.20446 0.15050 0.33010 -0.16039 -0.04799 0.11074 0.0000 0.1348 0.2752 0.0018 0.0060 0.0443 0.0001 0.0320 0.5235 0.1400 FAMOCC 0.11220 1.00000 0.00686 -0.07543 -0.00370 -0.16862 -0.03412 -0.01765 -0.22732 0.12505 0.1348 0.0000 0.9274 0.3156 0.9608 0.0240 0.6502 0.8146 0.0022 0.0953 CAMP 0.08199 0.00686 1.00000 -0.14968 0.07210 -0.01898 -0.12157 -0.09987 0.07338 -0.05969 0.2752 0.9274 0.0000 0.0455 0.3375 0.8009 0.1050 0.1835 0.3290 0.4274 ICOR 0.23127 -0.07543 -0.14968 1.00000 -0.28429 0.15789 0.33234 -0.05032 0.17510 -0.07511 0.0018 0.3156 0.0455 0.0000 0.0001 0.0348 0.0001 0.5035 0.0191 0.3176 OCC -0.20446 -0.00370 0.07210 -0.28429 1.00000 -0.08933 -0.20321 -0.09957 0.01898 0.07218 0.0060 0.9608 0.3375 0.0001 0.0000 0.2344 0.0064 0.1848 0.8009 0.3370 WKT 0.15050 -0.16862 -0.01898 0.15789 -0.08933 1.00000 0.12921 0.08916 0.02046 -0.04805 0.0443 0.0240 0.8009 0.0348 0.2344 0.0000 0.0847 0.2353 0.7857 0.5230 HAND 0.33010 -0.03412 -0.12157 0.33234 -0.20321 0.12921 1.00000 -0.01742 -0.04963 0.03860 0.0001 0.6502 0.1050 0.0001 0.0064 0.0847 0.0000 0.8170 0.5094 0.6079 INCI -0.16039 -0.01765 -0.09987 -0.05032 -0.09957 0.08916 -0.01742 1.00000 -0.38594 -0.34081 0.0320 0.8146 0.1835 0.5035 0.1848 0.2353 0.8170 0.0000 0.0001 0.0001 INC2 -0.04799 -0.22732 0.07338 0.17510 0.01898 0.02046 -0.04963 -0.38594 1.00000 -0.39167 0.5235 0.0022 0.3290 0.0191 0.8009 0.7857 0.5094 0.0001 0.0000 0.0001 INC3 0.11074 0.12505 -0.05969 -0.07511 0.07218 -0.04805 0.03860 -0.34081 -0.39167 1.00000 0.1400 0.0953 0.4274 0.3176 0.3370 0.5230 0.6079 0.0001 0.0001 0.0000 -92- Mte_x A25 LOAN DISBURSEMENTS HANDLD DYt _ _ _ _ _ _ _ _ _ _ _ ~~~~~-- ________ Inceo_ Level In Ro. N Cash Tied Cash Kind Cash & Kind Detitute A Very Very Poor (0-3500) 41 9 (163) 1 (23) 34 (763) 2 (43) Very Poor (3501-400) 56 6 (113) 4 (7X) 42 (763) 3 (6%) Poor (45014-400) 46 10 (223) 1 (23) 81 (723) 2 (43) Above Poverty Line (6401- ) 33 7 (213) 1 (33) 22 (671) J (9K) Tot I 179 S1 (17X) 7 (41) 1l1 (783) 10 (63) Sovmies U Survey Round 2.The sampl Includes old beneficiarlie who had Intact assets In the send year and who were reurvyed after four years, xcluding those who had moved, died, or wore not located. Note: Figures In perenthee represent percentage of the total nubor of benfilelorIe In the ctegory. Modo of Diabursesont for IROP Loans in U.P. ------------------------------------------- Type of Investaent In Kind 1\ Cash A Tied Cash Primary Sector: _______________ Bullock Pairs 1S 0 Agricultural Implement* 1 1 Horticulture 0 1 Tube-welln 1 0 Pump-ote 20 1 Dilel Englnes/Electric Motors 1 0 Others 1 0 Dairy Unite 31 a Coat Units a 0 Fishery Units 1 0 Pigery Unite 1 0 Secondary Sector: Handloe. 2 0 Handicrafts 1 Othrs 0 1 Tertiory Setor: Repairs A Maintenanco Workshops 4 0 AnimlI drawn carts 20 2 Rickshaws 4 1 Tailoring/Knitting 2 a Others 22 17 Total 141 85 Source: UP Survey itound 2. 1\ Includes In-Kind disbmrs_ents plus embinatlons of Cash and In-Kind. Annex A26 FOLLOW-iP BY BANK A BLOCK OFFICIALS Beneficiaries Number of Visit* by Bank Officisin Beneficiaries Number of Visits by Block Officials Visited by --------------------- --- --------- Visited by ------------------------------------ Income Level In Re. Total N Bank Officials 1 2 8 )U Ave. Block Officials 1 2 8 >) Ave. Destitute A Very Very Poor (0-8600) 46 83 (78l) 18 9 9 2 2.0 41 (91!) 18 18 4 11 2.5 Very Poor (8601-4300) 65 49 (O9) 11 23 10 5 2.8 52 (96X) 10 24 9 9 2.4 Poor (4801-6400) 46 85 (76!) 14 18 5 8 2.0 40 (37X) 6 19 10 8 2.4 Above Poverty Line (6401- ) 8 27 (82X) 10 11 2 4 2.1 81 (94X) 6 10 10 6 2.6 _ = mcg - - - = m - Totsl 179 144 (OM) 46 66 26 14 2.1 164 (92!) 87 6 8 23 2.5 Sample: UP Survey Round 2. The sample includes old beneficiaries who had Intact assets In the second yesr and who were resurveyed after four years, excluding those who had moved, died, or were not located. Note: Figures in parentheses represent percentages of the total number of benfticiaries in esch category. SUSTAINED ACCESS TO CREDIT FOR IROP BENEFICIARIES Annex A27 Potential Bank Client Baa. Beneficiaries That NOB with Ovordu.ewO Beneficiaries That --------------------------------…------ Sube_quntly That Subsequntly Bonoficiarleo That Obtained Subsequont HOB with Ovordu-oas Attsepted to Borrow Attmpted to Borrow Obtained Subsequent Bank Loans NOB with Ovordues O and Intact Assets Income Level in Ru. N from the Bank frm the Bank Bank Leoans & Had Overdues*O After 4 Years After 4 Years - - - -- - - -- -- - - - -- - - - -- - - -- - - -- - - -- - - -- - - - -- - ---- - -- - - -- ---- - - - -- - ---- - - ----- - - - Detitute A Very Very Poor (0-3600)139 14 (10X) is (9X) I (65) * (6x) 96 (6S6) 6J (49K) Very Poor (8601-4900) so U (U) a (3!) a (81) 2 (6!) 24 (67!) 19 (681) Peer (4901-6400) 7 1 (14!) 1 (14!) 0 (0N) 0 (OX) 6 (61!) S (71!) Above Poverty Line (6401- ) a 0 (OX) 0 (OX) 0 (01) 0 (O) a (1001) a (1001) Tote 1 15 19 (101) 17 (9X) 11 (ox) 10 (5!) 123 (691) 95 (611) Smple: UP Survey Round 1. The sample Includes old beneficiarie. who had Intact *aoets in the scend yer and who were resurveyed after flve years, excluding thoe who had moved, died, or were not locted. Nets: Figures In parenthese represnt percentage of the total number of beneficlaries In eoch catgory. Annex A28 SUSTAINED ACCESS TO CREDIT FOR IRDP BENEFICIARIES Potential Bank Client Sees BeneficirIesn That NOB with OverdseeuO Beneficlaries That ------------------ - -------- Subsequntly That Subsequently Beneficiries That Obtained Subsequnt HS wIth Overdu.eaO Attempted to Borrow Attepted to Borrow ObtaIned Subequent Bank Loans NOB with OverdusemO and Intact Assets INtOne l_erl In Re. P tre th Bank frm the Bank Bank Loans A Had OvorduesO After 4 Years After 4 Years Dptltwe * Very Very Poor (0-3500) 45 3 (no) 3 (73) 2 (43) 2 (4X) 20 (44X) 14 (S13) Very Poor (5601-4300) 55 5 (0) S9 (OX) 4 (4) 29 (53x) 24 (443) Peor (4301-6400) 40 6 (131) a (133) 4 (93) 4 (91) 31 (671) 21 (3O3) Above Poverty LIne (6401- ) 33 6 (133) 4 (12X) 2 (63) 1 (33) 22 (671) 19 (563) =3 - =3- =3=sr - Total 179 20 (11X) 13 (lo) 12 (71) 11 (6X) 102 (671) 7 (443) Un Sample: UP Survey Round 2. The *"apl- includes old beneficiaries who had Intact asset In the second year and who were resurveyed after four years, excluding those who had moved, died, or were net located. Note: Figures in parentheses represent percentages of the total nueber of beneficlaries In *eeh category. Distributors of World Bank Publications ARGNTW A FINLAND KlUWAIT SPAIN Cede. Ili, SRItL Ak_ateamin KX h1akappa MBMRB Mundi-Preus Lbm, SA CGd Gun P.O. BoY 12B P.O. BOX 5465 c 37 Plkrida 165, 41hF Plof,ck 453/465 SFP4101 2t0 Mdid 1333 Bar Aim Hedaidk 10 MALAYSIA Univ r Ndy Msycoopmatlve SRI LANKA AND THE MAIDIVES AUSTRALAA PAPUA NEW GUINEA, FRANCE Blenaup, Liuied LakelHfauelnnolhap, PIL SOLMON ISLANDS. Wld BazkPubhstlita. P.O. Bx 1127, John Patai Baru P.O. lba 244 VANUATU, AND WESTERN SAMOA 6 avenue d'Il Kuala larpoX 100, Sir Chlnwpalm A. Gardina DA.Bod.a&J-nak 73116Pto Manatla 11-13 St9imn Set MEXICO Codoib 2 Miltuan 3132 GERMANY, FDERAL REPUBUC OF INFO'rEC Vil UNO-Ve"i Apartado Pelal 22-t60 SWEDEN Popped.fn,AIR- 14060TIpueAM DF. Fornsaik 16 AUSTRIA D. Dnne 1 P1 Fad.b16oeet Gwadd and Co. MOROCCO R qgura"aiu 1I-SBa 16356 Graber,31 GREECE Sade dEhalhlM ngMarocame 5-103 27 SioWdhim A-1011WIen KEME 12zu,eManut. 1d.d'Ana 24 IppadmouSlet Pati Pla Ca"blan Fwuenu0iar andan BAHRAIN Athwan-11635 Weemilip.WO-AB BIrain RImarch and Cona NETHERLANDS Bl,3D4 Aodato lid. GUATEMALA hIOr-Putbhliktib.v. S-104255Sndihd' P.O. BOx 22103 lIPkriR Pledn Santa P.O. Box 14 Mara Tiwn 317 Cad,. Cultural Piedra Santa 7241 BA Loduni SWiTZERLAND 11 caIle6-Szana1 Ferq 16W BANGLADESH G nualaCUity NElWZEALAND linde Paylt Mine hidudizlr Devdtopmei Hills nbrayid IadonnationSerkle d4eGmruae Auiaeua Sodeky YWDAS) HONG KONQ, MACAO PuivateEq Cae pda3BI Hne 5X Road 7A Ada 2X0U51d. NewMaet CH1211 Geneva 11 Dhanmodl R/Anea 6 FL 146 Prince Edward Road, W. Ataraud Daka 12C9 Kawmoon F er_bu u Hog K(ng NIGERIA lbrhie Pa"y EIGIUM Uniersty P: limsted SlredeAb n , e.m . PubBcionsdeaNatnaUniar HUNGARY TleeCnaBWldingJeidwo CnepmsuI33312 Av.du Rai2M Kulha Private MalnEagS 95 CR1W3D2 lasaire 1060 Bunela P.O. lo 139 Ibid. 1389 ud"t 62 TANZANIA BRAZIL NORWAY (hErd IvdiyPa PT1,111 _Teonkalrdertiaiianala INDIA NarvmnlrtinamationCente, P.O. Ba 5299 LIda Allied Publishea. Private lid. BerasndiNarveaunsvd2 DarmsSdi Rufi. Pexbot Ganidc 209 751 Mount Road P.O. Box 6125 Elnttd 014D9S,oP^.%Sp Mad DX-Q650M3 N43OD (oa 6 THAILAND c i DetAt Stoe CANADA Bna ford OMAN 3069ilin Road 1Diflute"o, 15JN HHediaMzZ MAERB Information Servic Bagluk C.P.M iE,S A ueAmptre Ballad Eatale P.O. Box161 SeebArpt Doavft5 QOuebec Banb.y-4CD01i M It TRINIDAD &TOBAGO, ANTiGUA J4B SE6 RARSUDA, BARBADOS, 13/14 Aid Ali Road PAKISTAN DOMINICA, GRENADA. GUYANA, CHtNA New Ddhi- 110OD2 Mmi Book Ageny JAMAICA, MONTSERRAT, ST. Cia Nemndalk EndcatkPublihhing 65, SiuarAheQaddeAzam xTTsA NEWS, ST. Lu4, Houe 17 ChiftwaanAono P.O. llm No. 729 ST.VINCENTFGRENADINES l Da Pa Si DagJie Catuta - 7CD 072 L-e3 S y stuiesUait ja3ydeva Hosil Building PERU Curepe COLOMBIA Sth Main Rod Grdbngar Editorid DoIlo SA T1nidad.WftloAdi E,nla i ida, Bagaloe-560DX9 Apartdo 352A Apwrtdo Aeo 34270 lia TURiE 1i1gota D.E 3l5-1129 Kadibguda Cros Road HaK iteVw AS Hyderabad -S C027 PHILIMiNES idal Caddd o 49 COSTA RICA Nataial Book Stne Beyoiu UblaiaTrejos PraPina Pla2nd FPl 701 RinlAnmue i-bui CDe11-13 NerThakoreRng N pur P.O. Bo 1934 Av. FemandeGual1 Ahmedabad -310659 MdroMi'bla UGANDA Sun June Ugnda Dbokho Patala Hoae POLAND P.O. lo 7145 COTED'IVOJR 16-AAahokMag ORPAN Kn.pal Cnhted'Ed''iaeldeDiffudn Ludmnow- 226651 Patac KulluyiN Nid Abti.d.-(CEDA) 6501X Waranawa UNITED ARABEMiRATES 04BP 541 INDONESIA MIMEM RGulfCa Abidjmat04FPleau Pt indira limited PORTUGAL P.O ox Dws JL Sam Ratulanl37 Livaa Piaga Sharjah CYRUS Jakrte PuNW Rui n Canmo 70.74 MBMRB hariDalon Servlms P.O. Bow 11 17D lxMbn UNITME KINCIDOM P.O. lox 209 Miorlnfo LTd. Niad. IRELAND SAUDI ARABIA. QATAR P.O. lor3 TDC Publishers JrirBook Sore Allan. Hauptihe GU34 210 DENMAIUI 12NdathPredirkSieet P.O. Box 396 Er*lad Sonfi.frdsLiftnatur Dubin 1 RBiyadh 11471 R _menem Ale 11 URUGUAY DK-197D Predutluberg C ISRAEL SiNGAPORE. TAIWAN, BURMA, _haiio Nadnal dd linb Thbeieulm Poat BRUNEI SmJoaelIl6 DOMINiCAN REPUBLiC TeJenaiurn, Poat Buiding inlormalnitPubhnlion, Mianideo Editn, Tallr CporA. P.O. BnxSl PrivatiLtd. ReAuraden. Isabela Cauthain 109 Rans, Joanen 91000 0216 ist FL Pe-Pa Industrial VENEZWiLA Apartado Pd-id 2190 Bi4d LUlha del ERae Sute riDgo iTALY 24 Ne- udridu Road Apdo. 60337 J1A Canimlidanana Sin-ni SPA Singapre 19*3 c10 06D-A EL SALVADOR Via Benedetto FPotl, 120/10 Furadw Caadob Poale,SS2 SOUrH AFRICA YUGOSLAVIA Avaida Manud EuripueArunjo #3920 S3125 FIrene Porania ii Jugaao:u1d.aKe111 EdIdeSA.lPla rhford UniverlyPreaaSourbeen YU-iloelpwDBeT*dR Tre S. Salvadr JAPAN Ahka E1mb BoSk Sarvice P.O. Box 1141 ZIMBABWE EGYPT, ARAB RErwUBLIC OF 374 Hanngo 34ua4 EBnkyo4a 113 CpeTowintE, LD Fnn 7e balwe Ainmhr_ Tokyo P.O. 1ax Sr 125S Southrlan AlGaa Sireet F cProrn d aim Cirm KENYA Iniunattand SubanoSevice AtB Soak Se,ire ¢(A) Lid. P.O. Boa 41X9 TheMiddle tSa CYver P.O. x 49245 Cuign111 SChawaSiredi Nairobi Jolnaaurg24 Ciro KOREA. REPUBiC OF Pr_ Korea Book Caporptc P.O. Ban 10i, Kwgrwhanm Seona RECENT WORLD BANK DISCUSSION PAPERS (continued) No. 31. Small Farmers in South Asia: Their Characteristics, Productivity, and Efficiency. Inderjit Singh No. 32. Tenancy in South Asia. Inderjit Singh No. 33. Land and Labor in South Asia. Inderjit Singh No. 34. The World Bank's Lending for Adjustment: An Interim Report. Peter Nicholas No. 35. Global Trends in Real Exchange Rates. Adrian Wood No. 36. Income Distribution and Economic Development in Malawi: Some Historical Perspectives. Frederic L. Pryor No. 37. Income Distribution and Economic Development in Madagascar: Some Historical Perspectives. Frederic L. Pryor No. 38. Quality Controls of Traded Commodities and Services in Developing Countries. Simon Rottenberg and Bruce Yandle No. 39. Livestock Production in North Africa and the Middle East: Problems and Perspectives. John C. Glenn LAlso available in French (39F)j No. 40. Nongovernmental Organizations and Local Development. Michael M. Cernea No. 41. Patterns of Development: 1950 to 1983. Moises Syrquin and Hollis Chenery No. 42. Voluntary Debt-Reduction Operations: Bolivia, Mexico, and Beyond... Ruben Lamdany No. 43 Fertility in Sub-Saharan Africa: Analysis and Explanation. Susan Cochrane and S.M. Farid No. 44. Adjustment Programs and Social Welfare. Elaine Zuckerman No. 45. Primary School Teachers' Salaries in Sub-Saharan Africa. Manuel Zymelman and Joseph DeStefano No. 46. Education and Its Relation to Economic Growth, Poverty, and Income Distribution: Past Evidence and Further Analysis. Jandhyala B.G. Tliak No. 47. International Macroeconomic Adjustment, 1987-1992. Robert E. King and Helena Tang No. 48. Contract Plans and Public Enterprise Performance. John Nellis [Also available in French (48F)] No. 49. Improving Nutrition in India: Policies and Programs and Their Impact. K. Subbarao No. 50 Lessons of Financial Liberalization in Asia: A Comparative Study. Yoon-Je Cho and Deena Khatkhate No. 51 Vocational Education and Training: A Review of World Bank Investment. John Middleton and Terry Demsky No. 52 The Market-Based Menu Approach in Action: The 1988 Brazil Financing Package. Ruben Lamdany No. 53 Pathways to Change: Improving the Quality of Education in Developing Countries. Adriaan Verspoor No. 54 Educating Managers for Business and Government. Samuel Paul, Jacob Levitsky, and John C. Ickis No. 55 Subsidies and Countervailing Measures: Critical Issues for the Uruguay Round. Bela Baiassa, editor No. 56 Managing Public Expenditure: An Evolving World Bank Perspective. Robert M. Lacey No. 57 The Management of Common Property Natural Resources. Daniel W. Bromley and Michael M. Cernea No. 58 Makinq the Poor Creditworthy: A Case Study of the Integrated Rural Development Program in India. Robert Pulley The World Bank U Headquarters European Office Tokyo Office 1818 H Street, N.W. 66, avenue d'Iena Kokusai Building Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1 Marunouchi 3-chome Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Chiyoda-ku, Tokyo 100,Japan Facsimile: (202) 477-6391 Facsimile: (1) 47.20.19.66 Telephone: (3) 214-5001 Telex: WUI 64145 WORLDBANK Telex: 842-620628 Facsimile: (3) 214-3657 RCA 248423 WORLDBK Telex: 781-26838 Cable Address: INTBAFRAD WASHINGTONDC ISSN 0259-21 OX / ISBN 0-8213-1267-7