ABSTRACT
This chapter provides a theoretical background on the issues surrounding rural microlending, and discusses experiences from earlier schemes. It explains the methodology used in the study. The chapter describes the data set used and provides some descriptive statistics. It also describes how the analysis was carried out in practice. The chapter presents the results, and discusses the policy implications of these results for rural upliftment strategies. Microfinance is not the first attempt to address this problem: many developing countries provided cheap, small-scale credit to smallholder farmers in the 1970s. Lenders face an adverse selection problem. They can discourage borrowers who have projects with low expected returns by charging high interest rates. Formal microcredit schemes are an attempt to use social pressure to encourage borrowers to repay their loans. Foreign donors have shown great interest in microfinance. In order to measure the shadow prices of working capital facing each group of farmers, a number of methods could potentially have been used.
