It has been some time since micro-credit was “discovered” by the development world. And since then, there has been every conceivable kind of reaction to it, in a spectrum ranging from euphoria at what appeared to be the ultimate - and easy - panacea for poverty and lack of development, to scepticism about its ability to deliver material betterment, to hostility about a strategy that some have seen as forcing market relations upon those not fully equipped to handle them.
 
The most prominent and well-publicised examples of micro-credit (in terms of credit to small borrowers without requiring collateral) are of course in Bangladesh. Institutions like the Grameen Bank and BRAC (the Bangladesh Rural Advancement Committee) have become the staple celebrities of this sphere, with their models inspiring other practitioners and even entering the otherwise esoteric world of theoretical mainstream economics.
 
Thus, the group lending scheme pioneered by Grameen (in which the entire group of borrowers is penalised for the inability of one member to repay, thereby creating tremendous peer pressure for prompt and full repayment and reducing the need for hierarchical monitoring) has spawned a spate of mathematical models designed to illustrate its efficacy. The focus on lending to women in particular has been admired and emulated not only because of its role in transforming gender relations, but also because loan repayment has been found to be more secure in consequence.
 
But even (or perhaps especially) in Bangladesh, this model too has its share of detractors, who point out that after more than two and a half decades of significant lending by such institutions, there has been no noticeable impact on rural poverty or indeed evidence of sustainable diversification of rural employment such as to raise aggregate labour productivity. There are also arguments that the sheer rigidity of the loan repayment schedule and the small amounts involved imply that such resources cannot really be used for investment that contains any degree of risk or requires a longer time frame to fructify, or for asset building generally.  They also do not ameliorate the lot of the truly destitute, that is those in extreme poverty.
 
The most severe critics of this model in fact suggest that because, in Bangladesh in particular, foreign aid resources have been diverted from the government budget to such lending institutions, they have meant less expenditure on public infrastructure and effectively an increase in rural underemployment rather than open unemployment. Thus, if the macroeconomic tendencies do not provide more productive employment opportunities, then providing small amounts of short-term credit can simply lead to a multiplication of certain service providers, for example, with lower returns for all.
 
There is certainly now a more measured view of the effects of such micro-credit schemes, and a recognition that they are not magical development solutions, but they can nevertheless be important catalysts for other social and economic change. And the proliferation of such schemes, especially in South Asia, has meant that the design of more recent schemes gets modified in the light of the learning experience of others, which is always to be welcomed.
 
These thoughts are amply illustrated by a set of such schemes currently in operation in parts of rural Nepal, which show both the advantages of learning from others and the possibilities of transformation that can be exploited by such attempts at social mobilisation.
 
Of course the context of rural Nepal is quite special, not only because of the topographical conditions which make even basic communication and access much more complicated, but because of the political decentralisation process that has been underway over the past decade. This has already meant that people have a greater political awareness than earlier. And even though the economic fallout has been limited, there is evidence of improved farm productivity because of better infrastructure especially irrigation and better social indicators such as higher school enrolment of girls in particular.
 
But from there to achieving sufficient confidence enter into major economic decision-making, even at the local level, or to attempt to control material destiny, is a large difficult step. This is why an initiative that has been underway in some districts of central Nepal in recent years is so significant.
 
It began in the district of Syangja in 1994, under the auspices of the South Asia Poverty Alleviation Programme (SAPAP) of the UNDP, and it has proved so successful that in the past three years the Government of Nepal has joined forces with SAPAP to extend the project to other districts and make it a model for national development. At present, therefore, the model is being initiated or implemented by 200 Village Development Councils (VDCs - formerly panchayats, which comprise several villages) of 45 districts of Nepal.
 
The Syangja model is essentially one which tries to combine thrift and credit schemes and infrastructure development with community participation in decision making. The role of the external agency is not simply to provide resources to set up micro-credit activities and undertake rural infrastructure projects, but even more importantly, to assist in the development of local organisations which will manage and decide upon the nature of these activities, and to enhance local skill formation for this purpose. It is this wider focus which has gives the Syangja model that extra edge. It has made the programme more relevant in terms of allowing the local communities more voice in determining service delivery as well as enhancing the possibilities of genuinely participatory development planning at the VDC levels as well.