Von Pischke

• The exit problem in credit projects

  01.12.1992
  The exit problem occurs when individual borrowers fail to repay their loans to credit projects, and when projects themselves are consequently left with a declining pool of funds to lend. Frequently donors allow this situation to continue and bad debts accumulate until they are obliged to cease lending altogether, when a sudden 'hard exit' from the programme occurs. This article describes a proposed design for a wholesale lender, funded by international donors and lending to local credit projects, which would allow client projects either to increase their borrowing incrementally or to withdraw gradually according to the success of their lending record. By following certain clear rules it is hoped that difficulties could be anticipated and dealt with early on and the hardship of a sudden ejection from the credit programme avoided.This article raises some interesting points in the form of a proposal. The editors decided to publish it, in spite of the fact that the system has not yet been tried out anywhere, because it deserves discussion among a wide readership. We would therefore particularly welcome any comments you have upon the system described.