have only recently repaid their first credit and may receive additional fuinds. This is a very critical issue for program viability and should be explored in more depth via a systematic survey of active and inactive groups. The program also has not yet explored why some groups rest. Thus, it is not clear to what extent groups disband versus are unable to obtain additional credits.

_Reasotns for EfvoItlion in lrogrctn_ **_Perftormclnce._** Program managers attribute P4K's recent increases in arrears and declinina, volume to the following issues It is possible that a reassignment of the program within the Ministry of Agriculture contributed to defaults because many borrower groups were accustomed to making repayments to specific a,,riculture extension workers. When these did not visit the groups for an extended period of time. some groups did not make other arrangements to deliver payments to a BRI outlet. A further hvpothesis is that arrears were exacerbated by BRI's policy of canceling the program in districts in which arrears ran higher than 10 percent. Under this policy. many groups with strong repayment records stopped paying when it became apparent that the program was to be discontinued in their area. BRI's policy of canceling credit provision in whole districts also accounts in large part for the contraction in real lending volume in 1995/96.

However, it is also possible that the program's basic structure has contributed to some of its problems. The program uses agriculture extension workers as credit agents. However, extension workers do not generally have a financial or banking background. nor are they under the control or supervision of the bank disbursing the loans. Furthermore, they have no direct incentive to investigate the creditworthiness of borrowing groups, or to encourage these groups to repay their loans in a timely manner. By acting as a go-between for banks and groups, extension agents reduce the transaction costs for both parties. However, they also act as a buffer between the two, inhibiting them from forming direct links. It is possible that few groups receive more than one loan because their primary, and sometimes virtually exclusive, contact in the banking process is the extension agent, and this latter has no incentive to help groups obtain more than one loan. Also, the program's lengthy and bureaucratic loan approval process. which requires that loans applications be considered by the Ministry of Agriculture and BRI, may discourage groups from applying for additional loans. Finally, extension agents provicle a number of free services. Thus, groups may be less likely to see the funds they receive as a real obligation to be repaid because their primary contact in the process generally provides free services.

BRI operates this program from its branches rather than through its Unit Desa system. This is highly surprising given that BRI branches are located only in district capitals, and generally make quite large loans. In contrast, Unit Desas are located in sub-district capitals, and make much smaller loans. Thus, Unit Desas are much closer to the credit end-users both geographically and in terms of the types of credits they typically issue. Relocating the program to Unit Desas would facilitate collection efforts and might also increase the proportion of groups receiving more than one credit as it would be much easier for groups to apply for additional credits at these branches.

The program is making some adjustments to improve its performance. BRI will provide small financial incentives for extension workers to expand lending and promote timely repayment in new provinces. Also, BRI has reversed its policy of cutting off all loans in districts with high arrears. In theory, it will now stop giving loans to all the groups serviced by a single extension worker 74