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Within the design of projects in the region of the Southern Africa Development Community (SADC), a number of assumptions have been made about the requirement for, and hence uptake of, various forms of credit. A principal assumption has been that working capital is a major constraint for small farmers. Similarly, it has been assumed that, once credit was supplied to the national development credit institution, the distribution would flow smoothly to the farmers. There has also been an assumption that well defined, profitable opportunities existed to make use of credit supplied; and these were either to be identified through the technology packages, which were inherent features of projects, or were associated with locally-known input or processing options. Finally, there has been an assumption that the macro-economic conditions prevailing would actually encourage further production by the target groups and that, where limiting factors existed such as market constraints, these would be addressed.
All these assumptions, singly or jointly, proved to be incorrect at different times, hindered the implementation of some projects, and reduced project impacts.
Demand for credit was limited in Swaziland (121 SZ) and Lesotho (055 LE), because of remittances received from migrant workers. In fact, the main demand was for a savings facility. In Malawi (070 MW), land tenure, marketing and price policies all adversely affected smallholder crop production and reduced the demand for credit. Conversely, in Zambia (206 ZA), subsidies on inputs encouraged maize production in unsuitable areas. In Botswana (076 BT), the credit component failed and was abandoned by the government because the lending agency, having had no experience or capacity to make and administer large numbers of small loans, completely underestimated the high costs of servicing such loans.
For
credit components to be effective in rural development, they must be demand
driven and have a clear and efficient method of implementation. Linkage
of credit to proven technological packages that are well suited to increasing
productivity is a necessary starting point for projects seeking to increase
smallholder production. However, such interventions must be supported
by appropriate macro-economic policies and the removal of constraints
to production, such as lack of seeds or fertilizers and extension advice.
In particular, great care is required in the design of the mechanism by
which credit is distributed, as small loans in remote areas. Unless an
appropriate mechanism can be fully defined at appraisal, the component
is unlikely to be successful.
- The key to ensuring the correct estimation of the demand for credit interventions is to undertake adequate local surveys during the design phase, so that there is a clear understanding of the requirements for and purposes of the loans.
- The executing agency needs to be aware of the effects of macro-economic policy changes on the development capabilities of the project, with which they have presumably agreed by negotiating the project loan. The cooperating institution (CI) is responsible for monitoring and highlighting such changes.
- The technological packages or other investment opportunities need to be sufficiently attractive to overcome smallholders inherent caution and natural aversions to taking risks, especially in variable and fragile environments. It is a failing of design if such interventions are not taken up because the required research or guarantees are not included.
- Distortions in the pricing systems need to be clearly identified; where distortions exist, the sustainability of the project intervention cannot be assured.
Select any of the following related project profiles for background information: 076 BT, 055 LE, 070 MW, 121 SZ, 104 ZA.
