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Many projects in West Africa are aimed at raising agricultural productivity and production. Access to credit has been considered one of the means to attaining this objective, as has the provision of inputs and equipment and the introduction of better agricultural technology. To make sure that credit is used according to the development scenario envisaged by the project designers, credit has often been granted in kind, either through the direct provision of inputs or equipment, or through the use of sales vouchers redeemable at specific retail outlets. The goods to be sold on credit are pre-determined by the project designers, according to production objectives, which may not be in line with the needs of the farmers themselves. Errors in project design, and/or changing situations in the project area can often undermine the initial hypotheses on which the project has been formulated. Farmers interests can change, or the viability of a particular investment can be different than originally foreseen. For instance, in the lake area of Mali (SRS O4 ML), the financial viability of motor pumps provided on credit depended on the farmers development of horticulture; but food subsistence requirements precluded this. In the Diourbel region of Senegal, grain mills provided to womens groups for processing millet have not attained the level of financial return predicted at appraisal.
This topdown approach does not take into consideration the needs or the specific knowledge of the beneficiaries. Often equipment chosen by projects is unsuitable. The equipment proposed for the Oasis project in Mauritania (SRS 001 MR) was inadequate for use in an oasis environment. In the Niger Special Country Programme (SRS 009/023 NG), target groups were not consulted on the choice of rrigation equipment, even though they had specific knowledge about both. Most of the time, projects only provide for potential needs in terms of agricultural inputs and on-farm investments, even though consumption needs may be a priority for the targeted households.
With
the exception of loans for small pumps in the Komadougou Valley (Niger)
and "cotton credit" in Soudanian areas (crops which generate
significant revenue and for which repayment is achieved through automatic
deductions on sales), all systems of credit in kind have had difficulties
reconciling project production objectives with the needs and the repayment
capacity of beneficiaries.
- In some cases, inputs supplied on credit are sold by beneficiaries in order to finance other activities. For example, in Ghana (SRS 019 GH and 247 GH), farmers exchange their vouchers for money (at less than market value) or sell the inputs; some of the beneficiaries of the Oasis project in Mauritania have sold the equipment that they have received.
- Loan recovery rates are often less than 50% and, apart from one exception (Komadougou, Niger), they are always less than 80%.
Changes in local conditions and the complexity of household finances often undermine the assumptions made at the project design stage, which affect the return and profitability of proposed project activities. As such, the provision of inputs, materials and equipment unsuited to local needs and priorities will often result in the failure of the credit system (low repayment rates).
- Credit should be managed in light of the development objectives and interests of beneficiaries, and not in light of the production targets established by an appraisal report.
- Beneficiaries should be involved in the decision-making process for credit allocation. The provision of cash credit for producer-specified use would allow the farmers to choose and purchase those inputs or implements best suited to their needs. Within the context of flexible and demand-driven management, credit would then become a tool used to identify those activities that best fill the needs of the target group.
Select any of the following related project profiles for background information: 056 GU, 101 BE, 103 ML, 187 CG, 198 GH, SRS-011 BF, SRS-012 GU.
