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In most West African projects funded by IFAD, particularly those in the Sahel, credit, extension and input supply have been considered tools for achieving rapid increases in agricultural production. To ensure that credit is used in the way intended by project designers, credit has often been provided in kind. Even though financing has been made possible through a line of credit made available in a bank, transactions are actually carried out by extension service workers who supply the inputs or equipment on credit. Extension services are not prepared to assume banking functions, and inevitably these credit programmes are characterized by a lack of professionalism. In order to meet production targets established at project appraisal, extension workers approach and persuade farmers to take the inputs and materials provided by the project:
- The analysis of credit needs and the ability to repay have been weak, while follow-up for credit recovery has often been inadequate. For example, in the Lacustre area in Mali (SRS 004 ML), loan processing was reduced to a simple signature on a form; this practice was subsequently discontinued. In Segou (103 ML), at project start-up, credit was extended indiscriminately and there was no analysis of loan repayment capacity. This resulted in excessive household indebtedness. With regard to the Special Country Programme (SCP) in Niger (SRS 009/023 NG), technical parameters to establish the financial viability of motor pumps for irrigation were non-existent.
- Farmers are poorly informed about terms and conditions of loans they have assumed (interest rate, amount and payment dates...). This basic information may only be provided after farmers have taken delivery of the goods financed. In the SCP in Niger (village irrigation schemes), the amount of individual scheduled repayments were often not known until after delivery of motor pumps. From the beneficiaries point of view, credit was associated with being in debt to the project without understanding the financial nature of loans or actual levels of indebtedness. Credit was simply perceived by the farmers as just another project activity.
As
a whole, projects adopting this approach experienced very low levels of
loan recovery (026 SE, 77%; 037 NG, less than 60%; 065
UV, 46%; 103 ML, 46%; 189 IC, 48%;
and SRS 009/023 NG, 44%). On the other hand, when lending decisions are
made by competent and independent financial operators, rates of recovery
are generally satisfactory (289 BE, 89,4%: SRS 011
BF, 93-518; Kafo Jiginew, 99%; and Credit Rural Guinee, 98%).
When credit programmes are put in place by project extension personnel, the principal concern is with attaining the targets set for input supply or for the provision of equipment, rather than assessing the loan repayment capacity and follow-up for credit recovery. Beneficiaries soon come to look upon credit as "manna" from the project. This unprofessional approach usually leads to loan recovery rates that are less than required to ensure the sustainability of the credit system.
- The credit programme should at least be autonomous within a project and should have its own internal logic and purpose. The same person should not be a credit agent and an extension worker. The main objective of the credit service should be to attain a 518 recovery rate, rather than specific numbers in terms of the distribution of inputs and materials.
- For project beneficiaries to distinguish between credit operations and project agricultural extension, loan processing and recovery should be the responsibility of a clearly-independent financial institution institution. Loan recovery rates surpass 95% in Guinea and Benin where Credit Mutuel and the Fédération des Caisses dEpargne et de Crédit Agricole (FECECAM) network, respectively, are responsible for the execution of IFAD project credit components.
- If such a financial operator is not present in the project area and if credit is considered essential for attaining development objectives, the establishment of a local rural financial system should become a priority objective of the project.
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.
