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Having encountered difficulties when the provision of credit in kind was the sole project objective concerning the credit component, projects began to appear that encouraged savings. In promoting financial systems, savings mobilization was a way of ensuring sustainability. The "savings before credit" approach, developed by the Coopérative dEpargne et de Crédit (COOPEC) and "Crédit Mutuel", encouraged borrowers to honor their debts. In previous projects, credit financed by external borrowing was seldom repaid (hot/cold money). In some projects, access to credit is secondary to the objective of mobilizing savings; and the promotion of a "savings culture" becomes an objective on its own. This approach has been characterized by more satisfactory repayment rates (over 90-95%) and is the basis for a sustainable financial system. Nevertheless, there are certain shortcomings:
- The amount of cash savings which can be mobilized in rural areas is limited; and this problem is aggravated by the remoteness and poverty of the area. Since cost effectiveness is largely determined by the total amount of deposits, the financial viability of some credit schemes is precarious [Caisses Locales de Crédit Agricole Mutuel (CLCAM) in the non-cotton zone of Atacora, Benin, and Caisses Mutuelles in the Siguiri region, Guinea], or has limited ability to lend.
- When individual borrowing is linked to compulsory savings (i.e., an individual must deposit at least 10 50% of the borrowed amount), a certain proportion of the IFAD target group (women and small farmers) may not be eligible for credit. In other cases, the requirement that funds be immobilized to meet deposit conditions can be detrimental to the profitability of the planned investment (as in Atacora, Benin, with women traders).
- The financial assets of the system, essentially composed of short-term deposits, make the provision of medium-term credit difficult.
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When the system faces a cash flow problem, losses to savers can be significant.
Recurrent costs are often high (permanent employees, unproductive savings
in the safe, ...) and the potential for irregularities increases with
the number of transactions and operations required.
Cooperative credit and savings schemes should not be seen as the only alternative means for addressing the failure of project-financed credit. Other decentralized financial systems, such as the "Crédit solidaire" model inspired by the Grameen Bank, show that the "hot/cold money" dilemma can be overcome; and a small group guarantee can be sufficient collateral to ensure a good level of loan repayment. To ensure sustainability, mobilization of savings can be promoted after the provision of credit (forced savings). The mobilization of operating capital can take time; but the targeting of less favored groups can also be more effective (98% of the women among the beneficiaries of the Promotion of Small Rural Credit Project in Burkina Faso). In addition, beyond the different philosophies and characteristics of each system, it appears that:
- In order to reach certain IFAD target groups, credit must be available without the compulsory pre-requisite of savings mobilization. To diversify their clientele, including women, the CLCAMs in Benin have recently been developing a new line of "very small credits for women", which do not require prior savings deposits for eligibility.
- For a credit scheme to mobilize its own financial resources, a combination of savings promotion approaches can be used, such as free deposits, savings deposits as a condition for obtaining credit, and forced savings (as part of a loan and withheld by the scheme). The savings approach used will depend on the clientele and the type of credit that is needed.
- The financial system/scheme established can become an intermediary between borrowers and formal financial institutions for negotiating refinancing [village schemes in the Dogon region of Mali are refinanced by the Banque Nationale de Développement Agricole (BNDA)]. This allows the system/scheme to increase its lending capacity, even though its own savings capacity may be limited, and to provide medium-term credit even though its own resources come from short-term deposits.
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.
