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In countries with well-established networks of savings and credit schemes ["Crédit Mutuel" in Guinea and Caisses Régionales/ Caisses Locales de Crédit Agricole Mutuel (CRCAM/CLCAM) in Benin], IFAD has used these operators for the implementation of credit activities in some of its projects. Institutional support and credit lines are the main tools used. The approach is generally positive; rates of repayment are usually greater than 90-95%, far superior to those encountered in "project-credit" or "bank-credit" approaches. Expectations for sustainability are good. However, with regard to targeting, adequate provision of medium-term credit and proximity to financial services in rural areas is doubtful when compared to IFAD's specific objectives. This illustrates the difference between a donor such as IFAD and a financial institution whose objective is to ensure the profitability of its branch offices, providing financial services adapted to the needs of depositors.
- The capacity to mobilize cash savings in rural areas is limited and decreases with the remoteness and poverty of the area. Since cost effectiveness is determined by the total amount of deposits, some branch offices may be on the edge of financial viability. For example, the CLCAMs in some non-cotton zones of Atacora, Benin, are barely profitable (less than 50 million Francs CFA (FCFA) in deposits). Similarly, some mutual credit schemes are experiencing difficulties in IFAD's project areas in Guinea.
- The need to deposit savings in order to be eligible to borrow can exclude a portion of IFAD's target group (women and small farmers). The immobilization of funds for several months as a deposit condition can seriously affect the profitability of the planned investments (women traders in Atacora, Benin).
- The financial resources of the saving and credit schemes are composed of short-term deposits. The risk of running out of liquid assets prevents the networks from using their resources for medium-term financing. For example, in Borgou, Benin, the CLCAMs have put forward medium-term loans on a small scale, backed by their own resources.
Providing
institutional support and credit lines to these networks of savings and
credit schemes does not guarantee that they will respond to IFAD's priorities
for targeting specific areas or productive activities. Too much donor
intervention in savings and credit schemes might compromise the whole
system and undermine its institutional sustainability.
- In choosing new locations, schemes must take into account the savings mobilization capacity of the population, to ensure future scheme profitability. In certain remote areas, it simply may not be viable to establish a scheme. In these situations, IFAD must examine supporting specialized financial systems at the village level, that may serve as intermediaries between the network and the beneficiaries. The project supporting small producers in Lower North Guinea seeks to promote "financial services associations". In some areas of Benin, village savings groups act as relays between CLCAMs and the population. The presence of the networks ensures that training, financial control and auditing functions of local savings groups are carried out. Deposits from local savings groups can be deposited within the network.
- To reach certain IFAD target groups, particulary poor rural women, credit should be available without the pre-condition of having to make a deposit first. To diversify its clientele towards women, the CLCAMs in Benin have recently developed a new line of "very small credits", which require no prior deposit. The Réseau des Caisses Populaires in Burkina Faso (RCPB) is successfully implementing this kind of an approach through womens groups.
- The provision of additional funds or the establishment of a risk fund are two ways of risk-sharing which can promote the provision of medium-term credit.
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.
