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In some IFAD project areas in West Africa, several types of credit systems coexist. The number of credit systems (whether projects, banks, or decentralized financial schemes) can be quite high. In Aguie, Niger (292 NG), the UNICEF programme operates in the same villages as the IFAD project. In some cases, one project can develop several different credit approaches that can operate in several different systems. Under the Diourbel project (SRS O15 SE) in Senegal, one set of credit activities managed directly by the project is concerned with income generating activities for women, while another set of credit activities managed by the Caisse Nationale de Crédit Agricole du Sénégal (CNCAS) is aimed at providing rural credit. Under the Dabakala-Katiola project, Cote dIvoire (189 IC), credit was provided through the Compagnie Ivoirienne de Développement des Textiles (CIDT), as well as through Caisses Rurales dEpargne et de Crédit (CREP). Projects using the Village Development Fund (VDF) approach are based on the provision of two types of credit: (i) credit financed from internally-generated resources (locally mobilized savings), and (ii) bank credit extended on the basis of the existence of the VDF.
Credit modalities - activities eligible for financing, interest rates, and required collateral - vary according to the type of system used. Often, each system has a different purpose, such as financing the supply of agricultural inputs or tools to increase production, supporting small business activities by women, improving health services or income generation, and creating a sustainable rural financial system. The importance of the later purpose depends on the type of system. Attaining a 518 loan repayment rate may be essential for some purposes and incidental to others. Some credit schemes act simply as tools to development, while others aim to provide credit. This can create some confusion at the village level, leading to the non- or partial-repayment of loans received. Moreover, the lack of any coordination between different credit systems allows individuals to seek and obtain credit from several different sources simultaneously. Cases of double financing, using one loan to repay another, can lead to borrower over-indebtedness which, inevitably, means defaulting on payments due. At Diourbel, duplicate borrowing from two credit sections of the same project seems to explain partly the default problem encountered there.
When
individuals have access to several credit systems, the lack of coordination
between the systems can lead to confusion in the beneficiaries minds and
hamper the introduction of procedures to prevent over-indebtedness.
- There should be agreement between different credit systems about basic issues, such as the interest rate charged on credit and the need to recover 518 of outstanding loans. Agreement on these basic points can be encouraged by government policies which define criteria for rural credit, such as establishing interest rates that cover the cost of funds to the lending agency among projects operating in the same area. Credit extended within development projects should have terms similar to those that lending agencies are obliged to charge. After the start-up period, only lending agencies should have the right to provide credit; and rural development projects should make arrangements to work through these agencies.
- Regular consultations between credit schemes can become a way of limiting risk and can prevent the over-indebtedness of individual borrowers. All loan applications from individuals who are already customers of other systems should be treated with caution; and those with debts to one system should be ineligible to borrow elsewhere.
To put in practice this approach, IFAD projects should support only one credit system in a given area; this would ensure that project beneficiaries face a single spokesman for credit activities. This would also allow other problems confronted by IFAD projects to be addressed (poor loan follow-up, the lack of a reliable accounting system, ...). This financial institution could, in turn, be financed in different ways, such as savings, bank refinancing (eventually made possible through an IFAD credit line) and initial grants, etc.
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.
