Developing the FGA
Most successful SFGAs start out modestly, even though they may have a more ambitious long-term goal. In the beginning, they usually provide only one or two services to their member groups. But as an SFGA's management experience and resources grow, its members may decide to expand the number of services provided.
Here are some tips on how to manage SFGA services efficiently:
A common mistake made by many new SFGAs is to pursue too many goals and provide too many different member services. That is usually too much to handle, and can lead to confusion and poor performance. Having fewer, and more realistic, goals is better. That way, everybody's action is focused and services are easier to manage. So, "think small" at first, and as you grow in experience, "think bigger."
Successful SFGAs begin by mobilizing the resources of member groups (usually, time and money), not resources from the outside. If groups invest their own time in defining the service to be provided, and finance it with their own money, they will feel more committed to making it succeed. Help offered by outsiders may reduce the SFGA members' interest in financing the service and undermine their commitment to the SFGA.
Everyone should have a clear idea of what tasks need to be performed, who is supposed to perform each one, and how the tasks should be organized and managed to provide the best possible service.
A good way to do this is to make a list of the tasks, and then identify who within the SFGA is willing and able to perform them. Then, list the tasks in their proper sequence, i.e. which comes first, which second, etc. Then draw a simple bar chart to see how things fit together, and discuss it further.
To ensure that these steps are done properly, the SFGA may also want to assign some oversight responsibilities to the following committees:
Most people are willing to pay the post office for a stamp so that it will deliver our letters. In the same way, if a service is valued by member groups, they will probably be willing to pay a small fee to cover delivery costs.
The SFGA need not charge member groups for each and every member service. For example, the SFGA Board might decide to charge members a small service fee on all inputs purchased through the SFGA, or on crops marketed through the SFGA. But it could also provide some other services, such as education and training, for free. That is OK, as long as the total income earned in providing all these services covers the cost of delivering them.
The higher the quality and volume of services provided to member groups, the happier they will be. However, the SFGA also needs to monitor how much it is costing to deliver the service, and whether it makes enough income from this service (or from other activities) to cover the delivery cost. (See section on Monitoring SFGA performance, p.96.)
A successful SFGA is one whose income from member services is greater than its expenses. This means that it makes a surplus, or profit. Deciding what to do with that profit is important. For example, if the SFGA wants to improve further the quality or volume of member services, it may have to retain some of these funds to buy new equipment or expand facilities. Surpluses can be used to do that. Or, the SFGA may decide to return some of the profits to the members. This is called a "bonus", and is distributed to those member groups who, by paying their service fees, have contributed significantly to the growth of the SFGA.
Members often argue that all the profits should be returned to them. But if an SFGA does that, there will be no funds left over for other projects - such as replacing old or buying new equipment. Remember: investment is needed to improve the quality of the services offered to members!
SFGAs are free to engage in any service its member groups decide upon. Usually, however, these services fall into four broad categories:
Inter-group solidarity and training is normally the first activity that member groups engage in, even before deciding to form an SFGA. It usually continues afterwards. This broad category of services includes: settling of disputes within and between groups, promoting information sharing among groups, general member training and education, and community improvements.
Providing such services to member groups does not require much money. The most important resource needed is time. In the beginning, enthusiasm is bound to be high and SFGA Board members and leaders will probably volunteer their time free of charge. But this may change - some cash may be needed to cover the cost of holding meetings and training workshops assisted by a visiting extensionist or trainer.
Therefore, SFGA Board members need to periodically review the coordination and training activities they provide to their member groups, examine their objectives, and assess the resources spent (in terms of time and money) in providing the services. (See section on Monitoring SFGA performance, p.75.)
If the coordination and training responsibilities are too much for the SFGA Management Team to handle, a special Member Education/Training Task Group or Committee could lighten the load. Members of the task group could include both SFGA Board members and regular group members interested in helping out.
Sometimes, an SFGA may decide to hold special training activities that require extra funding. The extra money can be raised in a variety of ways: by asking member groups to make additional contributions, or by organizing SFGA fund-raising activities, such as a sports day, a cultural show or a social event, at which members and non-members are charged a small fee.
Once SFGA members and leaders have gained experience through inter-group action and training, they quickly see that inter-group cooperation can also be beneficial in economic areas as well.
Member groups can save money by channeling their purchases of agricultural inputs, consumer goods or services through the SFGA. This is because input suppliers usually give price discounts per unit for large orders, and because the SFGA can save on transport costs by arranging for a single shipment of all the inputs ordered.
However, suppliers are also likely to demand payment in advance for a bulk purchase. Therefore, the SFGA will have to first collect the advance payment from member groups. Then it will have to calculate carefully how much and what kind of inputs its member groups need, and when. For example, if seed is needed before planting season begins, then it has to arrive at the SFGA well before that time.
The service provided by the SFGA includes, therefore:
To cover these costs, the SFGA needs to decide on a fair service fee to charge members.
While the SFGA Chairperson or Treasurer may be involved in collecting groups' pre-payments, in negotiating the bulk purchase and in making the final payments, they need not be directly involved in all matters. For example, since arranging the bulk purchase requires close consultation with member groups, this task might be delegated to a qualified member of the SFGA or assigned to a special Input Purchase Committee.
NOTE TO IGP AND MEMBERS
Make a list of tasks to be performed: who should perform them, and when and where. Discuss what problems are likely to occur and how these can be dealt with. The more members are prepared to face these problems, the more likely the service will be successful.
Collective marketing allows member groups to share the cost of transporting their product to market. It also helps them to negotiate with local buyers for a better sales price than they could obtain by marketing their crops individually. Bulk marketing can be a big generator of income and profits for an SFGA - but it is also an activity in which competition can be very tough. In some countries, local product markets are tightly controlled by middlemen, who may regard the SFGA as a threat to their own business interests.
Therefore, SFGAs usually embark on this service activity only after they have gained successful experience in bulk purchasing of inputs. Initially, they confine their bulk marketing to a single product or crop.
Knowing the right time to sell - and having the capacity to wait for the right price - is critical in inter-group marketing. It requires a good knowledge of expected future prices, the capacity to collect and safely store member output, some working capital to provide members with a partial advance payment on their deliveries, and member willingness to wait for the final payment.
The more the SFGA is able to finance its own marketing activities, and the more willing members are in assisting that effort, the more freedom the SFGA will have in choosing the marketing arrangement that is best for its member groups.
Member groups must be willing to deliver their output to the SFGA prior to payment, and on time. They must also be willing to pay the SFGA a service charge to cover its expenses in handling the sale. In other words, they must be loyal to and trust their SFGA.
The SFGA would provide, therefore, the following services:
forecasting production and market demand
The SFGA Chairperson or Treasurer are generally involved in estimating the volume and value of member groups' output to be marketed and in collecting and storing it while awaiting sale. They also provide member groups with a small advance payment upon delivery of their outputs to the SFGA, negotiate the bulk sale price on behalf of the participating groups, and make final payments.
However, the entire process needs to be well coordinated. It may be useful, therefore, to establish a special Marketing Task Group or Committee to assist them in the Management Team in these tasks. Members of the Task Group might include the Chairperson and Treasurer, at least one member from each group, and somebody with good marketing skills.
A MARKETING COMMITTEE CAN HELP THE SFGA GET THE BEST DEAL FOR ITS PRODUCE
NOTE TO IGP AND MEMBERS
Make a list of the tasks to be performed, who should perform them, and when and where. Discuss the problems that are likely to occur and how they can be dealt with. The more members are prepared to face these problems, the more likely the service will be successful.
All successful small farmer groups practice some type of regular group-based savings. At first, they may use their savings - as well as part of the profits from their income generating activities - as an emergency fund for lending or giving to individual members in time of need. The advantage of providing loans rather than grants is that members must repay the loan. By doing so, they replenish the fund so it can be used again and again. If members don't pay back the amount lent, then the fund quickly dries up.
When an SFGA is formed, the groups can apply the same approach at inter-group level by establishing an SFGA savings-and-loan fund. They deposit their saved money in the SFGA fund for lending out to member groups in time of need. Each member group agrees to deposit a fixed amount of its saved money into the SFGA fund. To help cover the operating costs of the inter-group fund, any member group or individual member who borrows from the fund is asked to pay a service charge on the loan received.
The service charge can be a fixed charge, i.e. the same fee, regardless of the size of the loan. Or, it can be a proportional monthly charge (i.e., a percentage of the outstanding balance of the loan issued) to be paid each month until the entire loan is repaid. Whatever amount is charged, it should be much less than interest rates charged by private moneylenders, but it can be a bit more than that charged by local banks. This is a member decision - after all, it is their money and they should collectively decide how to use or re-invest the income earned.
This particular type of service involves:
It is essential to keep the trust and confidence of member groups in how the service is managed. This requires openness and fairness in handling member requests. All members should be aware of service transactions, the amount of member savings contributed to the fund, the loans issued and those outstanding. They should also know which groups, if any, have defaulted on loans, and the action taken to recover the defaulted money. The more transparent the transactions, the better it is for everyone.
Initially, this activity is best handled by the SFGA Treasurer. However, once lending operations begin to expand, it is a good idea to establish a special Loan Committee. This committee assists in reviewing loan requests, setting the service fee charged on loans, supervising loan repayment, taking action against defaulters and encouraging regular member group contributions to the pooled fund. In addition to the Chairperson and Treasurer, all member groups should have at least one member on this committee to ensure fairness and transparency.
Once the pooled savings fund has grown sufficiently, the SFGA could consider opening a savings account at a nearby bank and depositing some or all of the SFGA fund. It will be safer there.
In summary, some of the key tasks involved in operating an SFGA savings-and-loan service, overseen by a Loan Committee, might be:
NOTE TO IGP AND MEMBERS
Make a list of the main tasks involved in running a pooled savings and loan service. Who will perform these tasks?
In the beginning, most SFGAs need little cash. All that might be needed is the investment of free time from interested group members.
But as activities and member services grow, the SFGA will incur more cash expenses. For example, they will need cash for buying record books and stationery, paying travel costs of SFGA Board members for official duties, hiring a truck for transport of group output, or renting an SFGA office. How can members mobilize the resources needed to run the SFGA and help it grow?
Member sources of funds include:
If member funds are not enough, the SFGA can look for external sources of funds to help finance their planned services and investments. External funds can be helpful, but can sometimes also lead to problems - so be careful! Some sources of external credit are:
SOURCES OF FUNDS
Conclusion: If internal resources are not enough to finance the SFGA's activities, additional external credit can be useful. But watch out - excessive external credit, on very easy terms, has caused the downfall of many an SFGA.
Providing services free-of-charge to all member groups might sound like a great idea at first (who doesn't want free services?). But if the service is free, every group will want it. Delivering that "free service" will cost the SFGA time and money.
The best way to solve this problem is to charge members a "service fee". It should be just enough to cover the delivery cost of that service. The fee discourages "free riders," i.e., members who want SFGA services but do not want to pay for them. It also provides constructive feedback from members to the SFGA Management on service quality (if members are paying even a small amount for a service, you expect to get your money's worth.)
There are two basic ways of pricing member services. Either:
The first system is easier to administer, but the second is more effective in reducing the number of "free riders."