Part III: Report of the Regional Workshop on Microfinance Programmes in Support of Responsible Aquaculture and Marine Capture Fisheries in Asia

1 BACKGROUND, PURPOSE AND PARTICIPATION

Over the past two decades, FAO has provided assistance to the fisheries sector in improving its access to institutional credit. Recent changes and developments have, however, prompted a consideration of new features in delivering credit to the sector. The most important of these relate to developments in microfinance and more recently to the commitments to the World Summit on Sustainable Development held in Rome in June 2002, which called for stepped-up investments in fisheries and increased productivity of small-scale fishers and access to productive resources. It is in this context that the regional workshop was organized.

The main purpose of the workshop was to analyse, document and facilitate the exchange of experiences among Asian countries with microfinance programmes in fisheries. The workshop also aimed to draw conclusions from these experiences and provide guidance on enhancing the contribution of microfinance to food security and poverty alleviation in fishing and farming communities as well as to the adoption of responsible fishing and aquaculture practices.

The regional workshop was the first of its kind in the Asia-Pacific region. It was attended by 31 participants from eight South and Southeast Asian countries: Bangladesh, India, Malaysia, Nepal, the Philippines, Sri Lanka, Thailand and Viet Nam. It brought together experts representing fisheries government institutions, financial institutions, academic and research institutions, NGOs, cooperatives, women’s unions, fishermen’s associations and technical staff of foreign-assisted projects in aquaculture in the region. The list of participants is given in Annex 1.

The workshop was organized and hosted by the Bank for Agriculture and Agricultural Cooperatives (BAAC) of Thailand, in close liaison and coordination with the Thai Department of Fisheries.

2 PROCEEDINGS

The workshop programme was divided into three parts: technical sessions where papers were presented and discussed, field visits and working group activities to formulate workshop recommendations, and follow-up proposals.

The workshop was opened by welcome and keynote addresses from FAO and BAAC. To start the technical sessions, a brief presentation on microfinance programmes was given by the Secretary-General of the Asia Pacific Rural and Agricultural Credit Association (APRACA). Technical papers on the role and activities of FAO and BAAC in support of microfinance programmes were subsequently presented.

The core activity of the workshop focused on the presentation and discussion of country papers and case studies on the implementation of microfinance programmes in fisheries and aquaculture in the region. These were preceded by a presentation on concepts and approaches in microfinance and their applicability to fisheries.

Three working groups were later formed with the task of formulating conclusions and recommendations related to microfinance policies, lending procedures and institutional arrangements. Follow-up activities and technical assistance needs and proposals were also identified. The outputs of the working groups were then presented in plenary where they were discussed and finalized.

Field visits to a BAAC client implementing a fish cage culture project, a Fisheries Research Facility and a rural development project of His Majesty the King of Thailand were undertaken.

The programme of the workshop is attached as Annex 2.

2.1 Opening ceremony

In his opening address, Dr Uwe Tietze, FAO Fishery Industries Officer, welcomed the participants to the workshop and expressed his thanks, on behalf of FAO, to BAAC for hosting and organizing the workshop, and to the Thai Fisheries Department for its valuable support. He began his welcome address by briefly explaining the mandate of FAO and its major programme on fisheries, which aims to promote the sustainable development of responsible fisheries and aquaculture, and contribute to food security. He pointed out that appropriate institutional credit arrangements are required to achieve these twin goals. In this regard, he identified investment areas that require credit support, particularly those related to the introduction of responsible fishing and aquaculture practices. With the recent changes and developments in fisheries and credit delivery systems, Dr Tietze hoped that the workshop would come up with practical recommendations that could provide guidance in improving microfinance programmes in the fisheries sector with the ultimate objective of contributing to poverty alleviation and food security. In closing, he wished the participants a fruitful and successful workshop.

Mr Pittayapol Nattaradol, BAAC President, first extended a warm welcome to the participants and then explained the role that the Bank plays in supporting the growth of small- and medium-scale farmers and fishers in Thailand. Established in 1966, the Bank has since provided financial services to about 93 percent of Thailand’s total farm families by offering loans and banking services, together with managerial and technical guidance under a supervised credit scheme. In recognition of the need to help farmers produce at a low cost and improve efficiency, the Bank has recently expanded its role by establishing a new Marketing Support Department to help its clients improve their marketing activities. Towards this end, Mr Nattaradol announced the Bank’s recent initiatives such as the signing of the Memorandum of Understanding with Maejo University of Chiang Mai to improve product quality and technology transfer. He also cited the Bank’s support for agricultural marketing cooperatives (AMCs) and the Thai Agribusiness Company Ltd (TABCO) in assisting clients to access local and foreign markets. To support the grassroots economy, the Bank also offers loans for micro and small community-based enterprises and provides assistance to strengthen the operation of a National Village and Urban Community Fund. The Bank envisions this fund as a village bank that will serve as a future financial intermediary.

In his message during the dinner reception, Mr Nattaradol later elaborated on the expanded role and mandate of the Bank in uplifting Thailand’s rural economy.

2.2 APRACA’s experience with microfinance programmes

Mr Benedicto Bayaua, Secretary-General of APRACA, set the tone of the workshop by providing an overview of microfinance programmes. His presentation included a brief discussion of microfinance’s target clients in fisheries, the different aspects of participation in microfinance programmes (from mere access to full ownership) and the characteristics and limitations of microfinance programmes in fisheries. He also shared some insights into the difficulties faced when participating in microfinance programmes in upland fisheries as well as by other ethnic groups. He suggested that workshop participants look into the following areas in their deliberations during the workshop: an integrated management strategy for areas with a common natural base; the needed policy and financial support from government and non-government agencies and all stakeholders involved; and measures to develop human resources and strengthen institutions concerned with microfinance programmes.

A brief discussion followed Mr Bayaua’s presentation, touching on questions regarding the size of microfinance loans, an appropriate pricing policy, transaction costs and equity and efficiency considerations. Mr Bayaua clarified that each country has its own definitions and assessments and, as such, there is a need to come up with country- and industry-level requirements and standards.

2.3 The role and programmes of BAAC of Thailand

Mr Luck Wajananawat, Assistant President of BAAC, gave a detailed presentation on how BAAC operates as a specialized financial institution in Thailand, including the Bank’s organizational structure, outreach, network and the different services and facilities it provides. In line with the Bank’s new and expanded mandate of diversifying from an agricultural bank to a fully fledged rural development bank, Mr Wajananawat identified three key measures that the Bank intends to carry out: i) to fill the rural financial gap through lending in support of rural entrepreneurs/community enterprises/village funds and local governments; ii) be actively involved in marketing aspects through strengthening AMCs and TABCO; and iii) establish independent institutions for agriculture and rural development to provide farmer clients with technical assistance and social capital. Mr Wajananawat also briefly discussed the Bank’s Farmer Debt Suspension Programme, which is being implemented by the Bank in coordination with the Department of Fisheries (DOF). While admitting that the programme was a “moral hazard” when seen against the financial discipline of borrowers, a total of 2.31 million farmers (representing around 80 percent of total farmers) have nevertheless joined the programme, using either the debt suspension or debt reduction options.

Following on from Mr Wajananawat’s brief discussion of the Bank’s Farmer Debt Suspension Programme, Mr Wattana Leelapatra, Director of the National Inland Fisheries Institute under the DOF, presented the status of DOF’s farmer rehabilitation efforts since the programme’s implementation in June 2001. Mr Leelapatra pointed out that the debt suspension programme was part of the present government’s policy of alleviating poverty by enabling farmers to recover from debts, either by stopping debt payments on a 100 percent subsidized interest-bearing principle or by continuing to pay with reduced rates of interest. During the debt suspension period, eligible farmers are also given career development support through the career rehabilitation programme of the Ministry of Agriculture and Cooperatives (MOAC). Activities under the programme include training and technology transfer and a free supply of fish seeds. MOAC’s career rehabilitation programme lasts for three years (2001-2003) and intends to reach around 1.27 million farmers. As of end 2001, approximately 14 900 farmers had been assisted.

2.4 FAO’s strategies for fisheries and aquaculture development and the role of credit and investment support

Dr Tietze presented the policies and strategies of FAO and the role of credit in fisheries and aquaculture. He outlined FAO’s strategic framework for 2000-2015 in the context of current global demographic and economic projections. The framework spells out FAO’s goals and corporate strategies in fulfilment of its mandate to improve the conditions of rural populations. Focusing on fisheries, Dr Tietze explained FAO’s major programme for the sector, which aims to promote the sustainable development of responsible fisheries and aquaculture and to contribute to food security.

More specifically, the FAO Fisheries Department focuses its programme on three medium-term strategic objectives, namely: promotion of responsible fishery sector management with priority given to the implementation of the Code of Conduct for Responsible Fisheries (CCRF), Compliance Agreements and International Plans of Action; promotion of an increased contribution from responsible fisheries and aquaculture to world food supplies and food security; and global monitoring and strategic analysis of fisheries with a focus on the development of databases and analysis of information.

Dr Tietze then identified the role of credit in fisheries and aquaculture by specifying the areas where investments are needed, particularly those related to the introduction of responsible fishing and aquaculture practices. In conclusion, he underscored the following considerations when designing credit programmes for fisheries: they should meet the criteria of timeliness, simplicity, flexibility and demand orientation; and they must be financially viable and sustainable.

In the discussion, questions were raised on the financial viability of projects to be financed in fisheries, given the high risks and other constraints faced in the sector. Dr Tietze emphasized that credit should not be equated with social welfare and therefore the identification of viable projects and microenterprises must be given primary consideration. It is also important, he added, that viable projects be identified with the people and/or the community and the aim should be towards enterprise development.

2.5 Concepts and strategies in microfinance and their application to fisheries and aquaculture development

To serve as overall background and to provide the context for the succeeding country presentations, a paper by Mr Shreekantha Shetty, FAO Consultant, who was unable to attend the workshop, was presented by Dr Tietze. The paper discussed concepts and approaches of microfinance programmes and their applicability to the fisheries sector. Dr Tietze began his presentation by establishing the need to make credit available in alleviating poverty and promoting economic development. Past fisheries credit programmes, however, have fallen short of expectations and did not reach the intended beneficiaries. This prompted the donor community and national governments to experiment and pilot test other models and alternatives, particularly the replication of successful microfinance methodologies. Before proceeding to explain the various microfinance methodologies and lending technologies, Dr Tietze reviewed the main financial service delivery forms in fisheries, both in the formal and informal sectors.

Dr Tietze briefly defined lending technology as covering the entire range of activities carried out by a credit granting institution that have to do with selecting borrowers, determining the type of loans to be granted, the loan amount and maturity and ways in which it is to be secured, as well as loan monitoring and recovery. He clarified that there are two classes of lending technologies or approaches that play a major role in financing small and microbusinesses in developing countries. These are the individual-based and group-based technologies. Of the two, the group-based technologies are more relevant in catering to the demands of the poor. They involve groups of borrowers in one form or another in the process of granting and recovering loans. Several variants of this type include the self-help groups (SHGs) that act as loan guarantors and lend to individuals in solidarity groups.

As to the applicability of these variants to the fisheries sector, particularly to very poor households living in remote areas, Mr Shetty’s paper suggested that the SHGs and solidarity group models are the more appropriate group-based credit delivery approaches. However, for economic and subsector growth, traditional lending services by formal financial institutions should still be made available to cover financing for corporate or good-sized businesses, procurement of mechanized fishing boats, establishment of processing plants for export and other large investments. The full text of Mr Shetty’s paper is in Annex 3.

2.6 Country presentations and case studies on microfinance programmes in support of responsible aquaculture and marine capture fisheries in Asia

Thailand

Dr Cherdsak Virapat, Director of the Thailand Operational Centre of the International Ocean Institute (IOI), presented an overview of the status of aquaculture development in Thailand as well as the problems, constraints and potential for further development of the sector. Dr Virapat highlighted two major programmes being implemented by the DOF that aimed to increase fish production and income for fish farmers in disadvantaged communities. The first is the Village Fishpond Development Programme (VFP). The VFP was designed to increase fish production for local consumption, provide opportunities for local employment and alleviate malnutrition and poverty. The main strategies involve the rehabilitation or construction of village ponds, training of local village committees, increasing the supply of fingerlings and providing technical advice. The second programme, the Adaptive Water Management for Community Fisheries Development, is a fairly new programme that focuses on people’s participation in utilizing water resources for integrated aquaculture and agriculture for food security. Utilizing a community participatory approach, the programme envisions the involvement and use of local schools as community learning and technology transfer centres. Dr Virapat reported that the programme is still at the pilot stage but it has potential to serve as a model project for future microfinance programmes in aquaculture.

Mr Chavarin Sai-La, Section Chief of the Loan Quality Division of BAAC, gave a presentation on the Integrated Fish Farming Project being implemented by BAAC with funding assistance from the Belgian Administration for Development Cooperation. The project covers six provinces in the northeastern region of Thailand and aims primarily to increase the income of farmers through the promotion of integrated fish farming. A revolving fund of B100 (baht) million (about US$3.8 million) has been set up to finance long-term loans. Short-term loans are provided by BAAC through its normal lending operations.

India

A paper detailing the microfinance programmes in India, jointly prepared by Mr M.K. Upare and Mr S. K. Bhatnagar, General Manager and Deputy General Manager, respectively, of the National Bank for Agriculture and Rural Development (NABARD) was presented by Dr Tietze. Dr Tietze introduced his presentation by saying that the inability of credit institutions to cover a sizeable segment of the rural poor in India has prompted a number of NGOs to enter the rural credit scheme by organizing the poor into informal self-help groups (SHGs). An SHG is a small, economically homogeneous group of rural poor, generally not exceeding 20 members, voluntarily coming together for mutual help and benefit. There are three main linkage models involving the banks, NGOs and SHGs that promote microfinance in India.

The linkage models, also termed “relationship banking” by NABARD, aim to make improvements in the existing relationships between the poor and the banks, with the intermediation of NGOs, which either play the role of promoters of SHGs or of financial intermediaries. In Model I, the bank itself is the self-help group promoting institution (SHGPI) that trains and provides credit directly to SHGs. In Model II, the NGO acts as the SHGPI that trains and helps the SHG link with the banks. In Model III, the NGO acts as the financial intermediary between the bank and the SHG. As of March 2002, Dr Tietze reported that Model II was the most prevalent linkage mechanism, involving around 75 percent of the more than 460 000 SHGs organized in India, followed by Model I (16 percent) and Model III (9 percent). According to NABARD, the SGH-bank linkage programme could perhaps be the largest microfinance programme in the world in terms of outreach. NABARD’s other microfinance initiatives were also summarized in the presentation.

Apart from NABARD, Dr Tietze also discussed the activities of two institutions that provide microfinance support to the poor in India. These are the Small Industrial Development Bank of India (SIDBI) and the National Credit Fund for Women or Rashtriya Mahila Kosh (RMK). SIDBI launched its microfinance scheme in 1994 and provides soft loan assistance to accredited NGOs for onlending to the poor, particularly women, for financing microenterprises. RMK likewise provides credit mainly to NGOs, women’s development corporations and cooperative societies for onlending to poor women, using several schemes and modalities. The text of the paper by Mr Upare and Mr Bhatnagar is presented as Annex 4.

The presentation enumerated the indicative selection criteria for SHGs in linking with the banks as well as guidelines for using the microfinance mechanism in terms of group formation and characteristics, procedures and other support services required. An important lesson emphasized was that the poor can and do save. More important, the poor are also capable of using credit in a productive manner, provided an appropriate institutional mechanism exists that is simple, sensitive and responsive to their needs.

Ms Suchitra Marotrao Upare, Assistant Professor at Konkan Agricultural University, shared the microcredit experiences of Krishi Vigyan Kendra (KVK) of Ratnagiri district, Maharashtra, India. A KVK or a Farm Science Centre is a scientificbased institution that provides need-based training and serves as a demonstration centre for site-specific technologies. There are around 261 KVKs in India, 35 of which have a fisheries component. The KVK of Ratnagiri district is one of these. There are 99 fishing villages spread along the coastal plains in the district with fishing as the prime source of livelihood.

Ms Upare informed the group that the introduction of microfinance schemes in the district in 1999 was a new initiative by the district Rural Development Agency. SHGs composed of both men and women (from ten to 20 members) had been organized and were given credit by nationalized banks, regional rural banks and lead district banks. Some groups were given an initial revolving fund with a 50 percent subsidy on the total loan. Banks charged 12 percent on the loan that the groups onlend to members at 13 to 18 percent. For Ratnagiri district, Ms Upare reported that around 400 groups have been formed, 265 of which have been given revolving funds but only ten fisher groups have availed of microcredit to improve their fisheries economic activities. Loans have been used to finance advances for selling fresh fish, purchasing mechanized boats and better storage crates, mariculture and value-added fish processing preparations. Repayments have, so far, been satisfactory. In conclusion, Ms Upare said that the positive experiences of the KVK in the district, particularly the experience gained in capacity building, gender development, scientific technical training and motivational management for empowering fishers, both men and women, could be replicated in other KVKs in India.

In the discussion, the issue of subsidy was brought up. In the KVK experience, loans are subsidized and are given on a one-time basis only. Dr Tietze emphasized that subsidies as a strategy are now being discouraged and withdrawn. Repeat loans are also necessary if microenterprises are to develop and expand. He again underscored viability and profitability as critical considerations in the selection of projects and microenterprises to be financed.

Bangladesh

The experiences and lessons learned from an aquaculture extension project with a microfinance component were presented by Mr Mohammad Ali Reja, Training Manager of the Myemensingh Aquaculture Extension Project (MAEP) in northeast Bangladesh. MAEP is being implemented by the Department of Fisheries with financial and technical assistance from the Danish International Development Agency (DANIDA). Launched in 1989, the objectives of the project are to increase fish production through the application of semi-intensive aquaculture techniques; improve the capacity for aquaculture promotion and extension at the village level; and improve the possibilities of obtaining production loans.

Now in its consolidation phase (the second phase ran from 1993 to 2000), the project provides extension, training and credit services through NGOs, using the group approach as the main extension strategy. Mr Reja reported that the microcredit support is meant to provide start-up capital for farmers’ fish culture projects. In the initial phase of the project, credit was provided through commercial banks. This arrangement, however, did not prove to be successful since the banks depended entirely on project staff to organize the farmers and for loan recovery, thus hampering the project’s extension and training components. There were also cases of loan use diversion because credit was used solely for fish culture activities. As a result, Mr Reja explained that a readjustment in credit policy has been made, allowing credit support to cover integrated aquaculture, to include poultry/duck rearing, cow/goat rearing and vegetable cultivation. Project experience showed, according to Mr Reja, that if farmers continue their fish culture activities for a period of two to three years, backed up by proper training and required microcredit support, they become sustainable both technically and financially. To achieve this, he put forward specific recommendations for the remaining years of the project.

Mr Abdul Hamid Buhiyan, Executive Director of the Society for Social Service, traced the history of institutional credit provision to the rural poor in Bangladesh, beginning in the late 1940s to the model now being adopted by microfinance institutions. Mr Buhiyan initially discussed in detail the social, economic and political background in Bangladesh to give the context for the credit system in operation during the early period of its history. He characterized the key features of the institutional credit system at that time as: its insignificance compared with informal loan sources; its inability to reach small farmers and other rural poor; and its very poor repayment record. He then drew the attention of the group to the lessons learned in providing credit to the poor, particularly in terms of reaching the target group, repayment, financial viability, interest rates and the organizational and delivery system.

In conclusion, Mr Buhiyan explained that the basic premise of present microcredit programmes in Bangladesh is that the poor need to have continuous access to credit for a period of eight to ten years in order to accumulate enough savings and assets to escape from the poverty trap and maintain a reasonable consumption once credit has been withdrawn.

A question was asked in the discussion, regarding possible linkages with financial institutions, NGOs and the fisheries sector in Bangladesh. Mr Buhiyan informed the group about the Palli Karma Sahayak Foundation, a quasi-government poverty foundation that lends to promising small- and medium-sized NGOs so they can expand their microcredit programmes. The Foundation is implementing a World Banksupported poverty alleviation project where it acts as an apex wholesaler of microcredit funds to the poor, including the fisheries sector.

Nepal

The status of the fisheries credit system in Nepal was presented by Mr Gagan BN Pradhan, Senior Aquaculturist of the Directorate of Fisheries Development. He commenced his presentation with a brief status report on fisheries development in Nepal, and then proceeded to discuss the performance of two aquaculture development projects implemented by the Agricultural Development Bank of Nepal (ADBN) with funding from the Asian Development Bank (ADB) during 1987-1993. ADBN is the main banking institution that provides credit for fisheries in Nepal. Mr Pradhan reported that with the project’s termination in 1993, ADBN’s investments in fisheries had declined because of the low priority accorded to fisheries, high interest rates, cumbersome loan procedures and loan misuse, among others. In conclusion, he identified several recommendations for the effective administration of institutional fisheries credit in Nepal.

In the discussion, an observation was made that his presentation did not mention any existing microfinance programme for fisheries. Mr Pradhan replied that he was not aware of any existing programme for the sector and he hoped that the workshop could come up with workable modalities and mechanisms that might be applicable to Nepal. As regards the low priority given to fisheries by the banks, Dr Tietze explained that this might be the result of a shift in policy by the World Bank and ADB of not offering specialized lines of credit for specific sectors such as fisheries.

Sri Lanka

Ms Sumana Ediriweera, a socio-economist at the Sri Lankan Department of Fisheries and Aquatic Resources, reviewed the history of institutional fisheries credit programmes in her country, enumerated the reasons for their failure and offered suggestions for effective credit delivery and recovery. She pointed out that as early as 1947, the Government, through the Department of Fisheries, had provided credit both to individual fishers to acquire fishing boats and equipment and to fishing cooperative societies engaged in fish marketing. However, by the late 1970s, loans granted to fisheries had been reduced as a result of very poor recovery rates. Because of high financial losses, the Government had decided to write off all fisheries debts and suspended disbursements to the sector. Credit for fisheries is now channelled through commercial banks, regional rural development banks and the cooperative banking system.

Ms Ediriweera’s presentation also covered institutional and informal credit arrangements in fisheries but did not specifically refer to any existing microfinance programme for the sector.

Malaysia

Mr Mohd. Zarudin Ab. Razak, Division Director of the Fisheries Development Authority of Malaysia (FDAM), gave a presentation on the implementation of the recently launched Fishermen’s Fund (FF). The FF is an interest-free credit fund given to fishermen to improve their catches and incomes. FDAM acts as the secretariat and fund manager. It also supervises around 83 Fishermen’s Associations (FAs) in Malaysia. Mr Razak explained the selection criteria, loan terms and uses of the Fund. A credit limit of $M25 000 per fisherman (who must be a member of an FA) was set for the first loan but fishermen can be eligible for a second loan after full settlement of the first loan. Loans are used to buy new equipment or replace old boats, engines, nets and equipment; as operating capital; and for emergency purposes. Repayment is from two to four years. Mr Razak reported that for the first year of implementation in 2001, only 25 FAs were selected for the programme, with a total approved fund release of $M8.9 million, involving 432 fishermen. Mr Razak identified some of the constraints in the implementation of the Fund, such as loss of fishing equipment, defaults in payment and loans not being covered by insurance.

In the discussion, it was clarified that the FF cannot strictly be categorized as a microfinance scheme but would be considered under normal bank lending. On the issue of fisheries insurance, Dr Tietze informed the group about an FAO-organized workshop on this subject. The implementation of insurance schemes for fisheries, he said, has been attempted in some countries but with little success because these schemes are still largely voluntary and not mandatory.

One of the recipients of the FF was the Kuantan Area Fishermen’s Association (AFA) in the State of Pahang in Malaysia. Mr Zakaria Mohd. Nor, General Manager of the Kuantan AFA, shared the experiences of his AFA in utilizing the FF, as well as the AFA’s other socio-economic activities. The Kuantan AFA has 1 350 active members from 12 fishing villages along the coastal area of Kuantan. The main economic projects being carried out by the association include providing fishing input supply such as fuel, lube oil, fishing equipment and ice; management of fish jetty and fish marketing; general trading; and management of credit schemes for members. Financial assistance to members is provided through direct and indirect financial facilities. Mr Nor explained that direct financial facilities are credit and loan schemes directly managed by the association while indirect financial facilities are grants and loans managed by other agencies but channelled through the AFA. The FF is one of the direct financial facilities being managed by the AFA. In 2002 it received $M607 000 from the Fund, given out to 29 members. Mr Nor cited AFA’s strategic approach of integrating credit with its fish marketing project as a success factor in ensuring high recovery rates.

Philippines

Ms Lolita V. Villareal, an FAO Consultant, presented a case study of a project involving women in fishing communities in two provinces in the Philippines. As the then National Project Coordinator, Ms Villareal related the experiences of an integrated project with a microcredit component, focusing on the lessons and insights gained, particularly in one province which continued the credit programme for seven years after the project had been officially completed. Executed by FAO with funding support from the United Nations Population Fund (UNFPA), the project was implemented by the local government units of the provinces of Capiz and Pangasinan from 1990 to 1994. The project’s long-term objective is to contribute to the Philippine national population plan of improving the living conditions of small-scale fishers, with particular emphasis on women.

Ms Villareal explained that the integrated approach of the project involved the introduction of economic and social development inputs to and through organized women’s groups (WGs). Two banks, through a guarantee/revolving fund scheme, administered the project’s credit component. One bank was a private commercial bank, the Allied Banking Corporation (ABC) in Capiz province, and the other was a government development bank devoted to agriculture and rural development, the Land Bank of the Philippines (LBP) in Pangasinan province. Ms Villareal reported that by the end of 1994, approximately US$553 000 had been disbursed to 78 WGs, involving more than 2 000 women, with an 83 percent repayment rate. Around 80 percent of the microenterprises financed were fishery-based and the loans were mostly used for working capital and trading advances.

Ms Villareal then shared the experience of Pangasinan (post-project 1995-2000), which had continued the programme with the LBP, even increasing the volume of lending five years after completion of the project. In Capiz, the linkage with ABC was discontinued with the termination of the Memorandum of Understanding at the end of the project. The continued credit line with the LBP in Pangasinan has enabled the women to expand and diversify into more asset-based microenterprises and federate themselves into more formal organizations such as cooperatives. In a synthesis of lessons learned, Ms Villareal gave importance to the following: microcredit as an entry point for improving women’s status and welfare; and linking women to formal financial institutions for long-term project sustainability. In the latter case, project experience indicated that linking with a government development bank seemed to offer better prospects for ensuring and sustaining access to credit lines than a commercial bank. Ms Villareal’s full paper is included as a case study in this publication.

Viet Nam

There were four presentations from Viet Nam: the first three dealt with microcredit programmes for aquaculture, utilizing the Vietnamese Women’s Union (WU) as partners in credit management, while the fourth presentation was a credit and investment programme for offshore fishing and aquaculture implemented by a statesponsored financial institution.

Mr Nguyen Huy Dien, Project Manager of the Aquaculture Development Project (ADP) in the northern uplands of Viet Nam, gave a briefing about the microcredit component of the project. The ADP, launched in 1999, is supported by the United Nations Development Programme (UNDP) and is targeted to reduce poverty through aquaculture development in the three mountainous provinces of Lai Chau, Son La and Hoa Binh. The three provinces belong to the most underdeveloped economic regions in Viet Nam. The microcredit and savings scheme is one of the five components of the project and aims to provide a timely and convenient credit source to upland and ethnic minorities for investment in aquaculture development.

Among other mass organizations in Viet Nam, the WU was selected to be partner in the management of the credit scheme principally because of the high quality of its work in other development projects and its extensive network, which reaches down to the commune and village levels. Mr Dien attributed the success of the microcredit scheme mostly to the committed and disciplined work of the WU. Participation in the microcredit programme has enhanced the capability and management abilities of both the WU and the direct beneficiaries at the communes. A recent project review has also shown significant increases in aquaculture production, generating higher incomes for households. In conclusion, Mr Dien believed that the success attained by the project was largely a result of the efficient integration of technical education and assistance, credit provision, credit management assistance and gender awareness among the beneficiaries.

Ms Lau Thi Mai, President of the WU of Lai Chau province, provided more details on the implementation and management of the microcredit scheme in the three provinces. Her presentation focused on the key activities, results and experiences of the WU. She briefly explained the organizational and management structure as well as the different roles and responsibilities of the WU from the provincial, district and finally the commune level. Ms Mai reported that the three provinces received a total of US$15 000 (approximately D2.1 billion) which it disbursed to around 4 000 beneficiaries. Repayment rates were very satisfactory, ranging from 98 to 100 percent. On average, more than 70 percent of the members were women (in one province, women members were over 90 percent). As a result of the high participation rates of women, the project impacted strongly in improving their skills, enhancing and boosting their self-confidence and improving their standing in the community.

Ms Mai reiterated the earlier observation of Mr Dien that women of ethnic minorities were quite capable of managing a microcredit scheme. More important, she underscored the enthusiasm and responsible attitudes of women as primary conditions for the success of their microcredit programme.

The ensuing discussion generated questions, concerns and interest with regard to the marketing of aquaculture products in the uplands, and the role of men and women in aquaculture and credit management. On how the WU ensured high repayment rates, Ms Mai explained its strict screening procedures; however, she recognized the need for training of credit groups on internal auditing. In this regard, the project and the WU plan to link up and cooperate with banks and ask them for training support as well as for possible collaboration to ensure credit access for WU members on a long-term basis.

Another project that utilized the WU as a partner in credit management was the Support to Freshwater Aquaculture (SUFA) project, presented by Ms Le Thi Chau Dung, Socio-economic Specialist of the project. SUFA is a component of the Fisheries Sector Programme Support (FSPS) being implemented by the Ministry of Fisheries with funding assistance from DANIDA. Begun in 2000, SUFA’s immediate objective was to contribute to rural communities’ increased consumption and income from sustainable freshwater aquaculture. The main component outputs are the establishment of broodstock centres and improvement of the technical capacity of hatcheries in the target provinces. SUFA’s microcredit component is aimed at introducing a sustainable mechanism for providing credit to and mobilizing savings from rural households. The WU is responsible for the administration of the microcredit component through the concerned district WU. Disbursements from February to March 2000 totalled D2.23 billion, covering 1 740 farmers. Of these, only 36 percent were women because the aquaculture credit groups formed prior to the project were composed mostly of men. Loans were used for pond preparation, purchase of fish seeds and feeds. Loan repayments were to start in March 2003 and the project is still in the process of training WU members and further refining the policies and guidelines of the microcredit component.

A brief presentation on the concessionary credit programme on offshore fishing, ship building, aquaculture production and processing was made by Ms Nguyen Thi Hong, Head of the Local Credit Division of the Development Assistance Fund (DAF) in Hochiminh City. DAF, as a state financial institution, implements its policy on development assistance. DAF’s main functions are to mobilize medium- and longterm funds and receive and manage the capital resources of the state that are allocated in the form of development investment credit. Ms Hong reported that from 1997 to 2002, DAF financed 778 projects for building and renovating fishing and service boats, amounting to a total of D1 047 billion. These investments have reduced pressure on inshore fishing and generated employment in fishing, shipbuilding and other allied services. At present, however, only 30 percent of the boats are operating on a continuous basis and around 19 percent of total outstanding loans are overdue. Ms Hong attributed these drawbacks to, among others, inconsistency in policy and lack of support for production and infrastructure facilities; lack of training for fishers; and insufficient coordination between the fishing industry and the relevant national and local government agencies.

As regards investments in aquaculture, DAF has provided loans to 472 projects, involving mostly intensive shrimp culture operations, totalling D787.5 billion. According to Ms Hong, uncontrolled production, pollution and other environmental problems have led to fish diseases and deaths, affecting repayments. As in offshore fishing operations, Ms Hong recommended more support and coordination from the Government and the provision of investments in infrastructure, training and research and regulations to ensure the economic effectiveness and sustainable development of Viet Nam’s aquatic resources.

3 DISCUSSION AND ADOPTION OF WORKSHOP RECOMMENDATIONS

The participants were divided into three working groups to formulate conclusions and recommendations as well as to identify technical assistance needs and follow-up activities to the workshop. The working group outputs were then presented, discussed and finalized in plenary.

3.1 Working group outputs

Working group 1. Credit policies

Members

Mr Pongpat Boonchuwong, Thailand, Chair
Ms Lolita Villareal, Philippines, Rapporteur
Ms Le Thi Chau Dung, Viet Nam
Ms Quang Thi Dien, Viet Nam
Mr Zakaria Mohd. Nor, Malaysia
Mr Kungwal Niamsuwan, Thailand
Mr Khamdoung Chaisri, Thailand

Terms of reference

What are the most important credit needs in aquaculture and small-scale marine fisheries? What should be the most important target groups in terms of occupational/ financial status, income, gender, etc.? Please rank in order of their importance.

Output

The working group recognized that each country has its own definition of what constitutes microfinance, particularly in terms of loan size and loan purpose. For purposes of discussion, however, indicative maximum amounts were identified, e.g. Thailand - B100 000 (US$2 500); Viet Nam - D2 000 000 (US$133); Malaysia - $M25 000 (US$6 500) and the Philippines - p150 000 (US$3 000). Given such indicative ceilings, the group also recognized the limitations of microfinance programmes in fisheries in that they best cater for the credit needs of small-scale operations in fishing, aquaculture and fish processing. Thus other capital investment needs of commercial fisheries and large-scale aquaculture and fish processing and marketing should still be provided by mainstream or traditional financial institutions.

Credit needs. The most important credit needs in the fisheries sector were identified as those relating to working capital and small fixed assets, specifically:

• For aquaculture: i) working capital for the purchase of production inputs such as fish seed, fingerlings and fish feed; labour for pond preparation and repair; nets and other small equipment for harvesting; ii) working capital to cover marketing costs such as ice, packaging/storage and transport costs; and iii) working capital for processing the harvest.

• For small-scale marine fisheries: i) working capital to cover fishing operations such as fuel, ice, labour for crew; repair and maintenance; ii) purchase of fishing gear/nets and small fishing equipment, radio for communication; iii) capital to cover marketing costs such as ice, packaging, storage; and iv) capital to cover fish processing activities, including fish trading advances.

Client/target groups. The working group identified those involved in small-scale operations for both aquaculture and marine fisheries who do not have adequate access to financial services as the major targets for microfinance. This target group also includes those involved in small-scale fish processing and marketing activities as well as in other livelihood activities such as petty trade and services in the community. The definition of small-scale fisheries and aquaculture varies for each country according to local context and situation.

In terms of income and financial status, the targets are the poor and vulnerable groups and generally those below or on the poverty line as this indicator is defined in each country.

Another important consideration is that the target groups must have identified viable economic activities that can provide a steady source of income. These groups must also demonstrate the ability or skill to undertake the proposed activity as well as a commitment to repay the loan.

Both men and women should be given equal access to microfinance, although for particular activities, priority must be given to women in recognition of their special needs and roles.

Working group 2. Lending procedures Members

Mr Chanchai Bhuseriparp, Thailand, Chair
Ms Suchitra Marotrao Upare, India, Rapporteur
Mr Abdul Hamid Buhiyan, Bangladesh
Mr Nguyen Huy Dien, Viet Nam
Ms Lau Thi Mai, Viet Nam
Mr Gagan BN Pradhan, Nepal
Dr Cherdsak Virapat, Thailand
Ms Napaporn Sriputinibondh, Thailand
Mr Apinan Suvarnaraksha, Thailand

Terms of reference

How should lending procedures look like in fisheries/aquaculture microfinance in terms of eligibility, collateral and documentation requirements, equity contribution, interest rates and lending periods, repayment schedules, linkages with other agencies and their role, linkages with savings and monitoring and auditing?

Output

Eligibility. The working group recommends microfinance services to be delivered to poor fishing communities (including those belonging to ethnic groups) and generally the assetless and marginalized members who are inadequately served/reached by credit. The UN Human Development Index in the respective countries can be used as a criterion, among others, in identifying the poor and the marginalized.

Collateral and documentation requirements. Membership in self-help and solidarity groups (with ten to 15 members) is required to access credit. Documentation requirements should be simplified and at a minimum. As members of self-help groups, there will be peer screening as well as identity certification by local authorities and other authorized institutions, such as the census bureau. Loans are mutually guaranteed, involving joint liability of group members. Group guarantees thus serve as a collateral substitute.

Equity contribution. The equity contribution can take the form of cash, such as savings or in kind, such as labour, raw materials and other acceptable assets. The group should establish its own savings mobilization and capital buildup policies and mechanisms.

Interest rates. Interest rates to be charged should be market-based and reasonable to allow the financing institution to cover its operational and financial costs. The working group recommends no more than a 5 percent spread between interest on loans and deposit (savings).

Lending periods and repayment schedule. Depending on the type of projects to be financed, loans can be short-term (less than one year to a year) or medium-term (from one to three years). Correspondingly, repayment schedules will be flexible and dependent on the cash flow of the projects.

Linkages. The group identified and envisioned two-way linkages and the roles between the clientele/groups and the following:

• financial institutions - responsible for credit disbursement, monitoring, supervision and feedback as well as auditing;

• government agencies, NGOs, academic and research institutions - responsible for technical backstopping and provision of training and other support services, input management and supply, outreach services, information dissemination, monitoring, supervision and feedback;

• private sector - responsible for input supply, marketing services and promotion and information exchange.

As regards savings, the financial institutions will be responsible for savings performance evaluation while government institutions, NGOs and other social organizations will verify group performance.

To ensure transparency, standard internal and external auditing procedures will be adopted.

Working group 3. Institutional arrangements Members

Mr Mohammad Ali Reja, Bangladesh, Chair
Mr Chavarin Sai-La, Thailand, Rapporteur
Ms Bui Hien Dung, Viet Nam
Ms Nguyen Thi Hong, Viet Nam
Mr Mohd. Zarudin Ab. Razak, Malaysia
Ms Sumana Ediriweera, Sri Lanka
Dr Gomut Unsrisong, Thailand
Mr Phanuwat Wanraway, Thailand

Terms of reference

How should the various actors (individual borrowers, groups of borrowers, NGOs, fisheries administrations, cooperatives/associations, fisheries development authorities, financial authorities, etc.) involved in microfinance in fisheries/aquaculture cooperate? Please define for each actor separately both its responsibilities and privileges. What are the main differences between microfinance programmes (in general and in fisheries) and traditional rural credit programmes? Please list them in terms of priority.

Output

The working group identified the various actors as individual borrowers, group borrowers, cooperatives and associations and microfinancial institutions, with the following responsibilities and privileges.

• Individual borrowers - are involved mainly as direct beneficiaries and clients and are responsible for prompt repayment of the loan. They can have a direct linkage with the financing institution once they have satisfied bank requirements.

• Group borrowers - can be involved as intermediaries between the financing institution and group members; mutually guarantee loans and implement group or joint projects. Groups are responsible for peer screening of members and loan collection for payment to the financing institution.

• Cooperatives and associations - their involvement may be in the form of direct clients, and intermediary between a financing institution and group members, as guarantors of loans and as microfinance institutions themselves. As such, they are responsible for receiving, disbursing, collecting and repayment of the loans. Advantages and privileges are that cooperatives and associations have the administrative setup to perform the task as well as having direct and close contact with clients. They can also implement joint projects and offer capability-building services for their members.

• Microfinancial institutions - are mainly responsible for providing and disbursing credit promptly and undertaking loan monitoring and supervision activities. As credit providers, they also have close contact and collaboration with client groups, prepare and implement credit guidelines and policies and provide training activities for group members. Microfinancial institutions can receive funds from government and donor institutions.

The main differences between microfinance programmes (MFPs) and traditional rural credit programmes (TRCPs) were identified in terms of the following aspects.

• Interest rates - MFPs offer relatively higher interest rates than TRCPs.

• Clients - MFPs cater mostly for poor groups of borrowers while TRCPs focus on individual borrowers.

• Transaction costs - MFPs can incur higher transaction costs because of small loans to clients.

• Collateral requirements - MFPs implement group guarantees and joint liability of group members as collateral substitutes while TRCPs have strict and tangible collateral requirements.

• Training and other capability-building activities - MFPs may or may not offer other activities (credit or credit plus) for their clients but TRCPs focus mostly on credit services.

• Loan terms - MFPs provide typically short-term loans with short repayment periods, mostly for working capital, while TRCPs offer longer-term and fixed asset type of loans.

3.2 Technical assistance needs and follow-up proposals

Requests for technical assistance from FAO consisted mainly of organizing study tours, study visits and information-sharing activities between and among the countries in the region, particularly the following countries:

• Viet Nam and the Philippines for women’s microfinance projects in fisheries and aquaculture;

• Malaysia for Fishermen’s Associations and fish marketing operations;

• Bangladesh for NGO-implemented microfinance operations;

• Thailand for integrated fish farming activities and the strategy of using business development officers in credit operations;

• India for the various lending technologies and linkages in implementing microfinance programmes.

The assistance of APRACA in the conduct of training activities in credit management and savings mobilization appropriate for fishing communities was also identified and sought.

In terms of specific country project proposals, the following recommendations were made.

• With reference to the presentation of a case study from the Philippines, the Fisheries Department of Thailand will request assistance from FAO under its Technical Cooperation Programme (TCP) in the development of a national level microcredit programme for women in fishing and fish farming communities in support of microenterprise development and livelihood support and of the social and economic empowerment of women.

• NABARD of India, in cooperation with Indian NGOs, universities, financial institutions and fisheries administrations, proposed to organize, in 2003, a National Symposium on Best Practices of Microfinance Programmes for Women in Fishing and Fish Farming Communities in Support of Responsible Fishery and Fish Farming Activities and Food Security.

• DAF of Viet Nam and the Department of Fisheries of Viet Nam proposed to organize, in 2003, and in cooperation with UNDP, DANIDA, the Bank for the Poor, the Vietnamese Bank for Agriculture and Rural Development and other financial institutions, a national seminar to disseminate recent experiences with microfinance through Women’s Unions for aquaculture in mountainous areas of Viet Nam, and on credit requirements for the improvement of fish marketing and utilization in Viet Nam (in conjunction with the recent research findings of project VIE/MTF/025/MISC).

• Viet Nam also proposed the replication of the successful features of the microfinance scheme in other remote and mountainous provinces in the country as well as capability building of the Vietnamese Women’s Unions as partners in credit management.

• A national symposium on the role of microfinance in the social and economic empowerment of women in coastal fishing communities and their participation in the conservation, management and sustainable utilization of aquatic resources and coastal environment was proposed to be organized by the National Network on Women in Fisheries in the Philippines, in cooperation with the College of Fisheries of the University of the Philippines in the Visayas (UPV) and the Bureau of Fisheries and Aquatic Resources (BFAR) of the Philippines. The symposium will also include documentation and presentation of best practices in microfinance operations for women in fishing communities.

Annex 1: List of participants

BANGLADESH

Mr Mohammad Ali Reja
Training Manager
Myemensingh Aquaculture Extension
Project (MAEP)
Maskanda, Myemensingh 2002
PO Box 33, Bangladesh
Tel.: (+88) 09 15422 ext. 103
E-mail: [email protected]

Mr Abdul Hamid Buhiyan
Executive Director
Society for Social Service
Polashtoli Road, Bangladesh
Tel.: (+88) 09 2153195
E-mail: sss@bol_online.com

INDIA

Ms Suchitra Marotrao Upare
Assistant Professor
B.S. Konkan Agricultural University
Dapoli, India or
KVK Shirgaon, Ratnagiri
41529 Maharashtra, India
Tel.: (+91) 2352 232342
E-mail: [email protected]

MALAYSIA

Mr Mohd. Zarudin Ab. Razak
Division Director
Fisheries Development Authority of Malaysia
8/F Wisma PKNS
Jalan Raja Laut 50784
Kuala Lumpur, Malaysia
Fax (+60) 3 26981740
E-mail: [email protected]

Mr Zakaria Mohd. Nor
General Manager
Kuantan Area Fishermen’s Association
PO Box 399, Tanah Puti
25100 Kuantan, Pahang, Malaysia
Fax (+60) 3 26981740
E-mail: [email protected]

NEPAL

Mr Gagan BN Pradhan
Senior Aquaculturist
Directorate of Fisheries Development
Ministry of Agriculture and Cooperation
HMG, Nepal
Tel.: (+97) 7 350833
E-mail: [email protected], [email protected]

PHILIPPINES

Ms Lolita V. Villareal
Consultant
Unit 3-3 VL Condominium
Syquia corner Calderon Sts
Sta. Ana, Manila 1009
Philippines
Tel.: (+63) 2 562 9596
E-mail: [email protected]

SRI LANKA

Ms Sumana Ediriweera
Socio-economist
Department of Fisheries and Aquatic
Resources
3/F New Sectarian Bldg
Maligawatta, Colombo 10, Sri Lanka
Tel.: (+94) 1 446183 ext. 271

VIET NAM

Mr Nguyen Huy Dien
Project Manager
Aquaculture Development Project
10 Nguyen Cong Hoan
Badinh, Hanoi, Viet Nam
Tel.: (+84) 4 771 5973
E-mail: [email protected]

Ms Nguyen Thi Hong
Head, Local Credit Division
DAF Hochiminh City Branch
District I, Hochiminh City, Viet Nam
Tel.: (+ 84) 8 825 0060

Ms Le Thi Chau Dung
Socio-economic Specialist
Support to Freshwater Aquaculture
Ministry of Fisheries
10-12 Nguyen Cang Haun
Hanoi, Viet Nam
Tel.: (+84) 477700 ext. 315
E-mail: [email protected]

Ms Quang Thi Dien
President
Women’s Union of Son La Province
Son La Province, Viet Nam
Tel.: (+ 84) 22852179

Ms Lau Thi Mai
President
Women’s Union of Lai Chau Province
Lai Chau Province, Viet Nam
Tel.: (+84) 23825483

Ms Bui Hien Dung
President
Women’s Union of Hoa Binh Province
Hoa Binh Province, Viet Nam
Tel.: (+ 84) 18853889

THAILAND

Mr Wattana Leelapatra
Director
National Inland Fisheries Institute
Department of Fisheries
Kaset Klang, Chatuchak, Bangkok
Tel.: (+66) 2 940 6560
E-mail: [email protected]

Dr Cherdsak Virapat
Director
IOI Thailand Operational Centre
Bangkok, Thailand
Tel.: (+66) 2 9016615
E-mail: [email protected]

Dr Gomut Unsrisong
Fisheries Biologist
Chiang Mai Inland Fisheries Centre
Chiang Mai, Thailand
Tel.: (+ 66) 53 498428

Mr Pongpat Boonchuwong
Director
Fisheries Economics Division
Department of Fisheries
Kaset Klang, Chatuchak, Bangkok
Tel.: (+ 66) 2 5620581
E-mail: [email protected]

Ms Napaporn Sriputinibondh
Chief, Mahasarakham Inland Fisheries
Station, Station Muang District
Mahasarakham Province, Thailand
Tel.: (+66) 4 3722026
E-mail: [email protected]

Mr Phanuwat Wanraway
International Relations Officer
The Cooperative League of Thailand
4 Pichai Road, Dusit
Bangkok, Thailand
Tel.: (+66) 26693254 ext. 1053
E-mail: [email protected]

Mr Apinan Suvarnaraksha
Department Head
Department of Fisheries Technology
Agricultural Production Faculty
Maejo University
Chiang Mai, Thailand
Tel.: (+ 66) 53498178
E-mail: [email protected]

Mr Kungwal Niamsuwan
Section Chief, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2799833

Mr Chanchai Bhuseriparp
Credit Analyst, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+ 66) 2 2800180 ext. 325
E-mail: [email protected]

Mr Chavarin Sai-La
Section Chief, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2800180

Mr Arton Petcharatana
Vice-President, Learning Promotion
Department, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2800180

Ms Apinya Poonyarit
Director, BAAC
Learning Promotion Division
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2800180
E-mail: [email protected], [email protected]

Mr Khamdoung Chaisri
Agrobusiness Officer
Integrated Fish Farming Project in
Northeast Region of Thailand

SECRETARIAT

Mr Sommai Linakanishtha
Section Chief, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2800180
E-mail: [email protected]

Mr Somjet Titchai
Senior Training Officer, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (66) 2 2800180
E-mail: [email protected]

Ms Supatra Jirapraditkul
Training Officer, BAAC
469 Nakornsawon Road, Dusit
Bangkok, Thailand
Tel.: (+66) 2 2800180
E-mail: [email protected]

APRACA

Mr Benedicto Bayaua
Secretary-General, APRACA
Maliwan Mansion
39 Phra Atit Rd
Bangkok, Thailand
Tel.: (+66) 2 2800195
E-mail: [email protected]

FAO

Dr Uwe Tietze
Fishery Industry Officer, FIIT, FAO
Viale delle Terme di Caracalla
Rome, Italy
Tel.: (+ 39) 06 57056451
E-mail: [email protected]

Annex 2: Programme of FAO/BAAC Regional Workshop on Microfinance Programmes in Support of Responsible Aquaculture and Marine Capture Fisheries in Asia

Annex 3: Concepts and approaches of microfinance programmes and their application in fisheries development

Shreekantha Shetty

1 INTRODUCTION

Inadequate supply of credit is an important constraint to enhancing production in many developing countries. Making credit available, to rural households in general and fishers in particular, is thus considered essential to alleviate poverty and promote economic development. Although informal credit markets operate widely in rural areas, moneylenders typically charge high interest rates and enter into exploitive relationships, inhibiting the rural poor from investing in production and incomegenerating activities.

Governments have typically responded by establishing rural credit institutions or by forcing commercial banks to provide cheap credit. These efforts have been aided by agencies such as the World Bank, Asian Development Bank, African Development Bank and the International Fund for Agricultural Development (IFAD). Evaluations of many credit programmes sponsored by the World Bank and other agencies revealed that most financing institutions were unable to break even and that most credit supplied did not reach the intended beneficiaries (World Bank, 1975).

The past performance of rural credit programmes, including credit programmes for fisheries, has fallen short of expectations. Many of the institutions established or supported primarily for delivering credit have not developed into self-sustained rural financial institutions. Programmes have reached a miniscule percentage of fishers. Most state and donor projects worked on the assumption that poor fishers required loans at lower interest rates to absorb technology. The benefits of the resultant negative interest rate policy, which introduced a substantial “grant element”, were captured by the wealthy and influential.

The maintenance and continued operation of these programmes turned into an extremely costly drain on the government exchequer. Two reasons contributed to this situation. First, rural financial institutions were not able to cover the cost of funds and loan delivery because of inadequate indexation against inflation. Second, loan collection rates have been dismal, since loans were neither backed by securities nor by credit history of the clients. In addition, small-scale producers such as fishers lack access to formal credit because the transaction costs per unit of lending for small loans are much higher. The patronage and corruption in the lending institution, fuelled by the negative interest rate on loans, reduce the share of credit to small borrowers. Furthermore, when formal lending is entirely dependent on collateral and as the lenders perceive credit risk to be inversely related to asset ownership, the poor and women are left out of the formal credit system.

The combined effect of these failures is frustration within the donor community and national planners on the efficacy of the methodologies used and piloting experimentation for alternatives. Most of the financial institutions with waning donor support have moved away from subsidized, no-collateral loans to commercial lending with requisite risk coverage. The donor community has started promoting replication of successful microfinance methodologies. In this context, an attempt is made in this paper to analyse various financial service delivery methodologies, including microfinance methodologies and their applicability to provide financial services to fishers.

2 MAIN FINANCIAL SERVICE DELIVERY FORMS IN THE FISHERIES SECTOR

2.1 The informal sector

The importance of the informal financial sector was, until the 1990s, considered relatively marginal and confined to meeting social obligations. However, it is now widely believed as a result of several economic and sociological studies that this sector is extremely important both in terms of outreach and volume of funds. Generally, more than 80 percent of the population use an informal financial service and the amounts that circulate are often as large as those that go through the banking sector (Aryeetey, 1994).

The informal sector is characterized by its extreme diversity. “Savings in kind” is the most commonly used form of savings in the sector. These savings include storing dried fish, staple crops, livestock, gold, etc. Cash savings are also deposited with the neighbourhood traders or others known for their probity. Loans are obtained from parents, neighbours and friends at seemingly no interest; compensation in some cases ranges from solidarity in times of distress to free work. Personal loans, which are frequent, are obtained from local moneylenders at high interest rates. Informal sector credit in the personal loan category from moneylenders has built up exploitive relationships with borrowers. These exploitive relationships are a result of the borrower’s inability to access funding from other sources. Such relationships within the fisheries sector are described below.

Credit with catch-sale bondage. Under this system, fishers receiving loans from an intermediary for purchasing or repairing a boat, or even for purchasing food and other materials for long fishing voyages, are required to sell the fish catch to the intermediary instead of selling it on the open market. Fishers are required to bring the fish catch to the intermediary’s shed where it is sold at 20 to 30 percent lower than the market price.

Credit on high interest. Fishers often receive credit from intermediaries in cases of emergency. This is the most exploitive credit system. Under this system, those receiving a loan will have to return it to the intermediaries with an interest of 60 to 100 percent per annum. The result is the inability of the fishers to break out of the relationship and they borrow continuously to repay the old debt.

Renting a fishing boat from a non-operating owner. Under this system, a fisherman, having no boat of his own, contacts a rich person with several boats and asks him to lend one of his boats. The owner of the boat reviews the expertise and the past record of the fisherman and then may decide to rent the boat out to him. Under the “terms and conditions” of acquiring the boat, the fisherman is required to provide a share from the fish catch to the boat owner. The owner generally receives two out of three shares or three out of four shares.

There exists a great deal of anecdotal evidence to prove that the informal credit system in fisheries is the most exploitive system, depriving indigenous fishers of the major share of their earnings. Two factors contribute to this predicament. First, since fishers are hunters and gatherers, they have to compete for the same common fish resources. This results in intense competition among individual fishing units, and occupational rivalry. As a result, social networking to assist each other in times of need is not strong in the fishing community and, in the absence of these safety nets, fishers depend more and more on moneylenders. This leads to exploitive relationships. Second, there is inadequate access to institutional credit as a result of the inability of fishers to provide collaterals for obtaining loans.

Despite the negative implications of informal credit in the form of exploitive relationships, this form of financing has been at the core of the rural financial infrastructure for centuries. The speed at which the informal sector delivers loans, negligible transaction costs and reliance on the performance of past transactions rather than collaterals make the informal sector a formidable force.

2.2 The formal sector

As countries around the world became independent, national development banks emerged with a wide mandate to support all kinds of development projects, including infrastructure, industry, crafts and agriculture. In many countries, such as Nigeria and Nepal, specialized agriculture development banks were established to retail agriculture and fisheries credit. In India, state-owned commercial banks were instructed to deliver a percentage of total loan disbursements to priority sectors.^[8] In addition, a national-level apex institution was established in India to refinance loans provided by the state-owned commercial banks. The formal sector agriculture and fisheries credit programmes were established with capital originating from the state or external bilateral or multilateral funding agencies.

In general, specialized institutions established to implement targeted and often subsidized loans were frequently planned and operated in a non-viable manner, or within economic, political, social and institutional environs that hampered effectiveness. Among the most significant deficiencies of the state-owned specialized agricultural credit institutions have been the conspicuous absence of voluntary savings mobilization. The state-owned agricultural development banks mostly did not mobilize deposits and acted as mere credit disbursement windows rather than balanced, full-service financial institutions. These institutions, taking advantage of donor funding, provided loans at lower than market interest rates, thereby dampening savings mobilization rates and investment and increasing favouritism and patronage.

Since the operations of these institutions were not motivated by commercial financial performance objectives, they by and large suffered from inadequate credit evaluation, management and follow-up procedures, resulting in extremely poor loan collection performance. Instead of gradual growth and prudent expansion whereby collection performance and other financial viability criteria serve as prime indicators in assessing the soundness of institutions involved, these institutions have practised lax screening of investment plans, rapid disbursement and unbalanced steep growth in lending volume and loan portfolio.

Deficient reporting practices have often made it almost impossible to track repayment and overdues and also to ascertain ageing of overdues and non-performing assets in a timely manner. Different definitions of recovery rates emerged that have grossly underestimated the severity of the arrears problem (CGAP, 1999). Generally, adequate provisioning for bad debts/non-performing assets and a proper assessment of the sustainability of institutions were not undertaken. The financial results given for most of these institutions were too rosy, since loan losses had not been accounted for properly. The actual dismal financial position in most poorly performing agricultural finance institutions was discovered when the institutions became illiquid. Consequently, costly measures of infusing new capital were required to keep such institutions afloat (World Bank, 1992).

By attempting to ensure that eligibility criteria for lending have been met and to avoid the diversion of funds, agricultural credit institutions have not only incurred high costs but have also imposed high transaction costs on borrowers by forcing them to wait for long periods for loan disbursement. Control of onlending rates, a widespread practice in developing countries, has not allowed compensation for the high level of risk involved in lending to agricultural operations, given their dependence on the vagaries of nature. In addition, medium- and long-term loans have been granted without adequate analysis of the investments and adequate collateral. To maximize the return on loan portfolios when constrained by a legally imposed ceiling on interest rates, large borrowers have often been favoured by credit institutions in an attempt to minimize risk and administrative costs per unit of loan disbursed, thereby crowding out small-scale entrepreneurs.

With rare exceptions, private sector commercial banks have not been interested in financing small agricultural holdings, fisheries enterprises or micro and small industries unless backed by adequate risk coverage in the form of collaterals. However, for several years various donor agencies tried, often unsuccessfully, to encourage commercial banks to reach out to the populations excluded from the formal system. Commercial banks were offered incentives such as low interest rate refinance and guarantee funds within the framework of various projects aimed to help people establish agriculture, fisheries, livestock and other non-farm enterprises.

For the most part, commercial banks did not feel these “new entrepreneurs” corresponded to traditional clientele and standard procedures. Although some banks took advantage of the cheap lines of credit, guarantee funds that covered 100 percent of the risks, they rarely sought to modify their practices.

Nevertheless, nationalized banks were mostly forced in the form of directed lending to this sector. Most of these loans were eventually written off. The reasons were straightforward. Low loan volumes to a geographically widespread clientele without collateral were costly to manage from appraisal to recovery. These clients were also considered risky because of the fact that agriculture and fisheries activities are dependent on climatic conditions and also because of inadequate information about the borrowers.

In respect of fisheries, the formal sector has been able to provide loans for mechanization of fishing boats. In India, during the early years of mechanization, the Government provided subsidies and the banks were directed to provide loans at concessional rates of interest. This, coupled with targets for lending to agriculture and allied activities, led to the rapid expansion of fisheries credit. Subsequently, banks financed smaller fishing boats under the Government-promoted integrated rural development projects. The performance of this sector in terms of recovery was far below expectations. This, together with the restructuring process resulting from mounting non-performing assets, resulted in the shift of focus by the banks to other sectors. However, banks continue to provide larger loans to the fisheries sector when backed by sufficient collateral. Efforts by the Government and donor-funded projects to inculcate the system, providing loans without collateral, although carefully thought out, have not succeeded.

The situation in Nigeria has been worse. A donor-funded project implemented an ambitious fisheries credit programme to service the fishing community living in remote areas by introducing mobile banking, using houseboats to the Agricultural Credit Bank. Transaction costs were extremely high and the controlled rate of interest did not allow the Bank to recover costs. Monitoring of loans became difficult and loan recovery was poor. The single-minded pursuit of delivering loans without looking at the type of products required by the community and the costs involved in delivery were the main reasons for the failure of this programme.

The credit project implemented through the Bank of Maldives, a state-owned commercial bank, has been successful. Under this project, the Bank extended outreach by increasing the number of branches in the islands and establishing mobile banking, using specially built boats to service nearby islands. Three factors contributed to the success of the project. First, the branches of the Bank in the islands had to invest in the fishing industry, since it is the main source of employment and alternative avenues for financing were not available. As a result, the Bank adopted progressive policies to ensure repayment that included direct collection of fish sale proceeds from the canning factory, guarantees from fish merchants and group guarantees. The Bank, although it initially charged 2 percent less than the normal commercial interest rates on fisheries loans, subsequently harmonized the interest rates and reviewed the workings of mobile units to achieve cost-effectiveness. As a result, the Bank branches became profitable.

2.2.1 Challenges for formal financial institutions

Mainstream financial institutions have access to enormous amounts of low-cost savings deposits. The development dilemma in rural credit is the fact that the poorer the area where banks operate, the lower the credit:deposit ratio. Thus, even when the banks are physically present in rural areas and offer loans at concessional interest rates, rural producers are not able to access them and, as a result, large amounts of the deposits find their way into the general financial sector and into urban areas. Some of the reasons for this are given below.

Borrower-unfriendly products and procedures. The majority of customers in rural areas are poor and illiterate. Poor farmers and fishers require consumption loans to mitigate short-term cash flow problems or to meet unforeseen expenditures. Most formal financial institutions do not have such products. They only provide production or trading loans. The quantum of documentation required is similar for both small and large loans. This, coupled with collateral requirements, clearly excludes poor households that require smaller loans.

Inflexibility and delay. The rigid systems and procedures of the formal system make it almost impossible to grant loans without elaborate appraisals and pre-sanction inspection, irrespective of loan size. As a result, delays in obtaining loans and inadequate financing are common. These situations generally mean that small borrowers shun the formal system.

High transaction costs, both legitimate and illegal. Although the interest rate offered to borrowers is regulated, transaction costs in terms of the number of trips to be made and the documents to be furnished, plus the illegal charges to be paid, result in increasing the cost of borrowing, thereby making loans less attractive for borrowers.

Social obligation rather than a business opportunity. The formal system has always viewed small loans and small borrowers as social obligations rather than a potential business opportunity. Small clients are treated as beneficiaries and not as partners. In addition, the formal system does not automatically guarantee another loan in case of need in the event of prompt closure of previous loans.

Perceptions of policy-makers and bankers. Policy-makers feel that farmers/fishers and poor people need low interest or subsidized credit. As a result, the interest rate is regulated. The administrative costs of servicing small loans are high. Apart from these considerations, small loans have been used as a tool for disbursing political patronage, undermining the norm that loans must be repaid and thus making the mainstream institutions feel that such loans are risky and unviable.

3 EVOLUTION AND DEVELOPMENT OF THE MICROFINANCE SECTOR

3.1 General

The failure of formal financial institutions to serve the rural poor led to the evolution of alternative systems of rural financial intermediation, such as credit cooperatives and lending groups. These group-based credit systems addressed the problems of screening, incentives and enforcement by incorporating joint liability and monitoring. It was then expected that the risk of default and transaction costs would be reduced.

The evolution of microfinance methodologies and microfinance institutions (MFIs) is linked to the belated realization that the vast majority of the population is excluded from the formal systems. Microfinance is considered to be one of the essential levers in the struggle against poverty. Microfinance increases income, creates employment and reduces the possibility of the development of exploitive relationships. Microfinance is synonymous with financial service products that can be accessed by a vast majority of the population, particularly women, youth and small-scale producers and traders.

MFIs can be categorized into two groups, based on the poverty alleviation approach that they adopt. These groups are: institutions propagating a “minimalist” or “credit first” approach and institutions adopting a “credit plus” approach. Institutions such as the Grameen Bank of Bangladesh and its clones across the world, the Bank of Rakyat Indonesia Unit Banking system and Bancosol of Bolivia are those that have adopted the “credit first” approach (Rhyne and Rotblatt, 1994). NGOs such as the Self-employed Women’s Association in India and Aga Khan Foundation in Pakistan believe that an integrated strategy focused on social sector programmes, natural resource management, social empowerment and so on are necessary to assist the poor. Both these two categories of institutions have experienced tremendous success in terms of horizontal (i.e. new borrowers) and vertical outreach (i.e. larger loan sizes) and repayment performance. However, institutions with the “credit first” approach have outperformed the institutions adopting the “credit plus” approach with regard to increasing outreach and progression towards profitability.

Two categories of MFIs can be found with regard to their poverty focus in lending operations. They are institutions with lending operations exclusively for the poor and institutions with lending operations for the poor as well as the non-poor. Most MFIs fit into the category of targeting exclusively the poor. Bharatiya Samruddhi Finance Limited in India has been experimenting with a model that includes even the non-poor to attain the required economies of scale and move quickly towards profitability.

Most MFIs currently operate on a non-profit basis and emphasize increasing borrowers’ income rather than making a profit. This emanates from the overriding poverty eradication and social welfare objectives of most NGOs that have promoted MFIs. Since MFIs have the legal structure of financial institutions or non-banking finance companies, they are able to raise equity and disburse dividend.

3.2 Lending technology in microfinance

There is no single lending technology that is considered to be suitable for microfinance operations. Generally speaking, the term “lending technology” covers the entire range of activities carried out by a credit granting institution that have to do with selecting borrowers, determining the type of loan to be granted, the loan amount and maturity, and the way in which the loan is to be secured, as well as the monitoring and recovery of loans.

There are two basic approaches to lending - or two classes of lending technologies - that play a major role in financing small businesses and microbusinesses in developing countries. They are individual-based and group-based approaches. Each can take a number of different forms in practice and five of these variants are widely used by MFIs (see Figure).

There are two individual-based credit technologies. One of them is the approach that banks use in dealing with established customers: conventional banking technology. This is geared to an individual borrower and his or her individual project. At the same time, it is document- and asset-based. This means that credit granting decisions are in essence made on the basis of available documents such as the firm’s balance sheet and contingent on the availability of what is generally called “bankable collateral” or “bankable securities”. Although this technology has been tried out in small and microenterprises, its applicability in the microfinance context is not relevant. Small and microentrepreneurs neither have the time to go through the process nor have the required collateral. Most agricultural banks have tried this technology and have not been able to cater for the demands of poor households.

Main types of lending technology

The other lending technology based on individual lending is different from the first in that it has been adapted to the special situation of borrowers from the small and microbusiness sector. It retains the advantage of dealing with each individual case separately and is tailored to the situation of each borrower. It makes a conscious attempt to acquire more information about the borrower by direct inspection rather than by studying documents. Collaterals are used wherever available but premium is placed on the applicant’s character and personality. Three major adaptations have been made by successful MFIs that use this technology. First, these MFIs use a “ladder approach” to credit delivery. Smaller loans are given initially and, based on the repayment performance, larger loans are then granted. Second, the emphasis is on the credit history of the client and not on collateral. Third, the rate of interest is higher than conventional lending so as to underwrite fully the cost of delivery and recovery, which is higher in respect of small loans than large ones.

Group-based lending technologies are those that involve groups of borrowers in one form or another in the process of granting and recovering loans. The impetus for the development of group-based lending technologies was provided above all by the desire to reduce transaction costs and at the same time to reduce risks. There are three major group-based lending technologies, which differ according to the role played by the group in the lending process.

Self-help groups (SHGs). The first variant in this category is the use of groups as a financial intermediary. Lending to self-managed savings and credit SHGs falls under this category. Mysore Resettlement and Development Agency (MYRADA) has been the pioneer in conducting the required research and development for fine-tuning the SHG movement. The common features of the SHG model are: i) group size is generally from ten to 20; ii) groups are self-managed and make all decisions regarding credit management; iii) loan size, interest rate to end user, repayment terms, savings rate, periodicity of meetings, etc. are all determined by the groups; iv) the group starts saving and lending, using savings before obtaining external finance; and v) loans are made to the group (Fernandez, 1998).

The SHG lending methodology dominates the microfinance sector in India. There is now a tendency to use the term SHG for any form of group involved in savings and credit activities. Thus, the term is frequently used for various common interest and economic activity groups, which may follow some but not all of the features of a genuine SHG model. The concept of an SHG is a small, socially and economically homogeneous group of 15-20 rural poor, voluntarily formed for mutual benefit and support with savings and credit as the entry point activity.

While access to financial services is a basic objective of SHGs, they are essentially credit-plus groups. SHGs provide a mechanism to extend mutual help and support through the sharing of resources, ideas, experiences, information and other services for improving the incomes and quality of life of the rural poor and they have proved to be powerful tools for social and economic empowerment. They are self-managed community banking institutions at the microlevel, collectively accessing credit (initially from their own savings) and non-financial services critical for the effectiveness of microcredit.

SHGs have established that the poor can save and can successfully manage credit funds in a flexible manner matching their activity cycles and cash flows. SHGs have demonstrated that mutual support mechanisms lend synergies to individual strengths and build up confidence and motivation. The cost of forming SHGs can be significant and the time needed for careful nurturing of the group is frequently lengthy. However, this methodology has a cost advantage from the financial institution perspective since it externalizes delivery, supervision and recovery costs.

The most remarkable aspect of SHGs is their high and punctual repayment rate of above 90 percent. This happens largely because SHGs are autonomous groups of relatively homogeneous persons in terms of income. All members have a high degree of familiarity with each other as borrowers and with the risks of the purposes for which money is being lent. They also have fairly reliable information on diversion of either the lent funds or the income streams from the funds. Thus, it becomes extremely difficult for a potential defaulter to hide his/her intentions. In addition, since members have a host of social linkages, the non-economic cost of default is high.

Groups as loan guarantors. This involves the use of groups as guarantors, which means that groups of final borrowers assume collective liability. Technically speaking they are jointly and severally liable for each other’s liability. Many financial institutions employ this technology to cater explicitly for the credit needs of small and microenterprises. In Latin America, group lending has become synonymous with the use of joint and several liabilities among group members. Institutions such as Bancosol have achieved sizeable business volumes using this technology.

Institutions using this technology provide credit to groups comprised of four to five persons, which may be made up of neighbours or vendors in the same area. The borrower groups are formed exclusively in order to enable individual members to obtain loans. Group formation does not take much time and consists largely of an initial training course focusing on the responsibility that the group must assume for its members’ debt. Based on the group application, the promoter visits the loan applicants and reviews the loan applications. The loan is approved based on the recommendations of the promoter. Joint and several liabilities are the essential elements of the loan contract. Once the credit decision has been made, funds are usually disbursed very quickly to a person chosen by the group as its representative. This person distributes loans to individual borrowers and collects their repayment. The individual loans to the group members are of similar size.

This technology has it own disadvantages. In addition to cases of normal delinquency on the part of individual group members resulting from inability or unwillingness to pay, there are three main reasons for the break-up of groups, which usually means that the entire group loan can no longer be collected. These three main reasons are: i) embezzlement of funds by the group coordinator; ii) passing on loans to a single member of the group; and iii) informal agreements among group members to avoid repayment of loans.

Institutions using this methodology have factored in the risk of default into the interest rate. They tend to charge higher rates of interest. In addition, they have started mandatory savings deposits, obligatory training courses and a graduation principle of beginning with smaller loans and providing larger loans after the closure of the previous loan.

Lending to individuals in solidarity groups. The Grameen Bank of Bangladesh pioneered this model. It has integrated group organization with credit delivery to assist the rural poor. Individuals first take part in the banking process by organizing themselves into groups of five. Mostly women’s groups are formed and membership is mainly limited to people who do not own more than 0.5 acres (0.2 ha) of land, are not members of the same household, have similar economic resources and therefore equal bargaining strength, enjoy mutual trust and confidence and live in the same village. The spatial and social cohesiveness developed among individuals of the same gender residing in the same area and having similar economic backgrounds are the important factors in the smooth functioning of these groups (Khandker, Khalily and Khan, 1995).

Each group elects a chairperson, who is responsible for the discipline of the group members, and a secretary. Both hold office for one year. Members meet weekly, when they practise, learn and discuss the rules of the Grameen Bank and other group activities. Two to three weeks after the group formation, all group members make small savings deposits. Credit is issued to individual group members. Initially two members of the group are given credit and observed for one or two months. If they pay their weekly instalments and maintain group discipline, new loans are given to the next two members. The group leader customarily is the last to receive credit.

This model has emerged as the most important strategy in poverty alleviation and MFIs across the world have cloned it. The common features of the model are: i) group size of five; ii) weekly meeting of groups with MFI staff at the centre; iii) a prescribed pattern of phased access to loans by members; iv) a prescribed pattern of progressive maximum loan sizes determined by the MFI; v) fixed repayment terms for all loans with 50 weekly instalments comprising interest and principal; vi) the MFI is responsible for credit management; and vii) mandatory savings regimes are determined by the MFI, supplemented by additional voluntary savings at the discretion of the group.

4 APPLICABILITY OF MICROFINANCE CONCEPTS AND METHODOLOGIES IN THE FISHERIES SECTOR

Historically, solutions have been sought for financing the fisheries sector using systems of “controlled credit” or “directed credit”. This began when emphasis across the developing world was on technology and uptake of technology was fuelled by cheap credit. Over time, experience has demonstrated that formal financial institutions have become extremely conscious of the cost and risk factors associated with credit for technology uptake. Poor recovery performance has led to linking credit to collaterals. This has led to the exclusion of the vast majority of fishers from formal credit sources.

At the same time, there was a paradigm shift in the thinking of development practitioners. “Resource-based” interventions that were mostly in the form of credit for technology uptake were out of favour. The evolution of a new people-centred approach to reach the majority of the poor led to the development of various groupbased credit delivery approaches. The evidence accumulated thus far points towards certain product-market pairs in the use of financial services for fisheries development.

If the intention is to seek economic, export and sector/subsector growth, credit products will have to be appropriate to corporate or otherwise good-sized businesses. This means more traditional lending products such as capital equipment, working capital loans and business lines of credit. These will have to be collateral-oriented and will have to charge interest rates that cover the cost of funds, risk costs and transaction costs and generate a decent return on investment for the financial institution. In the fisheries sector, loans for procuring mechanized fishing boats, establishment of processing units for export and other large investments fall under this category. However, some governments always argue that incentives are required to kick-start economic growth and often use a lower interest rate as a tool to achieve this. Incentives/subsidy should not be mixed with functioning of a financial institution. Policy reforms, liberalization and, if necessary, direct subsidy through budgetary allocations are more appropriate in such circumstances.

Poverty alleviation has become the most pressing need in the current context of increasing income disparities. Today’s poverty and income disparities are the breeding ground for tomorrow’s terrorism. The inability of the vast majority of poor households to access credit only aggravates this situation. Most artisanal fishers using non-mechanized fishing boats and other traditional methods, small fish traders and traditional fish processors are poor and unable to match the requirements of formal financial institutions. In addition, formal financial institutions do not have the required outreach in terms of branch networks in the areas where artisanal fishers live. These fishing households, apart from business-related loans, also require consumption loans that are not provided by formal financial institutions.

In most of these situations, the SHG methodology is very appropriate. First, it helps in developing a local-level financial infrastructure where the SHG itself will be able to mobilize savings and provide loans using its own savings. This microfinance methodology is most suitable in remote fishing villages that have difficulty in accessing formal financial institutions. Second, SHGs, once established, will be able to access wholesale loans from formal financial institutions and retail these loans themselves. In this method of microfinance delivery, credit delivery costs are very low since the SHG internalizes these costs and group members exercise control over loan disbursement to ensure prompt recovery. Although this methodology is useful in remote areas, the community is required to have minimum literacy levels to maintain accounts.

The Grameen methodology of solidarity groups could also be used to deliver credit to fishers who live in crushing poverty. In this methodology, the microfinance institution handles all aspects of credit delivery and recovery. Therefore the cost will be higher. Yet illiterate communities with insufficient capability to maintain accounts can be served using such methodology. Very poor households that do not have enough savings potential can also benefit, since this model does not depend on internal savings mobilization to deliver loans.

These two methodologies need to be stressed when developing fisheries credit interventions to reach the vast majority of very poor households living in remote locations.

5 REFERENCES

Aryeetey, E. 1994. A study of informal finance in Ghana: background paper for research project on financial integration and development in sub-Saharan Africa.

CGAP. 1999. Measuring microcredit delinquency: ratios can be harmful to your health. Occasional Paper No. 3. Consultative Group to Assist the Poorest. Washington, DC, World Bank.

Fernandez, A.P. 1998. The MYRADA experience - alternate management systems for savings and credit of the rural poor. 2nd ed. Bangalore, India, MYRADA Publications.

Khandker, S. R., Khalily, B. & Khan, Z. 1995. Grameen Bank - performance and sustainability. World Bank Discussion Paper No. 306. Washington, DC, World Bank.

Rhyne, E. & Rotblatt, L. 1994. What makes them tick? Exploring the anatomy of major microenterprise finance institutions. Monograph Series No. 9. Cambridge, MA, USA, ACCION International.

World Bank. 1975. Agriculture credit: sector policy paper. Washington, DC.

World Bank. 1992. Successful rural financial institutions, by Y. Yacob. World Bank Discussion Paper No.150. Washington, DC.

Annex 4: Microfinance programmes in India

M. A. Upare and S. K. Bhatnagar

1 INTRODUCTION

The inability of credit institutions to cover a sizeable sector of the rural poor is generally attributed to the high cost of administering a large number of small loans and the perceived lending risks in the absence of any collateral. This situation prompted a number of village associations and NGOs to enter the rural credit scene by organizing the poor into informal groups for mutual help and benefit. Many of these groups have been given credit support. The NGOs are instrumental in promoting informal structures of the poor to help them save and promote self-reliance in financing their needs through the concept of SHGs.

2 THE ROLE OF NABARD

The involvement of the National Bank for Agriculture and Rural Development (NABARD) in promoting microfinance through the concept of SHGs started in 1987. The objective of providing grant assistance was to facilitate the building up of a thrift fund and help the members of the credit management groups with margin money to borrow from the formal credit system. The success of this experiment was the precursor to the launching of the pilot project in 1992 for linking 500 SHGs with banks. The linkage programme promoted by NABARD is unique as it facilitates “relationship banking” as compared with the “parallel” banking practised in other countries. Under “relationship banking”, improvements in the existing relationship between the poor and the banks are attempted with intermediation by NGOs, which either play the role of promoters of SHGs or financial intermediaries. The basic philosophy of the linkage models promoted by NABARD is to establish synergy between the banks that have the financial strength and the NGOs that have the ability to mobilize the poor and build up their capacity to receive loans from the banks. This is expected to help the poor to graduate to a level at which they can access larger loans directly from the banks without the intervention of NGOs.

2.1 NABARD’s microfinance initiatives

The highlights of NABARD’s programme as of 31 March 2002 are as follows.

• Over 7.8 million poor in agriculture and other allied sectors, including fisheries and aquaculture households, are accessing banking services and microcredit through 458 000 SHGs. The SHG-bank linkage programme is now perhaps the largest microfinance programme in the world in terms of its outreach. As of 31 March 2002, over 2 000 NGOs and 17 000 branches of 444 banks were associated with the programme.

• Considering the need to upscale microfinance interventions in the country, a Microfinance Development Fund has been set up in NABARD through initial contributions aggregating Rs100 crores (approximately US$20 million) from the Reserve Bank of India, public sector commercial banks and NABARD.

• At the end of the fiscal year in March 2002, 197 653 new SHGs were given credit by the banks under the SHG-bank linkage programme.

• During the year, Rs5 454.59 million (US$111 million) were disbursed by banks as loans to SHGs, which included 41 413 earlier financed SHGs that received repeat finance. Against this, the banks claimed Rs3 957.34 million (US$81 million) as refinance from NABARD.

• Cumulatively, 461 478 SHGs were credit-linked with different banks as of 31 March 2002.

• Cumulative bank loans disbursed to SHGs as of 31 March 2002 stood at Rs10 263.38 million (US$205 million).

• Cumulative refinance by banks from NABARD for financing SHGs stood at Rs7 964.81 million (US$163 million) as of 31 March 2002.

• 7.9 million poor households have gained access to the formal banking system through the SHG-bank linkage programme.

• More than 90 percent of SHGs have exclusively women members.

• Repayment of bank loans on time was above 95 percent from SHG members.

3 SMALL INDUSTRIAL DEVELOPMENT BANK OF INDIA (SIDBI)

SIDBI was established in 1990 to serve as the principal financial institution for the promotion and development of the small-scale sector as well as to coordinate the functions of other institutions engaged in these aspects in the sector. The Bank launched the microcredit schemes (MCS) in 1994 for extending financial assistance to the rural poor, particularly women, through NGOs for taking up income-generating activities at the micro level. The scheme envisages the provision of soft loan assistance at 9 percent per annum to accredited NGOs for onlending to poor borrowers for the promotion of microenterprises. Savings form an integral part of the programme and members of the SHGs are encouraged to plough back their savings to the group corpus for building up borrowers’ equity over time. A salient feature of the scheme is the grant assistance extended by SIDBI for developing the capacity of the NGOs to run credit programmes efficiently and to enhance the credit absorption capacity of borrowers. So far, 97 programmes have been supported for providing training to 1 550 NGOs.

An impact evaluation study of the MCS by two independent agencies revealed the following: i) the support provided by SIDBI through NGOs reached deserving poor women who did not have access to credit from the formal banking system; ii) since the support was mainly provided to strengthen existing income-generating activities and initiate new activities, it resulted in an increase in income in almost all cases; iii) the loan amounts provided for existing activities ranged between 95 and 100 percent; iv) the interest spread available to NGOs was rather tight for meeting operational costs and creating provision for risks; v) the NGOs required support in the area of financial management and for developing an appropriate accounting system; and vi) there was a reduction in the extent of indebtedness to local intermediaries, traders and moneylenders as a result of the intervention.

The Government of India had identified SIDBI as a minor partner for implementing the UNDP-supported Trade-related Entrepreneur Assistance and Development programme for women. Under the programme, the Government provided financial support for capacity building to financial intermediaries while the loan component was provided by SIDBI.

3.1 SIDBI Foundation for microcredit

Considering the satisfactory performance of MCS in the pilot phase, the Bank set up the SIDBI Foundation for Microcredit in November 1998 with an initial corpus of Rs1 billion in order to upscale activities under MCS. The objective of the Foundation is to raise the standard of living of the poor, with focus on women, by meeting their genuine credit needs. It extended financial support to well-managed MFIs for onlending to poor individuals and groups and for strengthening MFIs’ financial, technical and managerial capabilities as well as improving their credit absorption capacity. MFIs may onlend directly to both SHGs and individuals or through smaller MFIs/NGOs to end users. Unlike NABARD, which extends financial assistance to income-generating activities in both the farm and non-farm sectors, SIDBI’s financial assistance is restricted to only those activities that come under the non-farm sector. Loan assistance for onlending is need-based and is subject to a minimum of Rs1 million per MFI while the ceiling on the amount lent by MFIs to a single borrower of an SHG is Rs25 000. Loans are provided to MFIs at 11 percent per annum (subject to revision from time to time) for onlending to SHGs/individuals at a rate they determine to cover their operational expenses. However, the rate charged must be in tune with market rates. The repayment period in general is four years, including a moratorium of six months.

3.2 Capacity building of intermediaries

To ensure that a supplementary channel of credit delivery is properly developed, SIDBI has been making investments in improving the credit absorption and usage capacity of women’s groups and the credit delivery skills of the functionaries of MFIs/NGOs working with savings-cum-credit groups. Financial support is extended to NGOs for training interventions in the area of maintenance of accounts, bookkeeping, credit management, identification and selection of income-generating activities and management of microenterprises. The Bank has been supporting orientation programmes for NGOs desirous of undertaking thrift-cum-credit activities. These programmes are being conducted through NGOs and professional institutions with ample exposure/experience in the areas of managing microcredit programmes. Besides, financial assistance is extended by way of grants to NGOs for meeting part of their administrative expenses and the cost of management support services for effective implementation of the programme.

4 RASHTRIYA MAHILA KOSH (RMK)

The National Credit Fund for Women or RMK was constituted in March 1993 by the Government of India and is registered as a society under the Societies Registration Act of 1860. RMK was established with the objective of promoting support schemes for improving facilities of credit to women, to be used as an instrument of socio-economic change and development. The Fund also supports experiments in the formal and informal sectors, using innovative methodologies to reach poor women with credit and other social services. RMK was established with an initial corpus of Rs310 million, contributed by the Department of Women and Child Welfare, Ministry of Human Resource Development. The important schemes under which financial assistance is available are: i) the main scheme providing financial support for the development and stabilization of SHGs; ii) the nodal agency scheme; iii) the umbrella scheme; and iv) the resource NGO scheme.

Under the main scheme, loans at a concessional rate of interest are made available to voluntary organizations and to women below the poverty line. The ceiling for shortterm loans (loan period ranging between two to five years) is Rs6 000 per beneficiary. The organization generally gives 25 percent of the amount by way of medium-term loans at 7.5 percent per annum and the NGO is under obligation to charge a rate of interest not exceeding 12 percent per annum from the SHGs or from the ultimate beneficiaries financed directly by the NGOs. Organizations with experience in thrift and credit for at least one year are eligible for loan assistance up to Rs0.2 million under the RMK loan promotion scheme while those with three years’ experience and good recovery performance are eligible for another loan under the main loan scheme.

With a view to promoting the development and stabilization of SHGs, RMK provided financial assistance in the form of interest-free loans to the NGOs. Each loan is repayable after a one-year repayment holiday so as to provide time for stabilization of the SHGs. The grants to the NGOs are given every year (from the second year onwards) on the following scale: i) 25 percent of the loan amount advanced by the SHGs promoted under the RMK scheme; and ii) 5 percent of the growth of savings, provided the growth in savings is at least 10 percent over the previous year.

RMK provides credit mainly to NGOs. By end February 1998, it had covered 233 277 women belonging to 237 organizations throughout the country. The recovery rate of RMK’s dues has been consistently good, ranging from 94 to 95 percent. RMK has also entered into an agreement with some larger NGOs to work as umbrella or resource organizations to extend necessary help and guidance to the smaller NGOs in the area of organizing savings and credit programmes.

5 LESSONS LEARNED

Implementation of the microfinance programme studies emphasizes that poor fishers can and do save. The poor are also capable of using credit in a productive manner providing there exists an appropriate institutional mechanism that is simple, sensitive and responsive to the needs of the poor and products and services are specifically designed for them.

6 SOME SUCCESS STORIES OF FISHERIES MICROFINANCE IN INDIA

Microfinance programmes have proved to be effective in combating poverty and in empowering the poor - both economically and socially. Microfinance has high outreach and is one of the best cost-effective alternatives for providing credit and other financial services to the poor.

7 GUIDELINES FOR THE USE OF INNOVATIVE MICROFINANCE MECHANISMS

Based on the lessons learned from the successful programmes implemented in India, detailed guidelines for the formation of a microfinance scheme are given below. These can be modified according to the prevailing local economic and financial conditions in the country. However, the microfinance programme should include a minimum package as described. The linkage system of SHGs in India and their performance are described in broad terms in section 8.

7.1 Group formation

Group composition by gender and where mixed groups are allowed, positions of decision-making held by both men and women, and group monitoring by women may be explicitly encouraged.

As far as possible, the group should be homogeneous, should save voluntarily out of its earnings and mutually agree to contribute to a common fund to be lent to members of the group in order for them to meet their productive and emergent credit needs.

7.2 Characteristics of groups

• There may be up to 20 members of a group.

• The group may be registered or unregistered.

• The group should devise a binding code of conduct.

• Internal savings mobilized by members are at the core of the group.

• The group should decide upon the amount to be saved, its periodicity and the purpose for which loans can be given to members.

• The group should decide upon the rate of interest to be paid/charged on credit to members.

• The group should function in a democratic way, allowing free exchange of views and the participation of members.

• The group should keep simple basic records such as a minute book, membership registry, savings and credit registry.

• The group should open a savings bank account.

7.3 Who should organize the groups

Groups should be organized in clusters, in blocks, districts or province, either by reputable voluntary agencies, NGOs or at the initiative of branch managers of banks.

7.4 Selection criteria for linkage

• A group should generally be active for a period of six months.
• The group should have successfully undertaken savings and credit operations from its own resources.
• The group should maintain proper accounts/records.

• The group formation should reflect a genuine need to help and work with each other.

7.5 Procedures for extending bank finance

There are three ways to extend bank finance:

• directly to a group;
• through bank lending to NGOs;

• to NGOs for onlending to groups.

To avail itself of bank finance, the group will have to prepare a plan and submit it to the bank. Groups should have the ability to disaggregate financial information by:

• volume and frequency of savings, i.e. deposits, withdrawals and balance;
• volume and frequency of loan taking, by gender;

• repayment areas and default rates, by gender.

7.6 Support services required

Outcomes should be monitored from time to time and data may also be kept on the following aspects:

• studies of loan utilization that ensure a gender perspective, where loans are given to women or passed down;

• qualitative status of households utilizing the savings and the ways in which men and women are involved in making deposits, taking loans and making repayments.

7.7 Critical issues for monitoring

• What is the feedback from the MIS regarding management decision-making?

• How is information about gender concerns revealed in monitoring and feedback into project management?

• How is MIS information made available to members/stakeholders?

7.8 Evaluation

It is essential to evaluate the programme from time to time to study its impact and take corrective measures whenever necessary.

8 SHG LINKAGE MODELS IN INDIA AND THEIR PERFORMANCE

An SHG is a small, economically homogeneous and affinity group of rural poor, generally not exceeding 20 members voluntarily coming together for the purpose of:

• saving small amounts regularly;
• agreeing mutually to contribute to a common fund;
• meeting their emergency needs;
• having collective decision making;
• solving conflicts through collective leadership and mutual discussion;

• providing collateral free loans with terms decided by the group at market-driven rates.

8.1 Emerging models of SHGs-bank linkages

SHG-bank linkage model I. Bank-SHG members (bank as SHGPI). In this model, the bank itself acts as a self-help group promoting institution (SHGPI). It takes the initiative in forming the groups, nurturing them over time and then giving them credit once it is satisfied about the group’s maturity to absorb credit.

Banks as SHGPIs

SHG-bank linkage model II. Bank-facilitating agency-SHG members. In this model, groups are formed by NGOs (in most of the cases) or by government agencies. The groups are nurtured and trained by the agencies. The bank then provides credit directly to the SHGs after observing their operations and maturity to absorb credit. While the bank provides loans to the groups directly, the facilitating agencies continue their interactions with the SHGs. Most linkage experiences begin with this model, where NGOs play a major role. The model has also been popular with and more acceptable to banks, since some of the difficult functions of social dynamics are externalized.

NGOs as SHGPIs

SHG-bank linkage model III. Bank-NGO as MFI-SHG members. For various reasons, banks in some areas are not in a position even to finance SHGs promoted and nurtured by other agencies. In such cases, the NGOs act as both facilitators and microfinance intermediaries. First, they promote the groups, nurture and train them and then they approach the banks for bulk loans for onlending to the SHGs.

NGOs as financial intermediaries

8.2 Indicative criteria for selection of SHGs for linkage with banks

• The group should have been in active existence for a period of at least six months.

• The group should have successfully undertaken savings and credit operation from its own resources.

• It should be evident that the group works democratically and that all members feel that they have a say.

• The group should maintain proper accounts/records.

• The banker should ensure that the group has not come into existence only for the sake of participation in the project and availing itself of benefits. Members should show a genuine desire to help each other and work together.

• SHG members should preferably have homogeneous backgrounds and interests.

• The interest of the NGO or the SHGPI concerned, if any, in the group is evident and the agency is helping the SHG by way of training and other support for skill upgrading and proper functioning.

8.3 PERFORMANCE

Model-wise linkage of SHGs as of March 2002

FAO/18217/J. VILLAMORA

Women sorting and weighing catch in a amall-scale fishing community in the Philippines

FAO/18216/J. VILLAMORA

Woman preparing fish to sell at a local market

FAO/18218/J. VILLAMORA