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6. The Sudan: Elmirehbiba gum arabic producers association

The forest sector in the Sudan produces 12 percent of the GDP. Gum arabic is an important non-wood forest product obtained from Acacia senegal (known in the Sudan as the hashab tree). The hashab occurs naturally on sandy soils, mainly in the 300 km wide "gum belt" in central Sudan where annual precipitation is around 300 to 600 mm. The traditional agroforestry system, in which natural or artificially regenerated hashab trees are managed and tapped for gum during the fallow phase alternating with agricultural crops, is considered one of the best examples of sustainable dryland agroforestry. Apart from gum, hashab also yields fuelwood, charcoal, local construction timber, tanning material and dry season fodder from leaves and pods.

With a total annual gum arabic production of 20 000 to 40 000 tonnes, the Sudan is the global leader in supplying this commodity, which is widely used in an enormous range of industrial and medicinal applications and as a stabilizer and natural additive in the food industry around the world. The current trend of consumer preferences for more natural and plant-based products (for instance, gum arabic instead of beef gelatine) in sweets and other foods is favouring its increased use and production. This has created new interest in traditional Acacia senegal agroforestry.

Gum arabic production begins with Sudanese farmers who tend and protect the trees throughout the year. At exactly the right time of year, usually around mid-October, determined by local conditions and expertise acquired over many years, the farmers "tap" their trees and the gum exudes where the bark has been cut. Six weeks later, the first gum collection is made. Up to four or even six further pickings are made at three-week intervals. Farmers then transport the gum to sell it in one of the gum auction markets.

Local merchants buy the gum at an agreed floor price or higher. The gum is then delivered to cleaning sheds, where it is selected and graded into three distinct grades: clean amber sorts, siftings and dust. The graded gum is then sold by the merchants to the Gum Arabic Company. The gum, packed into 50- or 100-kg burlap sacks, is then transported to exit ports from the Sudan, mainly Port Sudan on the Red Sea. The Gum Arabic Company provides different grades from the two distinct types of gum arabic: hashab or kordofan derived from Acacia senegal trees, and talha gum derived from Acacia seyal trees. However, gum arabic is traded in processed forms as well - mechanical or sprayed dried forms, and more sophisticated application-specific forms.

Microfinance in the Sudan

The state policy to promote microfinance in order to mitigate poverty in the Sudan is mainly reflected in the National Comprehensive Strategy 1992-2002. One major objective of the Strategy is to encourage microfinance as a tool to combat poverty. However, the recognition of microfinance as one of the priority sectors for credit policy in the Sudan started only in the mid-1990s. The financing regulations of the Bank of Sudan are still being revised, and lack proper identification of microfinance activities.

Traditional Islamic financial instruments play an important role in the country. They include the murabaha, the salam, the musharaka and the mudaraba. The murabaha is a buy and resell contract, under which the bank purchases the goods ordered from the client and resells it to the customer at a higher price (mark-up), usually on a deferred payment basis. This is the preferred instrument from the bank's point of view, and is also the closest to conventional interest-bearing financial contracts. The salam is also a buy and resell contract, but the opposite of murabaha, in the sense that the bank purchases the goods from its client, but the client delivers the goods at a later point in time. This contract is used mainly for agriculture. The bank pays the farmer on the day the contract is signed and the farmer delivers the crop to the bank after harvest.

The musharaka is a partnership contract whereby the bank and its client share a project and its profit. Profits are shared according to an agreed ratio, but losses are shared according to ownership. The mudaraba is also a partnership contract whereby the bank and the client share a project, but the bank provides the capital and the client provides labour. The profit is shared according to an agreed ratio, but if there is a loss the bank loses its financing.

A number of institutions have been involved with microfinance in the Sudan, and can be broadly classified into three categories: banks, NGOs and social funds. A plethora of social schemes to provide microcredit for poor people have historically been in operation in the Sudan. There are government initiatives and funds within national efforts to combat poverty, including some local social funds and NGOs, which are engaged in providing microcredit for home-based livelihoods, among other activities. Over 100 local and foreign NGOs, in direct coordination with the official authorities, are active in providing microcredit, emergency loans, medical care and educational services to poor people in the Sudan. In addition, many rural development projects include components of microfinance support.

Banks are required by the Central Bank to channel at least 10 percent of their total loans for microfinance. Although mandatory, in practice this is not enforced but left to the discretion of individual banks; from 1999 to 2002 the credit to small producers reached almost US$133 million, which is only 8.8 percent of the total bank credit. Some of the major weaknesses hindering the banks' effective role in microfinance are: lack of a conducive national policy; lack of exposure and training in microfinance facilitation and management; lengthy and conventional procedures; requirements to provide adequate and conventional collateral; reluctance to enter rural markets; limited experience in fieldwork, and limited links with grassroots organizations, hence limited outreach. The banking system is structured to serve the formal sector, with little emphasis on mobilizing savings, and without any consumption/emergency loan products.

As far as micro-lending is concerned, NGOs have been much closer to grassroots operations than have the formal lending institutions. In 2003 the seven main NGOs active in microcredit totalled around 8 300 clients and registered repayment rates from 70 to 100 percent. Some common features of these NGO operations are: they are community-based; they tend to have simpler procedures; they can adopt flexible collateral; some have created successful links with the formal banking system; they finance a variety of activities, i.e. they are not confined to "productive activities"; and they adopt different microfinance mechanisms and approaches (although not all successful). NGO microfinance institutions face problems, however, in shifting from providing grants to providing credit, when credit is newly introduced to customers after a period of charity-based operations. They also face sustainability problems when moving from donors to commercial sources of funding.

Social funds such as pension and social insurance funds are being used by the government to combat poverty in several different ways, including microfinance. In 2001 this resource amounted to US$130 million for a total of two million beneficiaries. Some common features of these social funds with respect to microfinance are: most are largely or even entirely grant- or charity-based; those with a window for credit target their members only. Furthermore, the share of credit is negligible in the use of social funds (with the exception of the Social Development Foundation in Khartoum State, which has grown over the years and refined its operations by absorbing experiences from others) and those working with the funds related to microcredit have a limited exposure to microfinance practices and management.

Among informal sources of microfinance, khatta or sanduq (a savers'/investors' self-administered revolving fund) is the most popular and widespread social effort. Village traders provide another way in which micro-enterprises are funded, representing one of the most flexible and traditional financing institutions. They require personal guarantees only, but operate with high profit margins. Another form of this small enterprise funding is the "traditional partnership" in the means of production. With this system, a relatively poor small-scale entrepreneur can gain access to the means of production. Returns are distributed equally between the factors of production. Provision of microcredit in certain parts of the Sudan is made via kinship and tribal norms. Members of the same clan/tribe or area provide flexible financial help to start businesses without any additional costs. Another form is the collective help action (nafir), where village inhabitants contribute to poor families in the form of collective work.

Elmirehbiba village

Elmirehbiba village is located in low-rainfall savannah woodland, the Acacia senegal savannah. The village is still without an electric power supply or telephone communications of any kind, and drinking water supply remains a problem. The village lies 37 km from the urban centre Umruwaba, a large gum arabic market and urban centre in North Kordofan State, but it is not linked to the city with tarmac-paved roads. Market connection with Umruwaba is ensured by one daily scheduled private lorry trip, or donkeys and camels. Kordofan State produces more than 50 percent of the best Sudanese hashab gum arabic.

The land-use model of Elmirehbiba is dominated by forestry and agricultural production. The major crops produced are gum arabic from hashab trees rotated in shifting cultivation with sesame, groundnut and sorghum. Minor crops are also produced such as roselle, millet, okra, cowpeas, senna pods and watermelon. In Elmirehbiba, the fodder and fuel benefits of hashab trees are important to local farmers because of the resource-scarce sandy soils. Moreover, given the quality of the soil, hashab trees assume an environmental stabilization value in addition to the productive one.

Elmirehbiba gum-producing areas are tribally owned lands, regulated by customary tribal tenure systems. Long-inherited tribal practices of organizing land property by applying local laws and conventions still prevail and are used for settling land conflicts. Gum arabic producers belong to tribes, with each tribe inhabiting a territory, and each producer having the right of use of these land resources through usufruct practices.

This system works under the control of the village headmanship and the Gawamaa tribe chieftainship. Smallholder tenure of 5 to 50 feddans (1 feddan = 0.42 ha) predominates, with a limited number of families owning large size hashab areas of 100 to 200 feddans. Gardens are intermingled with cultivated pockets because of the alternating use of land between cropping and hashab rejuvenation on abandoned plots. Individuals come to resolve their conflicts over hashab by turning to the Sheikh (village headman) and the leaders of the village.

At the village level, gum is produced by farmers themselves and some may use hired labour. Off-farm jobs are limited due to the agrarian nature of the economy and weak industrial development. Gum arabic production is the main activity from October to January. During the slack period, crop production provides the alternative occupation from May to October. Other occupations include fuelwood collection, charcoal making, selling of construction materials, and wage labour in casual jobs such as well digging and water extraction.

Local traders in Umruwaba play a significant role in the gum production and marketing processes. Some traders also provide credit to gum producers for consumer goods to ensure that the gum will be delivered to them as first choice buyer.

Access to microfinance institutions is constrained by the remoteness of the villages, as well as their inability to meet the conventional collateral requirements and inexperience with banking requirements. The demand for microcredit is fragmented and has been corrupted by the practice of providing capital and interest rates subsidies.

In the absence of institutional loans, farmers resort either to share-cropping or shail credits from gum arabic manufacturing companies to meet their commercial and livelihood financing needs. The shail system is essentially a system of crop mortgage under which the borrower sells in advance a certain part of the future crop in exchange for a loan from a village trader, a landlord, a relative or a friend; sufficient knowledge about the borrower is a prerequisite, and hence there is no collateral. Informal loans may be in cash or in kind, but repayment is usually made in kind at lender-set prices that are significantly lower than harvest prices.

Elmirehbiba Gum Arabic Producers Association (EGAPA)

EGAPA is a multi-purpose joint liability group of 300 members based on common trust. The group was established in 1993 with support from the multi-donor Gum Arabic Belt Restocking Project and the Forest National Corporation to promote self-reliance using native Sudanese concepts such as community-based frameworks with revolving funds or sanduq. Group leaders are elected by members to act as liaisons to the Forest National Corporation officer.

Gum arabic producers who live in Elmirehbiba qualify for membership after paying a one-time registration fee of 100 Sudanese dinars (SD) (US$0.40). The low registration fee is intended by the Forest National Corporation as an incentive to attract producers. The General Assembly elects three members for the leading posts of President, Secretary and Treasurer. EGAPA was first registered as a cooperative but the producers rejected the cooperative management structure as an unsuccessful exercise in their experience.

Some of the major activities carried out by EGAPA so far are:

To carry out their activities, EGAPA members need microcredit:

The main financial product provided by the EGAPA is microcredit under the Islamic finance instrument called salam. The producer receives the credit in cash for the tapping and collection stages, and repays later in kind with gum arabic. The committee distributes the credit to the EGAPA members based on their hashab tree areas. Special interest-free topping credit is also provided to members for mourning ceremonies. Loan rationing occurs given the limited EGAPA resources and the high credit demand. The credit is guaranteed by the Forest National Corporation and the village Sheikh, as well as by the crop to be harvested.

EGAPA's risk management tools include personal knowledge of the customers, peer monitoring and the Sheikh's supervision. EGAPA's experience with gum arabic production activities helps reduce the risk linked to s alam credit being a loan denominated in a commodity and facilitates lending. Moreover, the EGAPA assists its members in production diversification and technology with support from the Agricultural Research Corporation. In most cases the Forest National Corporation negotiates the terms of salam credit with creditors, namely the contract price and size of the loan per unit of a specific crop's land, and assists in loan disbursement as well as delivery of crops to collection centres that belong to lenders.


EGAPA started with registration fees as seed money. The establishment rule foresees that every member must transfer 33 percent of his annual net profit to the revolving fund to be used for development activities for the benefit of the entire village. However, after ten years of operation the revolving fund failed to mobilize savings from its member producers, and the association is suffering from unstable and insufficient funding sources. Hence, the only source of funding is the credit that it receives from gum tapping and collection and from the Forest National Corporation.

Unfortunately, the EGAPA Secretary keeps no records other than the list of members and the credit they receive, so it is not possible to provide a quantitative evaluation of operating costs, profitability and sustainability of EGAPA's revolving funds.

Nevertheless, based on the experience so far, an overall assessment of EGAPA's microfinance provision is possible, and appears inauspicious. EGAPA funding relies on sources that are not long term and not always regular; operations are not always demand-based; intermediation is focused on provision of microcredit; and staff appears to lack professional financial management skills. The failure to mobilize internal savings, which is the basis for the functioning of a savings and credit association such as EGAPA, is critical. This seems to indicate that the association is regarded more as a mechanism to access targeted credit coming from external sources than as a sustainable source for a whole range of microfinance services - the repayment performance of which is not adequately monitored and cannot be appraised.

To become sustainable, the EGAPA would need to develop stable access to longer-term funding, good products addressing the members' needs, and capacity and professionalism of its staff. It would also need to successfully mobilize savings from its members, as well as establishing and maintaining appropriate records and accounts. Diversification of lending portfolio may also be necessary to diversify risks.

It should be recalled that no successful provision of microcredit, or more appropriately, of microfinance services, is possible without viable customer micro-enterprises. Prior to or at least concurrent with supporting the outreach of microfinance to gum arabic producers, a number of initiatives must be carried out. These include: the improvement of agricultural land policy to address issues of land tenure and land-use systems; more stable sector and microfinance policies; a more reliable legal and judiciary system; the enhancement of production and processing technologies; the promotion of product marketing including exports; and the improvement of the communication infrastructure necessary for the development of the agroforestry sector.

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