Updated November 1999
24 September-11 November 1998
Small farmer group associations: Bringing the poor together
Proceedings: Summary, Part 2
There was little discussion on this Question per se, but the question obviously started thoughts on the role of SFGAs in promoting rural development.
In Zambia, SFGAs normally provided assessments of training needs of their members, and in some cases assisted service-delivery agencies in member training, through demonstrations of certain technologies to other members or to their communities. For example, three SFGAs took it as their task to demonstrate to their SFG members the process of parboiling and processing of rice. However, there was a limit to the kind of intermediary training services that they could provide; some information might be better given by trained personnel. Training was, unfortunately, not seen as a main function of SFGAs.
Regarding the dangers inherent in too easy access to external resources: if there were some kind of matching of internal and external resources, dependencies were less likely to develop; if too much aid were given too easily, groups could end up unwilling to even lift a stone to help themselves. If members of groups had easy access to cheap credit from one agency, another agency - more concerned about building up group financial self-reliance and a prompt loan repayment ethos -might find the group more difficult since these same members had no incentive to gradually build up their own savings funds for internal lending, inter-group lending and collateral for group credit.
This tendency of service providers [to use SFGAs as a channel for aid delivery] could be a problem. In their desperate search for delivery structures that "work," service providers often overwhelmed successful initiatives and ended up undermining self-reliant development instead of reinforcing it.
In Indonesia, the SFGAs were not directly credit oriented. While the associations functioned to reinforce credit repayment at SFG level, they also functioned as a means of information exchange and/or training. Although the training element was not emphasized, in each of the SFGAs studied [in the SFGA programme evaluation] there were training efforts. The training involved business aspects, such as how to prepare a business plan, how to develop a marketing strategy and how to organize bulk purchase of inputs or bulk marketing of outputs. For example, in agriculture, the farmers needed to know what to produce, where to get cheaper inputs, and when to produce so the production could hit the market when the price would be high. Information could be shared among the SFGA members. Therefore the training needed to be planned in a flexible manner and devised to meet each association’s changing needs.
While there was broad consensus that training should, wherever possible, include upgrading of low literacy levels, it might be a difficult task for SFGs and SFGAs. This needed to be a task of the larger NGOs or the State, but perhaps working in collaboration with SFGAs. In Sri Lanka, literate members of some groups initially conducted literacy training for their own members, but when the groups commenced serious development programmes, the emphasis shifted.
Good quality training needed high quality trainers. Could SFGAs be expected to cover such costs? If not, then who would do it, since education was normally a function of government? However, since many developing country governments were currently reducing rural education budgets due to fiscal constraints, the likelihood of more assistance in this area was unlikely in the near future. Hence SFGs and SFGAs would somehow have to contrive to fill the gap using new, more cost-efficient methods, manuals, nadir schools, distance learning techniques, etc. This adult sector of society was generally denied traditional formal schooling. Should it not now be entitled to some external assistance in organizing and conducting practical training in areas of need identified by the SFG members themselves?
Small farmers in developing countries needed applied production technology as well as marketing strategies. They might be able to increase production with traditional technology, but still needed philosophical guidance to improve human capital if the goal was to improve their welfare to more than just self-sufficiency.
It was interesting to note that training to improve income earning potential was not always the number one priority, as participatory studies carried out in a project area in Zambia indicated that credit inputs and marketing were not at the head of the list of priorities in most communities. Education usually ranked high, along with health services and - surprisingly - security, even though the areas were quite rural. In Honduras, a project joined up with a Ministry of Education adult education project to ensure effective literacy. This was demand driven: trading in the market place demands numeracy at least, so the literacy component had 2000 students and a waiting list.
All agreed that training should be part of an SFGA’s activities. Indeed, the whole process of small group and SFGA formation among low-income female and male farmers, fishermen, artisans, etc., had to be conceived first and foremost as a long-term educational exercise. The reason was obvious: such people lacked training in group formation, group dynamics, production, processing, marketing, etc., to a much greater extent than other, less-poor, literate rural people, who also had much easier access to extension services and banks. Thus, clearly, SFGAs should focus (also) on training, and the focus should, if possible, be more comprehensive, covering literacy, health, social and community development topics, as well as economic and organizational topics. At every stage in the development of groups and of SFGAs, different types of training, tailored to the specific needs of each stage, would be indispensable. How could an SFGA function properly if it did not provide ongoing training to its base groups on, inter alia, management, credit-handling, marketing, monitoring and evaluation, building good relationships with the delivery system (extension, services, NGOs, banks, etc.), and so forth? However, appropriate and cost-effective training techniques and materials were needed, that could be easily made available and implemented at SFG and SFGA levels.
It was generally argued that SFGAs should first focus on savings mobilization as the initial means to finance their income-generating activities, before attempting to obtain external credit. In their general assistance to SFGAs, governments and aid agencies were increasingly stressing local savings promotion and financial self-reliance. This was because use of savings instilled a sense of ownership in and responsibility for the subsequent credit. As savings accumulated at SFGA level, the SFGA could service credit to member groups better in times of need, so long as the maximum amount a group could borrow was determined by a fixed multiple (usually less than 3:1) of the amount the group has saved.
To provide credit without prior savings accumulation implied access to concessionary funds, and would therefore be associated with extrinsic promotion of SFGA formation. Too much credit too easily often created harmful dependencies, which actually undermined the SFGA’s long-term self-reliance and sustainability.
The issues of external credit subsidies, market distortions and self-reliance concerns needed to be balanced very well. Probably more important than subsidized credit was its timely availability without going through lengthy procedures, after the groups qualify for credit through their saving programmes. Credit (preferably as matching loans) could be an important "supplementary" - i.e., a complement to internally-generated savings - input at later stages in SFGA development, especially when the members wanted to expand the enterprise or start a new one. The conference consensus was that a "savings first" approach was the best way to start because:
In the field of saving and credit, SFGAs could be the second-tier organization of primary saving and credit cooperatives, or they could function as the financial organization of primarily non-financial SFGs. Saving was the most important need of the poor, despite all the rhetoric about credit. It was quite clear that the poor could and did save. The challenge was to improve the efficiency of savings, using group approaches and helping them to smooth their cash flows.
It was starting from the wrong foot if farmer organizations were promoted to ease delivery of credit mechanisms. Although credit could be a very effective component of development programmes, it should be that: merely one ingredient in a holistic development scenario. Sustainability came from savings, and the Honduran experience - as well as many others - showed that predominantly credit-driven initiatives had too often had disastrous results. Credit for many small farmers had equated to ruin. How could credit for small-scale maize growers help them when their production costs could not compete with USA producers in a liberalized market?
Improved productivity had to come first, requiring appropriate technologies (low external input). However, this was a "chicken-or-egg" argument, as one needed some savings to gain access to new knowledge and technology to improve production - the real answer was that one needed both! The resultant food security and increased income generated savings. Credit came when there were production systems that made a profit. In Honduras, hillside irrigation systems were so profitable that they paid for themselves in 18 months, even at market rates for credit, so why should they be subsidized?
Savings should come first. Although hand-outs were nice, it was acknowledged that they were frequently bad in the long run.
ROSCA-type activities among groups (where each group contributed equal amounts at regular intervals to an SFGA group fund that was awarded to each contributing SFG in rotation) were found to function very well in Sri Lanka. This promoted inter-group solidarity and moral obligation to settle loans as agreed. Establishment of such a fund could even be adopted as a prerequisite for bank credit.
If an SFGA was successful in mobilizing surplus group members’ savings not held or re-lent at group level, the funds could then be lent to other affiliated groups, at a fixed interest or service charge rate. Therefore it was important that the SFGA had written borrowing and lending procedures, some means of reinforcing the procedures, and sanctions in the event of arrears. It was also important that there be mechanism for ensuring transparency and accountability in these savings and lending transactions. Experience in Indonesia showed that the members of associations sometimes never repaid their loan to the association. This might have happened because the associations did not have lending and borrowing procedures, or the procedures and means for their reinforcement were weak.
Savings and lending should involve interest - or service payment where interest was not acceptable by local custom, as in many Muslim countries. To encourage savings, as a means of SFGA capital accumulation, the association should provide a return on its members’ savings and should charge interest or a service fee when lending. Any positive margin income earned (interest received from loans less interest paid to members on savings) could be used to cover the running costs of this general service. While it was not always necessary to pay interest on member’s savings, it was certainly an incentive in inflationary situations. Experience in Indonesia, for example, showed that the members were not motivated to save in an association if it did not pay interest on savings.
These informal saving methods as such were complicated for use at SFGA level. It was easier if all groups contributed a fixed amount every month and the pooled amount was kept in a joint account. This pooled fund could act as a base for internal lending to finance projects of individual member groups of the SFGA.
SFGAs could and sometimes did set up their own micro-credit facilities by internally pooling surplus member group savings at the SFGA level, for re-lending to other affiliated groups, without resorting to external financial support. However, it was not just a simple intermediary service of SFGAs. For example, ActionAid Viet Nam (AA) worked in partnership with the local Women’s Union (WU) in some remote areas to run micro-finance service programmes in which autonomous village women’s savings groups were formed at the grass-roots level. These group members met regularly to make savings and to allow members to take loans from their own pooled savings. These savings groups might choose to work as ROSCAs, but, apart from poor management skills of group members, such bodies soon often ran up against financial limitations. In general, these were of two kinds:
In either case, savings groups might need the services of a formal financial institution, such as a local bank or project service. In the case of Viet Nam, mentioned above, this was the Commune-level Service of the WU in AA-supported programmes. Here the intermediary function provided by WU was not just a service to intermediate funds from net savers to net borrowers, but rather, and more importantly, it enabled groups to break through the limits of their own resources. In addition, WU was also able to provide other services, such as (i) savings facility; (ii) obtaining funds from outside sources through loans or grants which it could on-lend to groups; and (iii) locating profitable opportunities for depositing any excess savings accumulated at commune level by groups.
Considerations of equity could complicate on-lending. Resource mobilization was not too difficult if the people recognized the purpose of the activity. The Aga Khan Rural Services Programme (AKRSP) encouraged communities to save to enter into a partnership with it. This they did, and 81 million Pakistan rupees accumulated in savings, but communities were unwilling to use this for internal lending. The primary reason was that the savings amount of each individual in a village organization varied. If this amount was lent out, the risk to different individuals was going to vary. There were serious questions of what villagers considered equity (fair treatment) involved in this. The transaction cost of developing an accounting system that properly accounted for these differences was very high. In contrast, when savings were raised in equal amount by villagers for maintenance of infrastructure such as a micro-hydel, there were no problems in using it collectively.
Communities needed help to develop the capacity to raise resources both internally and externally. It was a difficult question, involving questions of trust, confidence and equity. Nothing destroyed member confidence more than loss of savings.
To sum up this section, finances vis-à-vis operation of an SFGA was clearly a complex issue. Several points emerged from the discussion:
In Zambia, very few SFGAs had been successful in group purchasing of inputs, owing to lack of storage facilities, poor roads and little capital to purchase stocks in bulk. On the marketing side, the problem was primarily lack of market information.
Elsewhere, tight control by local businessmen and traders of agricultural markets in many rural areas rendered it difficult for SFGAs to compete on an equal footing. Lack of adequate SFGA storage facilities and transport facilities at local level [TP-111] were important, and lack of transparency in transactions, weak accounting systems and weak leader-to-member accountability were other important reasons, as seen in certain instances in Sri Lanka and Indonesia. Once the word got round, it was increasingly difficult to convince members.
Inadequacy of storage facilities and the fact that small farmers needed relatively small quantities of inputs made the bulk handling of inputs a less attractive proposition.
Most of the groups in Indonesia were involved in petty trading, cottage industries, small ruminants and similar activities, which did not need big storage rooms. However, the members were not able to purchase inputs in bulk due to lack of capital (thus underlining the previously noted importance of savings mobilization). They also faced problems in marketing, because the local traders often controlled the market. Assistance from outside agencies was needed in marketing strategy. In Indonesia, Paramita Foundation (an NGO) helped associations to improve their product quality and marketing strategy.
Many SFGAs had difficulty in group purchase and marketing: in great part because the primary skill of the resource-poor small farmer lay in production. Linking him or her to others with the knowledge and skills of input procurement and sophisticated marketing might be more effective than trying to train that farmer in new skills of purchasing and marketing that were far outside their existing experienced-based knowledge. Most often, the primary aim in trying to achieve these linkages was to raise SFG income, and ultimately farm family income. Harnessing the complementary production and marketing skills of all the population (individuals and organizations) in a given rural area in a collaborative mode, striving for some equity in the arrangements, seemed to be a desirable development activity to pursue. While some competition might be therapeutic, excessive competition could be harmful.
Though a group marketing arrangement might be potentially more profitable, it was certainly different from an individual, one-on-one relationship between a single farmer and a buyer. It was more complicated because it involved orchestrating cooperation and joint action between many individuals or SFGs; it required group and inter-group solidarity; it involved the joint organization of the collection, storage, transport and selling of member produce; the joint handling of funds; and collective bargaining techniques. Unfortunately, many of these skills were lacking among small-scale and often illiterate farmers.
The basic challenge that FAO, other UN agencies, bilateral and multilateral donors, governments and NGOs faced today was how to most effectively design, package and transfer these organizational and technical skills to small farmers and adapt them to local conditions when the government-subsidized agricultural extension system was being "downsized," rural schools were being closed and public budgetary resources for getting this job done were disappearing. To be effective under such constraining circumstances, innovative methodologies and approaches were required.
Collective self-help initiatives had a myriad of problems in regard to purchase or marketing.
In marketing, problems included:
As regards purchasing inputs:
Unfortunately, participants provided few "How?" insights into ways to overcome the above problems; instead, they focused more on the "Why?" issues, as noted below.
A common theme was the question of establishing SFGAs that can enter a competitive market economy. The conflict of community development versus commercial development seemed often more a problem of external promoters and support actors than of the SFG and SFGA members themselves. This was expressed in several interventions.
Many development-oriented organizations (most NGOs) initiated groups with the aim of pursuing empowerment and equity objectives. Much had been achieved in this respect. However, many of those same NGOs then had problems in promoting the evolution and integration of these groups into the mainstream (often competitive and capitalist) economy.
There could be two main reasons for this:
The changes in Nicaragua were given as an example. Cooperatives were strongly promoted during the 1980s, but the political changes in the late 1980s and early 1990s towards a free market economy led to a collapse of many of these cooperatives. They were simply not prepared for understanding and managing the new economic needs and interests of their members, and were trying to rely on the socio-political perspective of a cooperative. Some cooperatives were successful in managing this evolution towards a more business-oriented "service" cooperative. This implied a business-like running of its management and a clear focus on the service function of the cooperative for its members.
There was no discussion specifically on this Question. Nevertheless, there was considerable indirect reference to the topic in various interventions. Indeed, there seemed to be a need to identify a variety of activity development or organizational development growth paths or models that might be more-or-less appropriate under different socio-cultural or economic conditions. This point was implicit in the discussion of multi-activity vs single-activity SFGAs in relation to Questions 6 and 15.
The logic to create multi-tiered network should encouraged, but should be based on felt needs, coming from below, not from above. Some small groups had been seen to prosper with no other affiliations at all, but weaker groups were often strengthened through such affiliations, particularly where the higher-tier organization has the capacity to deliver services that strengthened the group’s own capacities and self-reliance. External promoters of SFGAs and higher-level associations also acknowledged this logic, but sometimes, to meet project targets, pushed too hard and promoted the establishment of higher levels before a strong foundation of lower tiers was in place.
Probably, there were a plurality of approaches to building both horizontal and vertical social organizational structures for cooperation, each with their own strengths and weaknesses, and their genesis should be organic in response to felt needs.
Higher-level structures sometimes tried to usurp the functions of lower-level organizations and so checks and balances should be put into place to discourage this behaviour. Making higher-level organizations accountable to lower levels depended a lot on the lower organizations’ stake in financing and running the higher-level organization. If those financial and decision making stakes were low, chances were that the conditions were ripe for such usurpation to take place from above. If the stakes were high, lower-level organizations would feel more ownership in the higher-level organization and ensure that its leaders performed properly.
All too often, understanding of the evolution, strengthening and "empowering" of these groups was reduced to adding up figures or the "educated guesses" of external experts. The M&E of phenomena like SFGAs had all too often been dominated by numbers, which, of course, were an important dimension of organizational growth and range of activities. However, it was the "insertion" of such groups into the network of competitive relationships that controlled access to and the distribution of resources which would ultimately show whether they could have a life after the external inputs dry up.
It might be too ambitious to expect all small farmer organizational structures to continue without any outside guidance, since in most third-world countries there were many forces that would work against the service organizations of the poor. While financial self-reliance and sustainability should undoubtedly be cardinal aims, there might be some need for higher-level or NGO support for continuing guidance even after termination.
Nevertheless, many participants regarded such low-level SFGA maintenance costs as probably worthwhile in view of the important role of SFGAs in facilitating information exchange between SFGs and in member education and training in technical, business, organizational and social skills. In effect, SFGAs were seen as a useful form of social capital and a centre of rural learning.
Without exception, successful and sustainable SFGs and SFGAs were built on two fundamental cornerstones:
Even if the structures could cover operational costs and self-sustain basic functioning, it was very hard for them to become self sufficient if they were not linked with other similar structures and did not have access to higher quality services, by acquisition of inputs, commercialization, advice, etc. Experience showed that isolated structures tended to stagnate and then disappear.
The permanence of SFGAs was important for various reasons: these were the structures that could ensure the continuity of the actions started by specific projects; they contributed to fill in the services gap that was characteristic of rural life in developing countries; they enhanced local development; etc. However, situations evolve and certain services and functions could lose their reasons for being, or be forced to modify. These changes could also imply the disappearance of organizations, or their replacement by others more fitted for the new circumstances.
These grass-roots associations could be viewed as the organizational equivalent of moving staircases between floors in the house of knowledge. They helped people move up (improve their socio-economic situation) or provided more access and linkage and developed enabling alliances. A person might take one escalator to move up one floor, and a different one to move a further floor up. They did not need to stick with one type of organization forever.
However, had the SFGA approach become a purely mechanistic one and were we more concerned with maintaining the beast than with ensuring that it was an effective response to the poverty of millions of rural families?
Poor families in many parts of the world had to confront an inter-related series of factors and influences that basically determined whether they survived or not. Two of these factors were access to resources and an organizational base. So, the extent to which SFGA programmes were tackling these two factors in a way that might result in local capacity could be a defining parameter of the future sustainability of the approach.
Sustainability should be looked at in terms of behaviour patterns and norms rather than in structures. If positive lessons had been ingrained, they would contribute to sustainability; if not, structures would die out as they lost their utility. All sort of nice indexes could be developed to measure organizational maturity, but they were of little use in dealing with communities. Most villagers would laugh at them. One should look at social capital in the wider society to see progress. Despite this, there was still a good rationale for assessing organizational development and progress. While a lot of fancy measures could be used, there were some basic indicators that should be considered but too often are ignored, including:
Communication technologies, such as radio and newsletters, could assist a lot in information exchange, which could assist in marketing, and networks for service providers.
Gathering, sorting, storing, retrieving and disseminating information through the power of the computer need not be over-emphasized. This could be a key component in breaking the isolation mentioned elsewhere. In rural areas with no libraries, almost non-existent extension services from mainstream extension departments and where solar energy was an abundant commodity or basic electricity and telephony were available, this could be very important.
Still, the power of printed documents played the greatest role in information transfer. The final medium of communication with individual farmer groups, even in the era of information technology, remained print, but a difficulty with many small farmers was a low literacy level, so even typed material might be useless. Therefore some other form of communication was needed, such as visual communication, which had a very persuasive power, through still pictures, films, videos or slides, and had shown to enhance the multiplier effect.
Radio in local languages was another powerful tool. It could support "literacy groups" and other distance learning initiatives, and such ancillary supports to improvement programmes helped create a better environment for nurturing SFG and SFGAs. Such initiatives needed to be explored and vigorously promoted.
Radio communication was important and more progress could be made if telephone services were more accessible. Cost-benefit methods would have to be applied to decide on technology considered appropriate.
One opinion was to leave computers to the future - most of the places where GPs work were too far away from the world of computers, such as a recent visit by an organization showed, as the local religious leader thought electricity was an evil being brought in by the organization!
Computer-based technology could only be used after a certain level of sophistication was reached. Computers were no substitute for learning to do things oneself. For instance, the FAO Microbanker software could not be used in Moldova during the first years of a project for savings and credit cooperatives, but later it might be feasible. However, one could use the credit component of FAO Microbanker for monitoring loans. Each case had to be analysed before general statements are made. Often, computers were oversold by donors and could not be sustained after the end of the subsidy.
Opinions differed as to legal recognition. In part, the need might be determined by local legislation. If possible, informality allowed greater flexibility, but implied that the SFGA could not easily act as a legal entity in court or in applying for support.
Legal recognition was important for the SFGA to have the right of arbitration by a court of law if a member defaulted or if they wished to disband as an SFGA. At the same time, legal registration was nowadays almost always necessary to acquire loans and be recognized for assistance by many service providers. But legal recognition might be a two-edged sword: the disadvantage of legal recognition was that of long procedures to institute changes in the organization, and might be too committing for the members, who might fear to get involved in an SFGA. Legal recognition might also lead to increased government intervention and control, which might not be always beneficial.
For example, to operate in Kenya as a group, registration as a legal entity was a requisite with various government departments, e.g., cooperative, culture, social, youth services. At the same time, the co-op law in Kenya imposed many restrictions, such as:
Many participants said "Keep them small and informal." Once formalized, they lost something precious and were unable to respond to changing environment. Social learning and adaptive planning would become difficult. The concept of "small and informal" fitted well with the conference definition of SFGA, but "medium-to-large" and "formal" would increasingly be a necessity as SFGAs tried to manage larger activities or to collaborate across a greater geographical area. Size should not be question - it should be a result of success. There should be a natural dynamic development matching the scope of activities - form follows function.
Some legal recognition was needed for SFGAs to develop, but the legal framework had to be carefully formulated and be conducive to development. The presence of a legislative environment that was tolerant of, or even positive towards, SFGA-type associations would encourage formation and promote sustainability; a negative legislative environment would stifle SFGA development. A legal framework was usually needed when trying to establish linkages with the formal sector, e.g., contracts with banks or trading and processing companies. Aspects of taxation had to be clarified. Wherever there were transactions, the Ministry of Finance and local authorities would start to include groups in their taxation system. This was an important issue, and one would like to see the development of draft laws that both protected SFGs/SFGAs and were conducive to their development.
The material accumulated though this conference will provide the basis for the first draft of a rural-poor-oriented manual for those wishing to support SFGs expressing a desire to form higher-level associations. The manual will be prepared in early 1999.
Further follow-up will probably be an unmoderated bulletin board or interactive forum. Further E-mail conferences are a possibility. A number of topics associated with SFGA formation, development and sustainability were identified in discussion and in follow-up communications as prime topics for future E-mail conferences. These included:
One of the recommendations arising out of the conference was that communication - such as this conference - among practitioners should be continued, possibly through collaborative partnership involving the Rural Institutions and Participation Service (SDAR) of FAO and other interested organizations, with an emphasis on practical experiences and application in SFGA formation. Some specific aspects of the SFGA formation and maturation cycle were singled out as deserving future discussion in a similar E-mail conference.
If such a collaborative partnership could be established, one possible scenario could start with a survey to assess the needs of practitioners supporting SFGA establishment and development, followed by the design and setting up of an electronic service tailored to meet the identified needs. Possible activities of such a service might include coordination and support facilities for literature search and document supply; organization of E-mail conferences; serving as a forum for on-going informal discussion; supporting general SFGA monitoring and evaluation; mediating ad hoc guidance; and so forth. Such a service could also have the potential to provide a two-way flow of information between the field and support agencies, to both sides’ mutual benefit. In particular, the potential for obtaining raw field data in this way should not be underestimated.
However, such a service would imply the need for substantial support from various sources, in either cash or kind. In addition, any such information service would have to be carefully tailored to complement existing services, as competition or duplication among rural development actors would be an unpardonable waste of limited resources.
2. Adapted from comments on the draft Synthesis Report, provided by Norman Uphoff, Cornell University, and one of the Resource Persons for the conference.
6. FAO. 1994. The Group Promoter's Resource Book. and FAO. 1995. The Group Enterprise Resource Book.