Sustainable Development Banner

Updated November 1999

E-mail conference
24 September-11 November 1998
Small farmer group associations: Bringing the poor together

FAO experience: Service-related issues


Proceedings Conference documents

Question 18. What strategies should SFGAs use in accessing external development services provided by governments, NGOs and the private sector?

FAO experience

Service providers - be they government, NGOs or private-sector concerns - involved in the delivery of development services to small farmers and other disadvantaged sectors of rural society often see advantages in channelling their services through SFGAs. This allows them to significantly increase their coverage and to do so at a reduced cost.

An illustration of this in action is a largely self-sustaining network of more than 300 SFGs and linked SFGAs in Western Province, Zambia, established during the 1980s under an FAO PPP project, and evaluated by outside evaluators (Charles Chabala and Jean Geran) in 1994 and 1995. Each study provided clear empirical evidence that government and NGO service providers were indeed using SFGs and their supporting SFGAs as channels for delivering a variety of health, extension, credit and other services to rural areas, largely because of the cost and coverage advantages noted above.

Our experience shows that these providers quickly recognize the advantages of working through self-sustaining farmer group structures that operate at no additional cost to them. This can also bring many additional benefits to SFG and SFGA members. However, if the inflow of inputs and services is heavily subsidized and improperly managed by SFGs and SFGAs, it can also create problems which can actually result in undermining SFG and SFGA self-reliance.

For example, it has proved difficult to promote the importance of group-savings, lending at market rates and timely repayment of loans to SFG and SFGA members where other outside agencies operating in the same areas are working through the same groups, but doing so via grants or at highly subsidized rates.

So how do SFGAs cope with this "donor competition" situation? Our answer is "Some more constructively than others." Indeed, some SFGAs opportunistically try to take advantage of this donor competition so as to maximize their short-term benefits, without considering the long-term harm excessive dependency on outside donors may have on their SFGA's independence and self-reliance. Others take a more cautious approach and accept assistance only where it strengthens rather than undermines the SFGA's operational autonomy and sustainability. Clearly, it is critical that there be a sound SFGA training programme that emphasizes the long-term importance of achieving SFGA financial self-reliance, internal savings mobilization and operational autonomy objectives, and that instils within SFGA members the discipline to accomplish those objectives.

  • What has been your experience? Or what is your opinion on this matter?

    Question 19. Should inter-group networks provide training and education services to their member groups? Why not focus on meeting more immediate needs: provision of credit, bulk purchase of inputs and bulk marketing?

    FAO experience

    Both the Sri Lankan and Zambian SFGAs placed emphasis on training and information exchange, while the Nepalese and Indonesian SFGAs, which were more credit-oriented, did not.

    What is interesting in our studies was that SFGA members from all four countries cited access to information and learning as two of most important benefits derived from the projects; not access to credit or financial resources. This does not mean that access to financial services is not important, but may indicate that it may not be a critical constraint to SFGA development.

    The Zambia and Sri Lanka projects placed great importance on member training in basic group problem-solving and planning skills and on self-monitoring and evaluation; nevertheless, it is also clear that the problem of low literacy levels of SFGA members had not been effectively addressed and required further attention.

    Another interesting feature of the Zambian and Sri Lankan SFGAs studied was the attention they paid to the topics of group expansion and growth. Most SFGAs in both these countries had established committees dealing with this particular subject, while this had not occurred in Indonesia and Nepal.

  • What has been your experience? Or what is your opinion on this matter?

    Question 20. Is it not more important for SFGAs to provide on-lending credit services to members rather than savings services, since small farmers must first generate income to save?

    FAO experience

    Our field experience and research in four countries does not seem to support this argument. While many donor-funded small farmer development programmes continue to place heavy emphasis on using small farmer groups and SFGAs as organizational vehicles for on-lending externally-provided below-market-rate funds to small farmers, we have seen very little evidence to suggest that such methods lead to the development of more self-reliant and sustainable SFGAs. We agree that margin income earned from on-lending activities can be an important source of SFGA income which can rapidly stimulate SFGA growth, but if it is not properly counter-balanced by other sources of income and by a strong savings programme it can, and too frequently does, introduce market allocation distortions, political interference and dependencies that may actually undermine the SFGA development process.

    In the case of Nepal, Indonesia and, to a much lesser extent, Sri Lanka, development lenders provided concessional loans to a participating financial institution - ADBN in the case of Nepal and BRI in the case of Indonesia - who then on-lent these funds to qualifying SFGAs, allowing the SFGAs to charge a slightly higher interest rate to their member groups to cover their handling costs, who on-lent to their groups at a slightly higher rate.

    Our research showed that where there were other sources of income and a strong supplementary savings programme, such an approach did not lead to any significant increase in SFGA self-reliance.

    Furthermore, we have found little empirical evidence to support the popular notion that the provision of credit should come before savings because small farmers cannot save. Indeed, we have found small farmers to be quite capable of saving in the complete absence of credit. One example of this was our Zambia project, which initially began with an external credit component but ceased offering credit after several years when repayment problems developed. Emphasis was switched to savings first, and soon locally-mobilized savings became the main source of income for financing group investments and SFGA growth. The results have been impressive: more than 350 groups and 22 SFGAs formed and operating, and close to kwacha 8 million in savings mobilized under conditions of high inflation of over 30% per year.

  • What has been your experience? Or what is your opinion on this matter?

    Question 21. If member groups have accumulated some savings, should the internal pooling of surplus savings at the SFGA level be encouraged to facilitate inter-lending of the pooled savings to other affiliated groups in time of need?

    FAO experience

    SFGAs can and sometimes do 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. In some respects, these pooled savings arrangement resembles more traditional forms of mobilizing informal savings for credit, such as ROSCAs (traditional rotating savings and credit associations) except that the savings and borrowing units are groups instead of individuals and the funds are re-lent rather than given to a deserving group.

    Such pooled group savings/credit activities have appeared at group level in both the Zambia and Sri Lanka projects and are beginning to appear at the SFGA level in our Zambia project.

    Typically, all affiliated groups contribute equally to the SFGA pooled fund and these funds are held informally outside the formal banking system. One problem relating to these pooled funds is that of security. How can new mechanisms be found to protect these pooled funds from theft or loss? Several measures are now being studied, including the manufacture of locally made but reasonably secure safes. Another factor is that, so far, no interest is paid to contributing groups for their pooled funds nor is interest charged on loans made from that fund.

  • What has been your experience? Or what is your opinion on this matter?

    Question 22. Why do SFGAs often have problems in group purchase of inputs and marketing?

    FAO experience

    This is one question for which we have found no adequate answer. We suspect one explanation is that agricultural markets in many rural areas are tightly controlled by local businessmen and traders, and it is difficult for SFGAs to compete on an equal footing with these traders. Another factor may be the lack of adequate SFGA storage facilities and transport facilities at local level.

    In fact the only successes registered in Sri Lanka seemed to be with non-traditional crops and non-farm activities (long onions, sesame seed oil extraction, poultry, handicrafts, spice processing, etc.) where market-entry barriers seemed lower. By contrast, the problem in Zambia related more to the absence of nearby markets for group products rather than control factors.

    Examples of bulk purchase of inputs from other than project sources were also limited. Again the problem seems to have been partly due to these input markets being controlled by local traders, who might have viewed the SFGA as a potential threat. An additional factor was that most SFGAs lacked adequate and safe storage facilities at local level.

    More research needs to be done on this topic.

  • What has been your experience? Or what is your opinion on this matter?

    Back to Top FAO Homepage