Providing financial services is one

Providing financial services is one of the key elements that can
help farmers put their ideas into practice. Various organisations
are involved in finance programmes, providing credit.
Many of them, however, find it difficult to operate in distant
villages, and to provide these services to small-scale farmers.
Experience has shown that the provision of credit needs to be
complemented with additional efforts – such as training on
how to efficiently use the money which is made available. But
the provision of credit can have very positive results, even if
on a small scale. Some encouraging results have been seen in
Burkina Faso, that may work in other settings as well.

Located in central West Africa, Burkina Faso has a
population of 14 million people. It is ranked as one
of the world’s poorest countries, with almost three
quarters of the population earning less than US$ 2 per day.
Approximately 85 percent of the population depend on
agriculture and livestock production. Population growth has
led to increased pressure on the land, in turn leading to soil
infertility, environmental degradation and food insecurity. These
issues have all had negative effects on poverty levels. Climate
change is also expected to have a serious impact.
Together with various governmental agencies, many private
organisations are working to improve this situation in Burkina
Faso. As part of their efforts, such organisations are frequentlyinterested in providing financial services. These services are
seen as a tool that can help farmers improve yields and outputs,
while at the same time helping them put their ideas into practice
– for example, in terms of crop diversification or access to new
markets. Rural finance, however, faces many difficulties. Many
institutions find it hard to reach distant villages. And those
who do reach these villages soon find out that farmers are not
always capable of using the money available in an efficient way.
Because of soil constraints and unpredictable rainfall, agricultural
activities cannot be easily planned, so farmers tend to use the
funds available for food and health security, making repayment
difficult. Without measures to ensure that loans are paid back,
many compare credit to a donation, making it impossible to
continue providing credit in the long run. In addition, evaluations
carried out in Burkina Faso and other countries show that the
selection procedures of credit beneficiaries is often questionable,
or that the interest rates are simply too high.
Loans, higher incomes and empowerment
ASUDEC, the Africa Sustainable Development Council, is a local
non-profit organisation founded in 1998. At the moment we work
with almost 10 000 farmers, in more than one hundred villages
in the South-west, Central and Central-southern regions of the
country. Our aim is to assist the local population to find better
ways of doing what they do, helping them improve their wellbeing
while preserving the environment. One of our strategies is to
provide financial services and thus help farmers help themselves.
This goes together with what we call “instrumental interventions”,
or the construction of basic infrastructure and the distribution
of animals, equipment and materials, and also “transformative
interventions”, focusing on awareness raising and technical
training. As an outsider in the community, ASUDEC starts by
learning about its values and traditions, the constraints it faces and
the major threats. Additionally, we start on a very small scale,growing with time in response to the needs and willingness of
the beneficiaries. This has helped us build trust and reach a larger
segment of the population.
Our financial services include saving accounts and the provision
of credit. As most rural areas lack these services, farmers keep
the little money they have at home, running the risk that it
might be stolen or lost, and contributing very little to the local
economy. Our intention is to provide a service that will not only
secure their money and assure food and health security, but that
can also help the poor to intensify and/or diversify their income
generating activities. In turn, this will contribute to empowering
them further and promoting the local economy. Aiming at a
higher efficiency, our credit funds are targeted at women. This
discrimination is justified by the fact that (a) women are more
vulnerable than men; (b) they are also more trustworthy with
respect to credit reimbursement; and (c) because with women,
the income generated as a result of the loan is more likely to
benefit all members of the family, particularly the children.

In order to get a loan, the women of a given village are
encouraged to request it as a group (and to form such a group
when necessary). The application has to be approved by a
special council formed in each village, which in turn transmits
it to ASUDEC for final approval and funding. If the application
is approved, the group is to pay an application fee of 500 CFA
francs (or approximately US$ 1), which is meant to cover
the paperwork and thus goes to ASUDEC and the council.
The solidarity bond between all group members is the only
guarantee required. More specifically, in the advent of one
member of the group not being able to pay back, the group
takes full responsibility for her credit. A maximum of 15 000
francs (US$ 30) is lent to new participants, while previous
participants can request up to 50 000 francs (US$ 100). A fixed
interest rate of 10 percent is applied, half of which is to cover
the management costs and the other half is shared between
the women’s groups (for group needs) and the council (for
community expenditures).
With the support of Heifer-Netherlands, our activities started
with a loan fund capital of one and a half million francs (or
US$ 3000) in 2000, reaching 33 women in only 2 groups. Eight
years later we were working with 2003 women in 67 groups,
in three different regions of the country. The 2003 women
benefitted from loans totalling 130 million francs (almost
US$ 275 000). Group members have been using this money
to start and run small businesses, including street restaurants,
trading agricultural products or selling local beer. These small
businesses keep them busy earning an income all day long,
particularly during the 7-8 month dry season. With the income
raised they buy food and medicines for their families, and they
also send their children to school. In Gampela, for instance, a
village about 20 km from Ouagadougou, women used to spend
long days standing in the sun, separating the gravel and sand
in the soil, which they would sell to buy food. The loans meant
that they could start activities from which they can earn a better
income, and which are also more environmentally friendly.
Perhaps more importantly, by receiving and efficiently managing
their loans, many women have earned respect from their husbands,
and thus feel empowered. When asked if the micro credit project
was helping them, one woman made us all laugh: “This is not a
question for us: in fact you should ask our husbands. Before this
project, many of us used to stay at home. But when my husband
is there, we are fighting all the time. Now, when I am in the house
and he calls me in some disrespectful way, I just let him burn
up a little bit, and then I tell him to wait. ‘Can’t you hold on? I
am counting my money!’ All of us can confirm it: our husbands
know that we are their saviours, and the heat is over in many
households.” Many similar stories have been recorded.
Trying out an innovative approach
On top of the very positive results, we can also say that
practically all women pay their debts: all loans have been
reimbursed on time and redistributed almost immediately.
However, some important weaknesses made us think we had
to improve our work, to make it more efficient and sustainable.
This became necessary as we experienced increasing demand
for credit (and most women started asking for larger sums of
money), while our own resources did not change. We noticed
that the 5 percent interest rate which went back to ASUDEC
was not enough to cover all our management costs, while at
the same time we realised that the whole system could not be
sustainable if it continued being highly dependent on foreign
donors. Above all, ASUDEC had no legal authority to operate in
the area of microfinance, so immediate change was necessary.
In addition to these considerations, we also felt that the
implementation of our vision was incomplete. Farmers need more
than money in order to truly be entrepreneurs, and many of these
requirements need to be satisfied beforehand so that when credit
arrives, it can be effective. A broader perspective is necessary,
focusing on those aspects which can be tackled. Farmers, for
example, need access to markets, but ASUDEC cannot build
roads. We could, however, train farmers so that they develop
marketing capacities, and we could also help them develop
storing facilities and thus wait for the appropriate time to sell.
We realised that, in this way, credit can be much more effective.
After extensive consideration, ASUDEC decided to create the
ASUDEC Farmers’ Savings and Credit Mutual (MECRA).
We believe that as income raising projects help the poor to
meet their basic needs, they no longer need to use the credit
funds for these needs (and be unable to reimburse the loan
later). MECRA is expected to form a strong and long-lasting
partnership with ASUDEC, sharing both the office and the field
facilities to minimise operational costs. As a result, MECRA
will apply interest rates that will be lower than those applied
by ordinary finance institutions. By prioritising women and
farmers who have been successful with subsidised projects,
MECRA will also reduce risks, and the credit funds will be
used to contribute to real development instead of subsistence
alone. Being a legal institution, MECRA is in a better position
to raise funds for rural finance activities.
MEC