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close this bookCERES No. 074 (FAO Ceres, 1980, 50 p.)
close this folderCerescope
View the documentNew credit systems for smallholders begin to show promise
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New credit systems for smallholders begin to show promise

bypassing usury

In times of financial stress, small farmers in developing countries have usually been obliged to borrow from village moneylenders, rich landowners or traders, often agreeing to repay with their own labour on terms that may amount to 500 percent interest. Few existing financial institutions or credit programmes were designed to provide effective service for the poor and landless. Attempts to use cooperatives as a channel for rural credit have not been invariably successful. Consequently, the largest, neediest and least vocal segment of Third World population, an estimated 840 million smallholders, sharecroppers and landless labourers, remained largely out of the reach of the means available to improve their livelihood. And this despite evidence from many studies that small farmers are at least as productive as large operators in the use of additional capital.

Now, after years of frustration with traditional approaches, new procedures for supporting rural credit systems are offering to developing countries and international agencies some hope for advancing rural development. This prospect is due in large measure to the growing exchange of ideas and results of experiments among the developing countries themselves. An effective international network of institutions has made technical cooperation in the field of agricultural credit a reality. This development received its impetus from the World Agricultural Credit Conference, held in Rome in October 1975, which called upon the Food and Agriculture Organization to organize and promote "A Scheme for Agricultural Credit Development," to become known, predictably, at SACRED. After the endorsement of the Organization's governing bodies, the scheme became operational in 1977.

The scheme aims to help developing countries harness their own financial institutions in support of agricultural investment, focusing especially on the expansion of rural credit facilities to serve all farmers. It has fostered the establishment of Regional Agricultural Credit Associations in Asia, Africa and the Near East to encourage the exchange of experience and technical cooperation among developing countries. It has also served as a kind of broker, identifying financial resources that could be mobilized in donor countries and channelled through financial institutions in recipient countries to support rural development. It is also providing assistance in setting up training courses for rural credit and banking personnel and in selection of the trainees.

Participation in the scheme is open to all FAO Member Governments, to financial institutions, including commercial banks, in member nations, and to international and private agencies interested in development assistance. These members, or correspondents as they are termed, have signified readiness to participate in the scheme with funds or personnel, although there is no specific obligation either to extend assistance or to receive it. After two and a half years of operation, the scheme has 124 correspondent members in 21 developed countries. These, linked by the scheme through the Regional Credit Associations and subregional training centres to more than 200 financial institutions in the developing world, form the network on which the exchange of information and technical assistance is based.

The input of funds thus far has been modest, less than $3 million committed in the first two years of operation and covering less than half of the 143 project proposals put forward during that period. In addition to training support, already mentioned, projects have been designed for the establishment of specialized agricultural credit institutions, to support credit programmes operating through farmers' organizations, provision of soft loans for on-lending and seed money for guarantee funds, and the development of research and monitoring capability in credit institutions and regional associations.

Last summer's World Conference on Agrarian Reform and Rural Development placed rural credit in a much broader context than simply as another farm input. An effective programme of rural finance would involve regulating the flow of financial resources between the rural sector and usually urban-oriented national financial systems. What would be involved in such a programme would not be merely a credit package to certain limited, designated projects, but rather a deliberate process of re-orienting the entire financial system to cater to the credit needs of the entire rural institutional infrastructure, including inputs, processing, marketing, storage, and service cooperatives. In such a framework, SACRED's assignment assumes awesome proportions.