Beyond Financial Services - Combining Savings Groups with Agricultural Marketing in Tanzania
by B. Fowler and C. Nelson in 2011
World Region: Africa
Between 2000 and 2008, Catholic Relief Services (CRS) partnered with local organisations to improve production of chickpeas, pigeon peas, groundnuts and sweet potato in Mwanza region, Tanzania. To upgrade these food crops to cash crop status, CRS used a suite of complementary interventions, including new seed varieties, seed multiplication, integrated pest management, and improved agricultural marketing techniques. From the outset, CRS anticipated the formation of farmer organisations to manage both input supply and crop marketing on a commercial basis. Although not part of the original project design, CRS introduced Savings and Internal Lending Communities (or SILC) in 2006 to strengthen these farmer organisations. SILCs spread quickly in Tanzania, not only within the chickpea project where they were initially introduced, but in other CRS projects in health, homebased care and AIDS relief. Against the backdrop of this positive response to Savings Groups, CRS and a local partner the Mwanza Rural Housing Programme experimented with using the SILC model as a platform for joint crop marketing.
Another pilot project of CRS involves the development of a SILC Group Association (SIGA), which is a federation of at least four SILCs based within a single community. It primarily functions as a marketing cooperative that negotiates with buyers for the sale of crops produced by SILC members and others. In order to inform price negotiations, the SIGA estimates production levels and calculates the year’s average cost of production; prior to the sale, the crop is then cleaned, packed and stored. Buyers then agree to provide cash advances to the SIGA, which is used to purchase crops from farmers, store it and then pay commissions based on volumes sold. In addition to collective marketing, SIGAs offer seed multiplication, input loans, and insurance for their member SILCs.
The addition of the SIGA has created new incentives for farmers to join a SILC, including better access to inputs, crop cleaning services, higher prices for crops, and commission income. The SIGA also introduced a weightbased measure that replaced the traditional volumebased system and contributed to increased revenue for farmers.
The relationship is also beneficial for the SIGA; by offering access to financial services, SILCs easily attract participation. Through their engagement in ongoing financial transactions, most SILCs develop strong trust and confidence between members; this social capital provides a very effective base for establishing a collective marketing structure by hastening the group formation process and increasing the willingness of members to work together. In addition, SILCs
- Can guarantee the crop volumes needed to negotiate with purchasers;
- Lower the transaction costs of purchasing from dozens of smallscale farmers;
- Facilitate the participation of marginalized farmers, who frequently lack the financial or social capital to engage in agricultural marketing initiatives; and
- Provide access to loans that enable members to avoid preselling their harvests to local agents at low prices, waiting instead for the better prices offered by the SIGA.
Although the integration of the SILC and SIGA make the benefits of collective marketing possible for a diverse range of farmers, the SIGA faces significant sustainability challenges surrounding transparency, capacity and scale. SIGAs have a less robust financial management and oversight system than do the SILCs and are therefore at a greater risk of fraud. Capacity issues include concerns of the ability of leaders to maintain accurate records, negotiate with buyers without external support, and to respond appropriately to volatile agricultural prices. Finally, SIGAs may be too large to be run transparently and too small to implement management tools such as staff development and adequate accounting controls.
Nevertheless, this case offers important insights about how to use Savings Groups as a platform for other services. First and foremost, Savings Groups need to be operating robustly before other activities are added; ultimately, if SILCs fail, so do the SIGAs. In addition, several contextual features facilitated the implementation of the SILCSIGA model:
- A purpose or widely shared need that attracts a majority of members;
- The purpose of the additional function or institution is limited in scope (and therefore achievable);
- Homogeneous membership facilitates SIGA formation and function; and
- The existence of a market structure and purchasers willing to buy through cooperatives.
The SILCSIGA initiative is still nascent; however, preliminary evidence does indicate the SILCSIGA pilot yielded valued benefits for farmers and offered important lessons on how to add value to Savings Groups. SIGAs have succeeded where previous attempts to organize collective marketing were largely unsuccessful; they have addressed the diverse challenges of access to finance, poor quality seeds and a fragmented crop marketing chain that has traditionally been characterized by mistrust and, at times, exploitation. This new model reduces transaction costs and increases efficiencies, thereby creating a winwin scenario for producers and buyers alike. Farmers are voting for this system with their pocketbooks; that is, paying fees to the agents who have supported the establishment and operation of SILCs and SIGAs, thereby ensuring the continued existence of this system well after donor funding has ceased.