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Beyond Financial Services - Combining Savings Groups with Agricultural Marketing in Tanzania Image

Promoting Inclusive Markets and Financial Systems

Beyond Financial Services - Combining Savings Groups with Agricultural Marketing in Tanzania

Beyond Financial Services - Combining Savings Groups with Agricultural Marketing in Tanzania

Summary

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.
 
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