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Beyond Financial Services - Improving Access to Basic Financial Services and Agricultural Input and Output Markets by Smallholder Farmers in Zimbabwe  Image

Promoting Inclusive Markets and Financial Systems

Beyond Financial Services - Improving Access to Basic Financial Services and Agricultural Input and Output Markets by Smallholder Farmers in Zimbabwe

Beyond Financial Services - Improving Access to Basic Financial Services and Agricultural Input and Output Markets by Smallholder Farmers in Zimbabwe

Summary

This  case  study examines CARE International’s efforts to  promote access  to  basic  financial services and agricultural input and output markets in very poor areas of rural Zimbabwe.   
 
Agriculture  has  always been  a  fundamental  part of Zimbabwe’s  economy. At  one point,  the sector generated 40  to  45 percent  of  exports  as  Zimbabwe  supplied  food  to  its  regional  neighbours. Although once renowned as the bread basket of Southern Africa, Zimbabwe’s agricultural sector has declined precipitously and today the country is no longer considered food self-sufficient. This is due to  a number of  factors,  including  structural  changes  in  the  sector,  the  economic  crisis  of  the  past decade, and recent droughts.  
 
The economic collapse proved to be a great setback to the agricultural sector; at the height of the downturn,  large-scale  input  providers  ceased  operations  and  many  farmers  stopped  production entirely.  Donors  and  NGOs  have  responded with  years  of  free  and  subsidised  inputs  to  targeted farmers,  but  sustainable  access  remains  a  challenge. While  the private  sector  is  slowly  recovering, the process of improving access to input and output markets by communal farmers – and obtaining the necessary liquidity to be active participants in these markets – remains a challenge.  
 
A survey conducted by the National Task Force on Microfinance in 2006 reports that 70 percent of the economically active population in Zimbabwe does not have access to formal financial services. As both  the  national  economy  and  financial sector  begin  to  rebuild,  the  UNDP’s  Comprehensive Economic  Recovery  in  Zimbabwe  Working  Paper  Series  emphasises  the importance  of  financial inclusion  and  recommends,  among  other  measures,  the  promotion  of  innovative  agricultural financing models  and  the building of  greater  synergies  between  the  formal  and  informal  financial sectors.
 
CARE Zimbabwe developed the Agribusiness Entrepreneur Network and Training (AGENT) model in 1995  to  improve  the  food  and  income  security  of  smallholder  communal  farmers  by  enhancing access  to  agricultural  input  and  output markets.  CARE  pioneered  the  agro-dealer  development model in Zimbabwe, which has subsequently been adopted by many other development agencies. The AGENT project, which aims to develop sustainable linkages between village-based agro-dealers, farmers and other market actors, has the following components: 
 
  • The capacity building of existing rural retailers to undertake the marketing of agricultural inputs; 
  • The creation of new opportunities for output marketing by smallholder farmers; and 
  • The establishment of associations of agro-dealers termed Business Membership Organisations (BMOs). 
 
In the late 1990s, the Small Enterprise Activity Development (SEAD) sector of CARE recognised that the lack of appropriate financial services for the rural poor represented a major impediment to the creation,  stability  and  growth  of  income-generating  activities  and  significantly  limited  agricultural production  by  smallholder  farmers.  The  coverage  of  financial  institutions  was  extremely  limited, products  and  service  delivery  mechanisms  were  not  well-suited  for  the  rural  poor  as  both  the collateral  requirements  and  costs  of  accessing  formal  financial  services  were prohibitively high  for clients in remote areas. As a result, CARE Zimbabwe launched the Internal Savings and Lending (ISAL) project in 1998, experimenting with a community-based approach for the delivery of basic financial services to the rural poor in Zimbabwe.  
 
In  2004,  CARE  Zimbabwe  adopted  a  strategy  of  enhanced  programme  integration  based  on  a concerted effort to offer the whole range of its interventions in new programme areas; the AGENT model  was  introduced  in  areas of  the  ISAL project  while  the  ISAL methodology was  introduced  to farmer  groups  established  under  the  AGENT  model.  By  May  2010,  the ISAL  project  of  CARE Zimbabwe  had  trained  over  127,000  individuals  in  the  ISAL  methodology;  112,000  remain active members of Savings Groups, while over 90,000 communal farmers have accessed agricultural inputs or participated in output marketing schemes supported by the AGENT project.  
 
The objective of this case study is to investigate two research propositions: 
  1. Savings Groups enhance the capacity of smallholder farmers to purchase agricultural inputs. This proposition is based on the hypothesis that Savings Groups enable the accumulation of capital  and  access  to  useful  lump  sums  –  through  improved  access  to  credit  and  periodic shareouts – that facilitate the purchase of agricultural inputs by smallholder farmers.  
  2. The linkage of Savings Groups to an agrodealer model improves access to and participation in agricultural  input  and  output  markets.  This  proposition  is  based on  the  hypothesis  that access to improved basic financial services and the linkage to local agrodealers will improve the capacity of Savings Groups to purchase agricultural inputs, improve the quality and local supply  of  appropriate  agroinputs,  and  reduce  the  monetary  and  nonmonetary  costs  of agroinputs.  
The experience of CARE International’s AGENT and ISAL projects in Zimbabwe provides evidence that Savings  Groups enhance  the  capacity  of  smallholder  farmers  to  purchase  agricultural  inputs.  The significant increase in ISAL member savings over the past decade and growing asset base of members are used to access agricultural inputs more efficiently and effectively from the local agrodealers of the AGENT network. 
 
However, the direct partnering of ISAL groups with the services of the AGENT model appears to be weak and there is insufficient evidence to demonstrate that connecting Savings Groups to an agro-dealer model improves access to and participation in agricultural  input and output markets by the Savings Group itself. While ISALs do sometimes engage in joint productive activities, they tend to be more  consumption-oriented  and  socially-focused.  Therefore,  Savings  Groups  are  not the  most natural vehicle for the collective purchase of inputs. In fact, ISAL groups in Zimbabwe are less likely to purchase inputs in bulk from agro-dealers, relative to gardening groups and other community-based organisations and were more likely to purchase consumer items such as blankets and kitchenware. Cropspecific producer groups are a more logical supply point.  
 
Nevertheless, the Savings Group serves as an invaluable safety net for the members of other local institutions (e.g., farmer groups) through credit, grants and periodic shareouts of cash and physical assets  to  their  common membership.  The  group  favours  and  improves  the  participation  of  its members and other community-based organisations in the services provided by the AGENT network. Identifying and building upon cross-membership in Savings Groups  and  farmer groups can support this  linkage.  In  turn,  the  participation  of  ISAL  members  in  the  AGENT  model  –  through  other community-based organisations  –  has  provided  them with  access  to  inputs  at  reduced  costs  and more  lucrative  output  marketing arrangements  that  have  improved  their  savings  capacity  and  the financial health of ISAL groups in the community.
 
Brief also available.


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