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(PDF, 1MB) Preliminary findings of the Catholic Relief Services (CRS) programme in Tanzania suggest that by federating Savings Groups into collective marketing structures, the capacity of their members to engage in joint marketing is enhanced. The federated market structure leverages the trust and confidence, created amongst group members through regular financial transactions, to build a more solid platform to joint marketing structures.
Between 2000 and 2008, Catholic Relief Services (CRS) partnered with local organizations in the Mwanza Region of Tanzania to improve production of crops, including chickpeas, pigeon peas, groundnuts and sweet potato. To upgrade these food crops to cash crop status, it used a suite of complementary interventions, including new seed varieties, seed multiplication, integrated pest management and improved marketing.
From the outset, CRS anticipated the formation of farmer organizations to manage both input supply and crop marketing on a commercial basis. Although not part of the original project design, to strengthen these farmer organizations in 2006 CRS introduced SGs (known in CRS terminology as “Saving and Internal Lending Communities”, or SILCs). SILCs spread quickly in Tanzania; not only within the chickpea project where they were initially introduced, but to other CRS projects in health, home-based care and AIDS relief. Against the backdrop of this positive response to SGs, CRS and a local partner, the Mwanza Rural Housing Programme, experimented with using the SILC as a platform for joint crop marketing.
SILC as a Platform for Agricultural Marketing
A SILC Group Association, known as SIGA, is a federation of at least four SILCs based within a single community. The SIGA functions primarily as a marketing cooperative that negotiates with buyers to purchase the crops produced by SILC members. In addition to collective marketing, these federations offer seed multiplication, input loans, and insurance for their member SILCs. The SIGA model is a pilot programme, thus learning and development are ongoing for CRS and other stakeholders.
Collective marketing is the most important service that the SIGAs offer; they purchase crops from both SILC members and non-members, and use these high volumes to negotiate favourable contracts with buyers. To prepare for contract negotiations and subsequent sales, SIGAs estimate production levels, calculate the year’s average cost of production (to inform price negotiations), and clean, pack and store the crop. In turn, buyers agree to provide cash advances that SIGAs use to purchase crops from farmers, collect the crop at SIGA storage sites and pay commissions to the SIGA based on the volumes sold.
Nearly all SIGAs manage four funds which are built up through contributions by SIGA members, marketing commissions they are paid by crop buyers, interest from lending and fines and fees levied on individual members. The four funds include: operational, input, education and insurance funds. The operational fund covers the costs of collective marketing, for example, storage space, security and equipment rental costs. The input fund facilitates the joint purchase of inputs by SILC members during the planting season when access to finance is relatively difficult. The education fund is typically used to pay school fees. The insurance fund reimburses SILC groups if a member passes away without enough savings to repay his or her outstanding marketing structure by strengthening the group formation process and increasing the willingness of members to work together. In addition, the SILCs:
The SILC-SIGA initiative is still nascent; there is not enough experience or hard evidence to definitively answer tough questions about their future. Preliminary evidence indicates both incentives for the continued operation of the model as well as areas of concern. SIGAs have succeeded where previous efforts to organize collective marketing in the area largely failed. SIGAs 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. By reducing transaction costs and increasing efficiency, the new model has created a ‘win-win’ for producers and purchasers. Farmers are ‘voting’ for this system with their pocketbooks; increasingly, they are paying fees to the field agents who have supported SILCs and SIGAs, in recognition of the fact that the system needs to stand on its own once donor funding ends.
Yet, SIGAs face significant challenges that may threaten their sustainability. These are rooted in interrelated factors of transparency, capacity and size. SIGAs have a less robust financial management and oversight system than required for the amount and volume of transactions they conduct, including managing the four distinct funds. As a result, capital invested by SILC members is at increased risk, which may compromise the transparency and accountability that are the keys to SILC success.
Weak capacity increases these risks. The field research raised questions about SIGA leaders’ ability to maintain accurate records, to negotiate with buyers without external support and to respond effectively to widespread volatility of agricultural prices.
While SIGA volunteer leaders may be able to develop the necessary skills over time, the lack of leadership turnover exacerbates the risk of elite capture and mismanagement of resources. In short, SIGAs may be too large to be run by volunteer cooperative management overseen by all the members (as exists in the SILC), and too small to afford modern management systems that include staff development, adequate accounting and appropriate controls.
This brief is based on research and case study sponsored by the Aga Khan Foundation’s Savings Groups Learning Initiative, written by Ben Fowler and Candace Nelson in June 2010. View the full case study
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