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