Practical Lessons From The
Successes And Failures
of Revolving Loan Fund
Schemes
Prepared
by
IADP
OCCASIONAL PAPER NUMBER 11
March
1992
Practical
Lessons From The Successes And Failures
of
Revolving Loan Fund Schemes
Revolving Loan fund (RLF)
schemes are quite common in the Pacific region. They are employed by both government agencies and NGOs as source
of rural credit t fund income generating activities mostly undertaken by youth
and women. Projects are appraised in
accordance with some developmental criteria, and procedures and rules are
agreed upon which normally include the preferred types of activities to be
assisted, the manner of repayment and the service fee to be levied.
This paper represents an attempt
to find out the experience of some projects in implementing the RLF
schemes. We are interested to identify
causes for success or failure and possibly gain insights on how to minimize the
latter.
For the purpose of the paper, we
targeted agencies and NGOs with known track record in the promotion of the RLF schemes,
such as the YMCA, YWCA, the Ministry of Youth, the Ministry of Social Welfare
and Women’s affairs, and the ILO, all based in Suva, Fiji (See Annex a for List
of Interviewees). IADP would like
to express its appreciation and gratitude to them for sharing with us their
experience and insights.
With the exception of two, who
work with an international agency and a regional institution, all the
interviewees/resource persons have served either as filed worker, planner
and/or monitoring officer of RLF projects implemented in the villages of
Fiji. These projects included: boat
with outboard engine for fishing, sewing, village piggery run by women;
integrated piggery, fishpond and poultry project; bread kitchen project,
shirt-making, and poultry raising.
Since by their own admission
most of the projects failed, our enquiry first focused on the causes of such
failure.
Causes of failure
Some twenty specific causes were
cited on the failure of the individual projects. These causes could be categorized as follows:
a)
Causes related to training
·
no training given on business skills;
·
government staff not trained to give technical advice to
the project implementors;
·
project was started without making sure the implementors
had technical skills, e.g. making bread for the bread kitchen project; (also
cited as example: two ladies who attended an income-generating workshop was
given funds to start a piggery, but they didn’t know how to raise pigs- they
are Muslims!); and
·
community workers themselves lacked training on the
business aspect of the projects that they were trying to asset.
b)
Causes related to project development
·
no feasibility was conducted on the project, e.g. shirts
produced could be bought cheaper at the department stores in the city;
·
projects did not generate money to pay back the loan;
·
no “spotter” or resource person to help identify good
projects; and
·
when the person who started the project, the US Peace
Corps volunteer, left, the whole thing collapsed (the integrated piggery, fishpond,
and poultry project).
c.
Causes related to project management
·
no continuous monitoring was done on the projects;
·
no follow-up activities were conducted by the agency which
granted the loan;
·
the implementors lost interest in the project;
·
no clear organizational set-up for the project;
·
fast turn-over of officers for the sponsoring
organization, or that incoming officers were not briefed on the loan projects;
·
money was misused (“Instead of buying the engine for the boat,
they bought something else.”);
·
lots of problems encountered in administering the loan;
·
lack of support from other community residents, e.g. boat
was used without any payment;
·
“when the women’s poultry project started to gain profit,
the men dictated the pricing and eventually took over the project”, and then it
failed.
The interviewees/resource
persons were able to draw lessons from the few successful projects implemented
with the use of RLF. Independently, they
gave the following advice:
·
As much as possible, meet a specific need in the
village or a nearby village so the market will be where the project is; no
market problem, no extra transport costs needed.
In the
successful poultry project run by women, there was a demand for chicken eggs
generated by a government-sponsored campaign against malnutrition. Buyers from the neighborhood themselves
would go to the project site to get their order.
·
Take time to identify the project; do it with the
community; don’t rush; anticipate problems (market, skills, manpower available,
procedures for repayment, sanctions on default, etc.); involve the community
each step of the way.
A
workshop carried out in a few days usually will not be enough in identifying
viable projects. The interviewees were
unanimous in recommending that more time be allowed to work out with the
community the identification and formulation of projects. This investment of time and patience will
pay off well in the end.
·
Build n what the community is already doing
successfully, e.g. provide funding for the expansion of an existing project; or
fund critical activities, as when the project is hit by the cyclone, drought,
etc.
Before
thinking of something new, they suggest that efforts be exerted first to assess
existing projects in the community.
Greater impact on local problems may sometimes be achieved by improving
existing projects, rather than starting new ones.
·
Start small; expand as the group gains more
knowledge about the production and marketing aspect of the project, as the
group gains more skills and confidence.
Starting
big has its built-in drawbacks in the context of a very constrained business
environment. The skills may be far too
sophisticated beyond local capability to handle. Risks will be greater.
Loss of confidence on account of a failed project will affect public
responsiveness to future development initiatives.
·
Let the community “hurt” for the project; never
give anything free; let the community raise money, contribute or build
something first before giving the loan.
A
tried-and-tested rule to increase the community’s sense of ownership of the
project. Provide first-hand experience
for the project implementors to go through the process of negotiating for the
loan, defending their project each step of the way. The assistance negotiation process will further deepen the
group’s commitment to its own project.
·
Train the community on how to make use of formal,
institutionalized credit even while implementing non-formal credit schemes.
Non-formal credit schemes, such as the RLF, have evolved from the perceived weaknesses of the formal system (difficulty to give collateral; administrative procedures which the community find cumbersome: too many signatures to solicit from people at the bank, voluminous paper work, lots of questions to answer from people approving the loan, etc.) These schemes, however, provided an opportunity to orient the community with some of the requirements of the formal credit institutions in preparation for some future use when non-formal arrangements become too limited for the credit requirements of an expanded project.
POINTS TO CONSIDER IN APPLYING LESSONS
The causes of failure cited by the interviewees are by no means new. In fact, most of these causes could apply to practically all categories of projects including those not funded by any revolving fund scheme. They have something to do with how projects get identified, implemented, managed and monitored at community level. Indeed projects wither and die, or they get ample care from those who tend them.
Inputs on training, project development and management are requisites for project success. Project planners and implementation officers, or those who follow up on project activities at filed level, know this fact both by training and experience. They can readily cite the causes of project failure or success. What seems lacking is the great leap from description and piecemeal solutions to prescription, not merely on a limited single-project basis as what sectoral planners and implementors usually do, but with a wide-angle view, taking the entire develoment scenario into account.
Taken collectively, the lessons that the interviewees have drawn and apparently acted on in continuing their project work have confirmed IADP’s experience and project development approaches. Hey have tended to show that, among other things, a single-motive credit programme will not work.
Here are a few vital points to consider in planning the RLF component in a project:
1.0 Locate
the RLF scheme in a larger develoment context or in an integrated programme.
Promoting the project solely as a credit scheme places it immediately at a certain disadvantage. The available money becomes the rallying and motivating factor. Some community groups have become adept at going through the motion of identifying projects for this kind of funding. In no time at all, the money is released and used with no repayment in sight.
Locating the RLF as a strategy to implement an overall community plan improves the batting average that it will be viewed as basically a means to solve local problems, rather than a source of easy money. Because a local plan specifies a mechanism for overall management, the RLF-assisted project is assured from the start with a system for accountability or continuity of linkage with a government entity or a local institution in the event that the sponsoring organization or donor agency loses interest or becomes incapable of doing the necessary follow-up activities.
A broad credit development framework is needed to make the RLF schemes contribute more significantly to sustainable development. Their implementation at community level must be governed by a set of policies which clearly identify the niche for non-institutional credit facilities, i.e. for providing project planning and management skills; testing the viability of local institutions in the administration of funds; shoring up community confidence through provision of immediate assistance to constraints encountered during project implementation (e.g. delayed repayment for goods produced); imparting people with required skills or simply added understanding for the use of institutionalized sources of credit.
2.0 Take
into account the cultural factors and he local social organization
In some communities, credit in cash is still regarded as quite a foreign concept. These societies regard the provision of assistance as part of social obligations, expected to be dispensed without thought of cash payback. Promotion of credit in cash and the corresponding repayment scheme may go against the grain with the result that the project loses genuine support even before it starts; the implementors go through the motion of satisfying the conditions for the loan and once the money is received, everybody forgets the purpose for the loan.
Intensive community preparation inputs are needed to gain local acceptance for the credit scheme. It will be worth studying the community to see parallel activities which approximate the scheme, possibly with credit actually being extended and repaid on a non-cash basis.
Self-help societies still thrive, and do in fact flourish, in many Pacific islands. A closer look at these societies can yield valuable insights on how the built-in discipline of a cash economy has been engrafted into traditional ways without severe cultural disruptions. Or, probably, we can learn on how projects have adjusted rules and procedures to a accommodate local mores and customs, and in the process, succeed to gain a foothold in the community’s consciousness to gain enough respect and credibility for their advice to be sought on how remote island communities can cope with today’s reality.
3.0 In
the enthusiasm to infuse cash through the credit scheme into the ailing island
economy, avoid playing the Terminator role to functional indigenous
fund-raising and credit systems
Like other Pacific island countries, Fiji has a wealth of such systems whose existence may be threatened by misplaced spurts of enthusiasm in promoting credit schemes. These Fijian practices include:
kati, similar to a raffle but using a deck of cards instead of drawn numbers to win prizes, with the “profit” going to the sponsoring neighborhood association;
soli, with each group member contributing either money or non-cash item to enable a member to buy a household commodity or set up a project;
gunu sede, tea party, serenade or performing dance numbers to solicit contributions for school fees and other necessities of village group members;
veisa, prearranged barter or buying of produce between groups from different villages;
“contract labor,” in which a group of villagers will do weeding on the farm, plant trees or cut sugar cane to be able to raise money or procure cattle for a village project;
“savings club,” actually forced savings among group members so capital can be raised for a project.
Care must be taken that any RLF scheme promoted in the village will enhance the positive aspects of indigenous practices rather than make them extinct, replaced by sheer dependency on government and external assistance.
4.0 Invest
more time and resources in social preparation; encourage government participation
in the indigenous planning process, rather than to merely reinforce the
one-sided practice of seeking community involvement in government programmes;
“make haste slowly” in keeping pace with the community
The community is strewn with the litter of failed development schemes and projects, including those with the RLF component. If we will spend more time with the community, we will find out the local people know the reasons why each undertaking failed. Many of these reasons can be traced to the external agency’s (government, NGO or external project providing inputs to the community) lack of understanding and participation in community life.
Any project which ignores the existing forum for community dialogues and decision making, as well as for planning and managing local activities, is bound to fail in the long run. It will always be peripheral to the community’s dominant concerns and will be treated only with token courtesy. Outside the main currents of community life, a development project can only wither and die.
The implication is that a project, especially those with innovative features, such as the RLF, need to invest time and resources in gaining public acceptance through an intensive preparatory process of making the community perceive its precise linkage with efforts to solve local problems, its pertinence to everyday life, its overall relevance to community life.
CONCLUSION
The final concern, then
is: how do we translate these pointers
as an integral part of a project’s agenda for action?
First, there must be a common recognition by policy-makers, planers and fieldworkers from government agencies and development NGOs that a basic social preparation process at community level is needed prior to full-scale plan or project implementation and that the critical activities of such process must be included in the island development plan or in the project document.
For any project to be implemented, deliberate efforts have to be exerted to determine its link to the local plan, on how it will contribute to solving village problems and what the community really thinks about the project. In al projects, including RLF projects, the community and the government must review pervious experience together, assess the lessons, formulate corrective measures which take into account the linkage to the overall development plan, and the impact on local acceptance and cooperation.
The community perspective on the project is the single most important factor to consider in ensuring collective support and project sustainability. This perspective can only be determined through a sequential and participatory process by which the community goes through the various steps of the project cycle, from problem identification to monitoring and assessment and, eventually, to reformulation of specific projects of the community plan.
Policy-makers need to be aware of the various implications of such a participatory approach to be able to support the process with facilitative measures. Planners and budget officers will have to provide for flexibility in including social preparation activities as a major component of development plan and project implementation. Fieldworkers will have to be trained on skills for facilitating the process at community level with minimal support from the central ministries.
For the government and the community to be truly in development, they must share the same information, address the same problems, know their respective roles and show the same deep commitment to make the projects succeed. Only a common process that brings the community and the government/NGO together can level ff understanding and performance on these aspects which are vital not only for RLF projects, but for all types of development projects.
IADP will provide, upon request, to any interested party the latest information on the community preparation methodology being refined by the Project in cooperation with participating countries.
ANNEX A
List of Interviewees/Resource persons
1. Ms. Amelia Rokotuivuna
General Secretary
YWCA community Resource Center
2. Ms. Mavis Tagivetaua
Suva Area coordinator
YWCA Community Resource Center
3. Ms. Agnes Kotoisuva
Enterprise officer
Suva Youth Employment Options Office
Ministry of Education, Youth and Sports
4. Mr. Peter Tatham
Director
Suva Youth Employment Options
5. Ms. Reama Vulaca
Project Officer
Ministry of Social Welfare and Women’s Affairs
Suva, Fiji
6. Ms. Rusila Beranaliva
In-charge, Nausori Office
Divisional Women’s Interest/Central
Suva, Fiji
7. Mr. Savenaca Nacanaitaba
General Secretary
YMCA
Suva, Fiji
8. Ms. Tauga Vulaono
Rural Coordinator
YMCA
Suva, Fiji
9. Ms. Erma Flores Arias
Associate Expert – Women in Development
ILO Office for the South Pacific
10. Dr. Robert Briscoe
Professor and Head
Department of Management and Public Administration
University of the South Pacific
Suva, Fiji