UNDP/OPS INTEGRATED
ATOLL DEVELOPMENT PROJECT
RAS/88/014
Practical Lessons
from the Successes and Failures
Of
Revolving Loan Fund Schemes
Prepared
by
Nestor M.
Pestelos
IADP
OCCASIONAL PAPER NUMBER 11
|
UNDP/OPS INTEGRATED ATOLL DEVELOPMENT PROJECT Occasional
Papers Series The IADP Occasional Papers Series contains the original
work of project staff distributed within and outside the Pacific region to
stimulate discussion on small island development. For more information, contact the Project Coordinator,
Integrated Atoll Development Project, UNDP, Private Mail Bag, Suva, Fiji.
Tel: 300399, 314555. Fax: (679)
301976. Telex 2228 FJ. E-Mail:
302500. |
Published by:
UNDP/OPS Integrated Atoll
Development Project
(RAS/88/014)
First Edition: March, 1992. ISBN 982-223-022-2
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 to 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 field 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 tha causes of such
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 implementers
-
project was started without making sure the implementers had
technical skills, e.g. making 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 assist.
b)
Causes related to project development
-
no feasibility study 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 implementers lost interest in the projects;
-
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.
Lessons from the successful projects
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 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 community each step of the way.
A workshop carried out 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 on what the community is already doing
successfully, e.g. provide funding for the expansion of an existing projects;
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 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 implementers 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, provide 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 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 properly nurtured to robust
growth, to the degree that 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 field 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 implementers usually do, out
with a wide-angle view, taking the entire development 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. They have tended to show
that, among other things, a single-motive credit program 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 development context or in an integrated program.
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 over all community plan improves the battling 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 continuing 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 the 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 implementers
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 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 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
programs; “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,
planners 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 think the
project. In all projects, including RLF
projects the community and the government must review previous experience together,
assess the lessons, formulate corrective measures which think 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 t monitoring and assessment and, eventually, to reformulation of
specific projects or revision 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 ministries.
For the government and the community to be truly partners 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 off
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/ Resources Persons
1.
Ms. Amelia Rokotuivuna
General Secretary
YWCA Community Resource Center
Suva, Fiji
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
Suva, Fiji
10.
Dr. Robert Briscoe
Professor and Head
Department of Management and
Public Administration
University of the South Pacific
Suva, Fiji