Establishment and development of CFCs can, in most cases, be regarded as an organized acceleration of what would otherwise be slow spontaneous process. It requires a concentrated financial effort through the mobilization of both local resources and assistance from outside the community.
Funds are needed to undertake the identification and the preparatory planning phases, to construct or acquire and to bring into operation facilities, services and equipment, and to outfit and support the related FDUs. Funds are also needed to aid the local communities and the participating groups to establish various public and social services, credit facilities for investment and working-capital for cooperatives and other people's organizations, local enterprises and individuals.
We have stressed before that without the deliberate creation of favourable conditions for development there is little chance that rural fishing communities in developing countries will reach the level of their counterparts in the developed countries in the foreseeable future. One such necessary favourable condition is access to investment capital and to equitable credit. Another is the provision of infrastructure. Obviously, most fishing communities and their members are unable to mobilize major financial resources and cannot be expected to do so. Therefore it is usually the government which bears the bulk of the capital investment and recurrent operating costs of the basic infrastructural and social facilities such as harbours, roads, water supply and so on.
Governments can, for this purpose, obtain funds from various international assistance agencies, notably, international development banking system, the United Nations Development Programme and other UN agencies, and bilateral and non-government assistance agencies and organizations, as well as from their own revenues.
One should not involve whole groups of people and communities in a complex and lengthy process of participatory planning that, due to lack of financing, may in the end become useless and frustrating. Therefore, a firm financial commitment from government and/or donor(s) should be secured at the earliest possible stage, even before exact and detailed cost estimates can be produced by the planners. This may need some change in the procedures of some of the agencies and institutions, but one must understand that without such a commitment a full-scale participatory planning of major investments in infrastructure, production, service and community facilities cannot and should not be initiated. Since nowadays, however, most of the aid agencies and institutions officially subscribe to the participatory approach to rural development, they should be requested and hopefully will make necessary adjustments in their procedures.
The donors, governments, and other financing institutions that may become involved in the programme should also realize that their commitment must be a long-term one. The absorbtion of the new technology and new organizational structures into a rural society is a lengthy process requiring, more often than not, a prolonged running-in and learning period. There will be plenty of teething troubles. Often, for example, only the second generation of equipment will produce the desired results. In such cases, the programme's failure can be avoided only if consistent financial assistance is provided.
Experience indicates that resources of dormant capital may exist even in poor areas, often in the form of gold or jewellery. Although the owners are normally very reluctant to become involved in development propositions, activation of such capital can sometimes be encouraged by grant and loan schemes which are tied to self-investment. If these grants and loans are substantial enough and the financial prospects attractive enough the dormant capital may surface in the community and become productive. Government can further assist in encouraging local investment by providing various incentives to local individuals and organizations in the form of various duty-free or tax concessions.
Provision for investment and credit capital must be built into the final preparatory plan. The plan will indicate both the various investments of a more institutional character (infrastructure and the like), and the financial needs of the prospective owners and operators of the various CFC components.
It is highly desirable that the plan indicates also the potential financing sources for each of the major and minor components which are to be established or developed during the first stage of the implementation process, (see Figure 12, Sources of Capital). For this purpose, the planners would have to establish a good contact with local banks, agriculture credit and national development banks, small industries development institutions, and other related bodies, as well as with all appropriate government institutions. With their assistance, the planners will be able to obtain the necessary information and commitments needed for the estimation of both the potentially available and the assured investment and credit capital. At the same time they must be prepared to provide the potential financing institutions with all the information, data and results of pre-feasibility studies necessary to assure these institutions that the purposes for which they are providing their financial resources are sound.
It follows from the above that there are two main areas of different character (though they may overlap here and there) which will absorb the financial resources available for the establishment and development of the CFC:
Infrastructure (roads, jetties, breakwaters, public markets and auction halls, fish landing sites and sheds, wells, sewers, etc.), establishment and operation of FDUs, and major investments of a commercial character.
Investment, replacement and working capital for small enterprises, cooperatives, and for individual fishermen and operators.
Figure 12 Sources of Capital for CFC Development Programmes
The capital for the major investments required by the first category will, in most cases, be channelled directly for the purpose indicated. The capital for the second category would either have to be channelled through specially established schemes and institutions, perhaps in the form of seed money for the creation of various revolving funds and credit unions, or distributed to the recipients by an appropriate organization.
In most developing fisheries traditional credit systems provide the artisanal fishermen with the essential cash, gear, and provisions, although sometimes barely so. The traditional systems are usually supported by “middlemen” or “middlewomen”, who are also the fish buyers and hawkers, often themselves of the small-scale fishing folk, and by larger-scale fish merchants, by fish marketing enterprises and processing plants, and, in some cases, by specialized “money lenders”.
These traditional systems usually provide credit that is minimal, expensive (not necessarily in terms of formal interest charging, but rather in terms of low prices for the fish used to repay the loans), and tends to keep the recipients in a constant dependence on the creditor. Hence the emphasis given in this Guide and elsewhere to the need for equitable access to development and formal credit.
The question of the introduction of modern credit, however, is far from being as clear-cut as it might appear at first sight. The artisanal fishermen may have no acceptable collateral other than their boats and their future catch. While these may be negotiable assets to traditional money lenders or middlemen, they are not to a bank. The high price of the traditional loans is in part justified by bitter experience of unpaid debts, often the result of illness, accident, or simply bad luck. Hence, the expensive traditional system includes an “insurance” element aimed at improving the chances of the creditor to get his money back profitably.
On the other hand, in many places the traditional relations between the debtors and the creditors remain informal and frequently paternalistic. There is no bureaucracy, no paper work and, virtually no collateral. Also, if things go wrong, or extra money is urgently needed, there is somebody to turn to for immediate action.
The creation of favourable conditions for the development of small-scale fisheries in general and CFCs in particular will often involve the creation of special credit facilities. The need for special credit schemes occurs where fishermen and fishery-related small enterpreneurs are unable to secure loans from formal financial institutions due to inadequate collateral, an absence of guarantors, and lack of insurance for their boats and other equipment, and where the traditional credit system is either inadequate or overly exploitative.
Basic options for credit schemes include: fishermen's loan funds, coopertives, credit unions, mutual (small or large) guarantee groups, and schemes of credit insurance. Many such schemes, in particular mutual assistance funds, credit unions, funds for the renewal of major equipment, and working-capital loan funds, are often operated jointly with the government.
As a transitional measure, the FDU may play an important credit role. A loan fund or other financing scheme could be administered by the FDU, which would thus serve as a link between the funding institution and the local recipients. Figure 13 illustrates how an FDU could be involved in a scheme where repayments are arranged as a share of the proceedings from the catches landed at a CFC.
The most desirable situation develops where the fishing folk themselves organize to create channels to equitable credit and other forms of formal financial assistance. Fishermen's and community organizations can be involved in credit schemes at various levels: funds can be established and operated wholly by the organization (with seeding capital borrowed from or granted by outside sources), by joint funds (with government, development banks and agencies, etc.) operated jointly with the respective partners, or autonomously by the organization. Funds can be established and operated by other institutions with the local organization participating or assisting in the operation mainly by recommending the eligible borrowers, organizing mutual guaranty groups and encouraging repayment of loans.
The Planning Team may assist the community leaders and members in planning such credit development by presenting them with various possible options and by identifying external financial resources available for the different options. We should remember that most of the funds available for such a programme may have all sorts of strings attached. Some may be designated only for private enterprises and individuals, others only for cooperatives, and still others for government operated enterprises and facilities. The task of matching the resource with the potential recipient may thus be complex.
In a socially stratified fishery community there may be a need for different organizations for the different social groupings. Figure 1 illustrates some options for membership in these organizations, which are described in short in Chapter 2.
In most cases, a credit scheme designed to channel formal conventional credit or special development capital to artisanal fishermen will have to compete with the traditional system. This is because, willfully or not, the new scheme would almost necessarily assume functions formerly the exclusive domain of the traditional middlemen and money lenders. In spite of being able to offer the fishermen much cheaper and more substantial loans, many credit schemes do not survive this competition. Analysis of the failures has shown that the formal credit mechanisms were unable to provide the fishermen with much of the kind of service and response to their needs they were used to getting. Further, the new schemes could not match the traditional system in getting the loans repaid.
+) community elders, fishermen's organisation committee, fishtery office, any combination of the above, etc.
— cash flow
— operational interactions
Figure 13 Possible Roles for the FDU in Small-scale Fisheries credit Schemes
No doubt the operators of credit schemes and other credit institutions designated to serve artisanal fishermen have much to learn from the middlemen in their approach to money lending. Whatever the faults of the traditional system, the close informal links between middlemen and fishermen are a good example to follow. Sometimes the fisherman is the best judge of what constitutes sound reasons for a loan and his reasons may not always find favour with formal credit administrators. Therefore, administrators of fishermen's credit schemes must have a very good understanding of the local situation, and a good knowledge of their clients. If they reject what the traditional system would accept, it may prove difficult to persuade the fishermen that the new scheme represents the solution for their financial plight.
On the other hand, a realistic view of credit is necessary, and the new scheme must be designed in a way which does not invite bad debts, delays in repayments and loan failures. There must be means to evaluate the former performance of the fisherman (before he is given the credit) and to establish his credit-worthiness. There also should be a means to monitor his fishing activity and the manner in which he uses the loan money. A social norm backed by a social pressure, should be established to encourage paying back and, as far as possible, paying on time. In this respect, as mentioned before, fishermen's organizations and the FDU may be very useful.
Repayment of loans must be assured, otherwise the credit scheme will not survive. Wise planners would have all the details of guarantees, distribution, monitoring and repayment well settled with the potential clients before the distribution of money starts. Various alternatives should be presented for discussion in the participating groups or communities. Ample time should be given so that the people can absorb and evaluate the various options and formulate their own approaches and solutions. Deliberations and negotiations will continue until the fishing folk's solution satisfies the planners and the representatives of the financing institutions, especially with respect to the loan refunding procedure and the guaranty scheme. A true example from an African country follows:
A group of 14 fishermen had been selected as a pilot group in a boat motorization project. Funds for the purchase and installation of 14 diesel engines, and a similar number of nylon seines, as well as working capital for one season were made available by the country's development bank. The bank, however, could not issue the money to the government's fisheries department and would not issue it directly to the individual fishermen who lacked collateral and were unable to produce suitable guarantors. After prolonged deliberations all sides agreed on the establishment of a fishermen's loan fund (FLF), under the auspices of the local Sea Fishery Board, a public body comprising community leaders, fishermen's representatives and representatives of the bank and all government offices concerned with fisheries. The day-to-day administration of the FLF would be carried out by the local fishery officer and an expatriate expert. A mutual guaranty group created by the fourteen and responsible for the repayment of all 14 loans, was accepted by the bank. For reasons best known to themselves, the fishermen would not trust each other with cash money and preferred to rely on the FLF administration. They worked out the following procedure: Fourteen separate banking accounts would be opened and each credited with the full sum of the individual loan. A cheque or a payment order by the owner of the account would not be valid without the counter-signature of the two administrators of the FLF, who would agree to validate payments only for items appearing in the loan agreement, namely, the engine with spares, auxiliaries, etc., the seine net, the installation of the engine and the related hull modifications, fuel and food on board. All this procedure, though quite unconventional, was accepted by the unusually flexible bank. The FLF administrators made themselves available to fishermen at any time and took care of all formalities, paperwork and correspondence.
The fishermen, who before used to work separately and on a rather competitive basis, started cooperating at sea exchanging fishing intelligence and helping each other, because now they were interested in good catches for all the members of the group. Later on, they found that better results and mutual credibility could be achieved if they split into three separate guaranty groups for better cooperation at sea and closer “supervision” of each other. This most recent modification was also accepted by the Bank and the scheme functioned successfully. The repayment of the loans (capital and interest) was arranged in connection with auctioned sales of their catches through their banking accounts. The amount paid back as a result of a sale was, in each case, discussed separately between the FLF administrators and the fishermen.
Although the above case is by no means typical, it brings out a few important points which the designers of credit schemes for artisanal fishermen should take into consideration. Firstly, there is frequently the problem of credibility or, rather, of a distrust among the fishermen themselves when it comes to matters of finance and property. Secondly, there may be a credibility gap between the fishermen on the one hand and the leaders and operators of their own local institutions on the other. Thus, in some cases, the outsider, national or expatriate, may become the one who is the most acceptable “trustee” of any common fund or credit scheme. Thirdly, fishermen are human and none of the human weaknesses are strange to them. Therefore, without strict and jointly agreed on audit and supervision-3, some of the money lent to them may “go astray” to be used for expenditure which has nothing in common with the declared aims of the financial assistance. Fourthly, the flexibility of the financing institution and non-formal relations between fishermen and credit schemes’ administrators may be important factors contributing to the success of the scheme.
3 See also the Chapter on cooperatives.
