M. E. Menéndez G.
In nearly three years of operation, a revolving fund established to promote people's participation has proved itself to be an effective means of keeping up farmers' interest in forestry, land rehabilitation and soil conservation activities, thereby providing both short- and long-term benefits.
Miguel E. Menéndez G. is chief technical adviser of project GCP/BOL/016/NOR - Forest Restoration and Land Rehabilitation in the Upper Watershed of the Guadalquivir River.
The upper catchment area of the Guadalquivir River in the Department of Tarija, Bolivia (altitudes between 1800 and 4344 m above sea level), as well as the rest of the Tarija Central Valley, suffers from such serious erosion that there is the danger of complete ceasing of agricultural activities owing to the almost total loss of soil suitable for crop-growing and livestock-raising. In a mainly agrarian district of a country like Bolivia, this threatens the very life of the Tarija Valley community, which is unable to compensate for the loss of agricultural capacity with industrial or service activities.
Over the past ten years, the combination of highly erosive soils and unsustainable agricultural practices has led to the degradation of 23400 ha and is threatening the remaining 100000 ha in the valley. The arable land area has been reduced from approximately 25000 to 21000 ha over the same period, while the rural population has increased by some 4000 to a total of approximately 20000. In the upper portion of the watershed (where project activities are concentrated), approximately 8000 ha is suited for sustainable agriculture: 700 under irrigation, 1600 semi-irrigated and 5700 rain-fed.
The inhabitants of the watershed are basically subsistence farmers practicing rain-fed farming on average holdings of less than one hectare per person and extensive rearing of goats and sheep. The irrigated land is concentrated in the hands of a relatively few producers of cash crops.
In order to reverse the negative repercussions on the environment and to improve the lives of the peasant families, the Bolivian Government, the Tarija Department's public institutions and FAO are jointly carrying out a technical cooperation project with financial backing from the Norwegian Government. The project combines an energetic programme of reforestation, accompanied by torrent control, with improvement of sustainable agriculture and grazing management.
From the outset it was clear that the project objectives could be achieved only through full and determined collaboration and participation by organized and motivated peasant communities. Therefore, the developed a number of incentives designed to make it attractive for local people to adopt appropriate land-use practices. In the second phase of project activities, which began in 1987, a revolving fund (RF) was created.
The operational plan for the second phase of the project neither specified how much money the RF should contain nor laid down specific guidelines regarding how it should operate. It simply established that the budgetary framework for the donor government's contribution of supplies and materials should include a fund to encourage peasant families to take part in the activities that they would jointly implement. As detailed later in the article, this flexibility made it possible for the fund to satisfy the various requests for credit made by conservation committee members and to adapt to circumstances. Moreover, it made it possible to find suitable means of operating in accordance with the interests of the beneficiaries.
The revolving fund grants credit in kind (agricultural inputs, materials and tools) to local community members who have joined the conservation committees (CCs) formed by the project in the communities of the project area, as well as to the members of the mothers' clubs and centres that work together with the CCs.
The RF was started in august 1987 with a capital of 2230 Bolivian pesos ($b). The initial capital was used to buy fertilizer and pruning shears, which were advanced to 49 farmers. As of June 1990 the revolving fund had authorized more than 425 loans with a total value of $b 37260; the total capital including accrued interest stood at $b 38452. The average value per credit was $b 88, with most falling in the range from $b 50 to $b 200. The inputs in greatest demand are fertilizers, followed by seeds, confirming that the primary concern of poor farmers is to endure adequate production of staple foods (see Table 1). Credits for activities directly related to forestry are rarely requested.
Factors in the RF's success
Among the contributing factors in the RF's success is the fact that it is the beneficiaries who decide how to use the credit and what form payment should take. A common feature of bank loans is that the borrower has to follow established credit regulations that are usually too rigid for smallholders. Moreover, banks demand guarantees that are beyond the reach of poor peasants and they lay down procedures that delay the credit beyond the time when it is most useful.
In contrast, the procedure established for RF loans is simple and direct. Applicants present a request endorsed by the chairperson and the treasurer of the management committee of their CC and sign an assistance and input provision agreement between the project and the beneficiary, listing the materials and inputs requested and the sum of money involved. This may seem a perfectly ordinary procedure; however, what is significant and important about it is that the farmers themselves decide what they are capable of repaying and how to do so within the agreed times. In this way the beneficiaries commit themselves and risk their standing in the eyes of the CC, their community and the project. Table 2 summarizes how the interest rate charged and the length of time allowed vary according to the type of materials or inputs requested and their intended use.
A further significant aspect is that farmers become aware of the opportunities and risks associated with investing in agriculture. This is shown by the way in which they tend to complete that clause in the agreement where, in addition to setting the expiry date for the loan, they also have to explain their choice of method of repayment. The majority explain that on that date they will sell poultry, some of their larger livestock, their produce in storage, etc., whereas very few mention paying back the loan from sales of what they will use the inputs purchased with it to produce. This also shows the farmers' determination to fulfil the agreement and maintain their prestige by not defaulting. Eighty percent of the loans have been repaid on time.
Other benefits of the RF
Around 10 percent of the RF's capital has been invested in purchasing the most sought-after inputs to sell for cash to the members of the CCs and the mothers' clubs. A sort of countryside mini-store accordingly sells properly packaged and labelled seeds in small quantities, including the basic information the farmer needs, as well as fungicide powder and low-concentration, low-toxicity insecticides to deal with the insects that attack the forestry saplings as well as other crops. The products are sold at cost price; however, the primary advantage for the farmers is that they are able to buy products from the mini-store in the small quantities they need, which they cannot do from local traders. In the past few months, some farmers have been buying hand-tools for cash. At the moment we are not sure why they are doing this, although we believe that it reflects their confidence in the quality of the products sold by the project.
Administration of the revolving fund
The revolving fund is supervised by the project's chief technical adviser with the help of an administrative assistant. The assistant is responsible for accounting, collection and registration of supporting documents, the purchase of materials and inputs in accordance with standard FAO procedures, inventory taking and for the collection of payments and their deposit in the bank. The capital for the revolving fund is maintained in the same bank account as the project operations budget.
Records of all deposits and withdrawals are maintained in standard accounting ledgers. On the basis of these ledgers, every six months the status of the fund is checked and this status report is supplied to FAO, the Government of Bolivia and the Government of Norway (the donor country).
TABLE 1. Revolving fund loans by input type
|
Inputs and materials provided on credit |
Value in $b |
Proportion of total (%) |
|
Fertilizers |
|
|
|
18-46-0, 23-23, urea |
24535 |
66 |
|
Seeds |
|
|
|
Potato and green vegetable |
4606 |
12 |
|
Materials for fencing forestry plantations |
|
|
|
Barbed wire, stakes, clamps |
3727 |
10 |
|
Tools |
|
|
|
Spades, picks pruning shears wheelbarrows ploughing implements |
3618 |
10 |
|
Pesticides |
727 |
2 |
US$ 1 = 3.14 Bolivian pesos ($b) in June 1990
No competition with other institutions
The RF does not compete with local traders or local banks now, and it will not do so in the future even if it grows considerably, for the RF's capital will remain insignificant in comparison with the financial capacity of traders and bankers. Furthermore, very few RF beneficiaries are in a position to obtain bank loans, mainly because they cannot put up enough collateral, for few of them have legally registered their property holdings properly. For example, only 9 out of 170 RF beneficiaries interviewed were found to hold loans from the Banco Agrícola de Bolivia (BAB), the major credit institution in the area. Moreover, although the BAB does serve smallholders in Tarija who meet requirements, it has no lines of credit available for forestry activities, unlike the RF, which offers loans for buying materials to fence reforested areas.
A further important indication of the RF's achievement is the feeling of confidence with which farmers approach the project for loans and consider them an incentive or reward for the conservation activities that they are carrying out.
The revolving fund offers many opportunities and could be applied in other areas, both inside Bolivia and elsewhere. However, a few words of caution are in order, so as to avoid potential problems.
The interest rates charged to borrowers from the revolving fund (see Table 2) are significantly below commercial rates and, considering the default rate, are not capable of generating a significant increase in the capital of the fund over time. Therefore, provision must be made for topping up the fund from time to time.
TABLE 2. Interest rate and length of loan by input type
|
Material or input |
Interest rate |
Length of loan |
|
Agricultural inputs for annual cultivation |
1% per month |
5 months |
|
Tools - Spades, picks, pruning shears, wheelbarrows, ploughing implements |
1% per month |
8 months |
|
Fencing materials for agricultural production |
6% per month |
1 year |
|
Fruit-trees (apple trees which will be productive after four years) |
2% per year |
4 1/2 years |
|
Fencing materials to protect tree plantings |
2% per year |
5-6 years |
In the case of this particular project, additional capital inputs to the fund are provided by renting out a project caterpillar tractor when it is not being used. The tractor is made available to conservation committee members exclusively for the construction of small water-impounding dams under project supervision; the price charged is US$45 an hour, or one-half that charged by a private contractor. Users pay the price of one hour's rental upon signing the contract and the remainder at the rate of one hour a month without interest. To ensure payment, another community member must co-sign the agreement as guarantor.
As the number of credit relationships and beneficiaries rises and new communities are reached, the operational system will need to be adjusted with the development of new and appropriate rules and regulations that will eventually enable the fund to become self-sufficient. However, care must be taken not to incorporate rigid procedures that might make the farmers suspicious or discourage them.
In addition, if it proves impossible to serve all the members of a CC or a community, reasons and explanations must be provided to ensure that discontent is not generated or that non-beneficiaries are not set against beneficiaries. There must also be no illusions that the RF by itself is capable of significantly raising the low standard of living of peasant families - no effort as small and as short as the RF could hope to achieve this objective.
Inflation rates also must be considered. In Bolivia, for example, the average annual inflation rate in the 1980s was nearly 500 percent. Over the past two years, on the other hand, inflation has stabilized at less than 30 percent per year. Although even under these conditions, borrowing at fixed interest rates can be highly advantageous to the farmer, it presents serious problems in terms of maintaining the capital of the revolving fund at an efficient level.
All in all, though, this experience with farmers in the upper basin of the river Guadalquivir has proved positive and deserves to be intensified, further improved and disseminated to other technical cooperation projects.
