Diverse livelihood strategies have been developed by people as they have learned over generations to cope with resource-poor environments. Crafted and adjusted to meet changing needs, these strategies and related institutions have ensured survival of communities under adverse conditions.
Indigenous forms of savings and credit form part of this complex of livelihood strategies. When agriculture is risky, people save in cattle and other farm animals. When social customs require bride price to be paid at the time of marriage, they save in the form of jewellery and other valued goods. And because savings are mostly embodied in multi-use assets - with relatively small amounts kept in cash - villagers on occasion seek credit in cash from fellow villagers of greater means. These types of "contracts" are informal, without recourse to the law, so village lenders may provide credit only to persons who have a good reputation in the community. Thus, customs, agricultural practices, social networks, and institutional arrangements are all part of a seamless web, and none can be seen in isolation from the others.
Development interventions would need to understand the close inter-relations between peoples' diverse livelihoods and the institutions, mainly informal, with which they interact, in order to have any deep or lasting impacts. Too often, however, a narrow sectoral approach is taken with attempts to install "best practices" with respect to one or another sector. But transplants can rarely survive unless they function harmoniously with all other organs.
Informal savings and credit institutions or arrangements are largely determined by the range and frequency of consumption and investment needs in a village, and access to such arrangements often depends upon one's social standing. Thus, savings and credit are woven in with other social and economic arrangements that together form part of complex livelihood strategies in the village. Interventions to replace these indigenous savings arrangements with others that are more "modern" have often failed to account for these interdependencies. A case study on savings and credit in the Dodoma region of Tanzania provides evidence of these linkages, and shows how external agencies that ignore the role of livelihoods and social networks in designing interventions have failed to make any significant impact on villagers' access to credit and well-being.
Projects (see Table 1, source & pp. citations) that have been introduced to this area for modernizing and enhancing savings and credit have typically failed to take account of the close connections between prevailing livelihood strategies and related institutions and social networks. Savings have been seen in a Western context - in the form of cash-based bank accounts. "In order to obtain credit, a member was obliged to put deposits [in bank accounts]. Loans to individuals could not exceed the value of two times the deposit". Bahi residents who were able to participate and receive credit did so with little or no commitment to paying back their loans, and hence the default rates were nearly 100 percent. Furthermore, there was limited access to these sources of "cheap money". Government officials and employees of the project agency had first claim, along with relatively better-off villagers. Thus, "most villagers perceived these [formal schemes] as not for ordinary farmers". Consequently, the new savings and credit arrangements failed to take root.
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Savings and Credit in Dodoma, Tanzania1 The village of Bahi is located in Dodoma Rural District, which forms part of the semi-arid central region of Tanzania. It has a population of about 8 500 persons, and the dominant ethnic group is the Wagogo tribe. More than 90 percent of the households in this village derive the major part of their incomes from agro-pastoralism, a livelihood strategy that suits the low and highly variable rainfall and frequent droughts. The main staple crops are sorghum, bulrush millet and maize. Though some part of the maize crop is also sold in the market, the major cash crops in this region are groundnuts, sunflower, and especially since the 1970s, semi-irrigated paddy. Due to the high uncertainty of agriculture and the small size of landholdings (less than half a hectare per capita), cattle-rearing animal husbandry forms a very important part of the village economy. Cows, goats and sheep are kept as an insurance against famine and they embody an important part of farmers' accumulated savings. Fishing in nearby rivers and swamps is also practiced for local consumption and for sale to distant markets. Rather than keeping their savings in the form of cash, people in Bahi prefer to save in the form of commodities that can be readily exchanged for cash whenever the need arises. Banks are located too far away - the nearest bank branch is more than 60 kilometers distant - and cash kept at home tends to be frittered away on non-essentials or it is borrowed and not returned by friends and relatives. Paddy and cattle constitute the two most important forms of local savings. People keep a store of rice paddy in bags and baskets inside their homes, which can be turned readily into cash at the local market as needed. Sickness and harvest failure are frequent occurrences, and paddy stocks serve as a store of value for use at these times. There is a cost to this form of savings, however; significant amounts of grain are lost to insects and rats and value is lost some times on account of fluctuations in prices. Cattle serve not only as a store of value but also as a medium of exchange and traditions of cattle rearing represent an embodiment of cultural norms. Bride wealth is traditionally paid in the form of cattle, and cattle can also be exchanged for grain whenever food supplies run short. For these reasons, and because of the long tradition of saving in cattle in this region, people here consider it "unthinkable" to use cattle for draught power, or for meat - not even during famines. Credit in the Dodoma region is rarely obtained from banks and other formal institutions. Cash is mainly needed in small amounts for expenditures associated with emergencies (death, illness) and festive occasions. There is also borrowing for land preparation, and quite often for purchasing food, especially at times of famine, which is a frequent visitor to this region. Most borrowing and lending in Bahi takes place among fellow villagers. Borrowers first approach their friends, relatives and neighbors, with whom they have frequent transactions. Villagers prefer to borrow at times of need rather than liquidating their own stocks of paddy, and lenders in the village find it hard to refuse the requests of needy people. People here look down upon those who would not help a fellow villager in need, and these social norms and cultural practices drive saving and lending behavior in the village. Quite often in these situations, amounts continue to be advanced even though previous loans have not been repaid, for it would be an exceptionally harsh man who turns away a neighbour in dire need for cash or food. More formally, loans are also taken from shopkeepers and other village lenders. There are ten such professional lenders in this village. In a practice traditionally known as Songoleda, loans are made in the form of grain or money and repayment is made after the harvest. Rates of interest on these loans vary depending upon the reputations of borrower and lender, though it is usual to find borrowers repaying a loan of three bags of maize with an equal quantity of paddy after the harvest, despite the fact that paddy obtains more than twice the price of maize. Material collateral is not easy to provide by borrowers and it is not usually required by lenders. Since these are essentially social transactions, lenders look mainly to "social collateral" while negotiating loans. One's social networks and reputation matter for the amount one can borrow and also one's economic situation, which is assessed in terms of cattle stock, farm size, and average productivity. Screening of borrowers is also linked to knowledge of the seasonal credit needs of different villagers: "workers on the plots of others earn money during the rainy season and borrow mostly during the dry season while, on the other hand, people relying on their own paddy harvest borrow mostly during the rainy cultivation season and are "rich" after harvesting." (p. 23) Repayment to shopkeepers is usually on time. However, the pressure is great to continue to lend or provide store credit even when it proves to be unprofitable because shopkeepers fear that "village gossip" might result in the ruin of their business. They try to lend only to people whom they can trust, but they are often compelled on account of social pressure to extend credit and loans to other needy villagers. Significant group activity takes place among residents of Bahi. Cropping operations are carried out by work parties, in particular when these tasks are highly labour intensive, such as weeding and manuring. Cattle are kept in large communal herds. Women cooperate closely with one another for making and selling traditional maize beer. Fishermen work in groups of five or six with the same net. Although group savings and credit are less common than individual borrowing and lending, people will group together around common economic or social needs and form various types of ROSCAs. Borrowing and lending occur usually among people who are members of the same social network, and considerable lending activity occurs within cattle-herding and beerbrewing groups. |
Table 1: Savings and Credit Projects2
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Intervention |
Agency |
Objectives |
Members |
Results |
|
(A) Groups including both men and women |
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Savings and Credit Cooperatives (SACCOs) |
Gov. Of Tanzania and IFAD (started 1992) |
Setting up two cooperative societies in the village |
79 persons |
Members of SACCOs were mostly influential villagers and government employees. Other villagers "perceived SACCOs as groups of officials and their friends, not something they could be part of" (Pp. 26) |
|
Water Users Associations (WUAs) |
IFAD (started 1993) |
Managing water for paddy cultivation; chanelling credit provided by IFAD |
347 persons (incl. 114 women) |
The groups largely failed because nobody repaid any of the
credit |
|
Special Programme for Food Production (SPFP) |
FAO (Started 1995) |
To demonstrate new agricultural techniques and provide grants and loans in support |
Four groups of 20 farmers each |
The project has failed in terms of its objectives. "Members have forgotten the group of which they were part... SPFP is likely to pass away as an insignificant event in village life" (Pp. 28). |
|
(B) Only women’s groups |
||||
|
"Unity of Tanzanian Women" (UWT) |
Formed by the ruling socialist party CCM (Started 1997) |
"Women were promised credit if a CCM candidiate was elected" (Pp. 28) |
25 women |
Members joined with the cynical purpose of gaining access to the promised credit, and they left shortly after this purpose was fulfilled. |
|
Wanawake Watanzia Wawata (WWT) |
Roman Catholic Church (Started 1982) |
To encourage savings among women, and to use these amounts for enhancing household incomes |
31 women |
Alone among all externally sponsored groups, WWT has a sustained presence and abiding member loyalty. The group has been built upon pre-existing social bonds, and such "group membership created a socially accepted way of earning more income for women" and their families (Pp.29). |
A better recognition of the role that savings and credit play within the livelihood strategies of Bahi villagers might have helped to fashion more useful and sustainable innovations. For instance, a useful project intervention could have been improvement of storage facilities for paddy or veterinary services for cattle - and the economic and social value of total savings would have been enhanced as a result.
Group-based lending might have relied upon pre-existing social networks, but new credit groups were formed on the advice of "credit specialists" brought in from outside. Reputation-based lending could also have been adopted, as it has been, reportedly with great success, in Bangladesh's Grameen Bank, but cash collateral was insisted upon instead. Thus, poorer members of the community were limited in their ability to participate - even if they had the most need and the cleanest reputations - while richer members made off with large amounts that they never intended to repay.
New institutional arrangements were introduced through these projects to improve rural finance options in the region. However, in divorcing savings and credit from villagers' livelihood strategies and social networks, the interventions failed to have positive impact, and people have continued to rely upon what they have always found valuable.
Endnotes
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1 |
This section has been adapted from Jochem Zoetelief, "Finance From Below: Savings Arrangements and Credit Mechanisms in Dodoma Rural District, Tanzania," M.Sc. thesis, Department of Social Science, Wageningen Agricultural University, 1999. We are grateful to the author for permission to use this information for the present publication. |
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2 |
ibid. |
