[Development Fund for Africa] -- the impact of rural credit projects in Africa : a synthesis report

The evaluation covers the period through 1989. The projects had mixed results in achieving their primary objective of increasing agricultural production. Short-term increases occurred in Kenya, Malawi, and Liberia, while little impact was seen in Lesotho and Cameroon. Moreover, it is doubtful that long-term sustainable increases can be achieved solely as the result of credit, since such increases depend on other factors, such as farmers' knowledge and technical skills as well as sectoral and macroeconomic factors. For example, Kenya's lack of marketing channels and of government trade and pricing policies may ultimately determine the sustainability of production increases. The projects' socioeconomic impact also varied. The vast majority of borrowers lacked the productive capacity to repay the loans, and delinquency rates were high. Hence, only a small number of progressive farmers had the knowledge and ability to apply loan funds to sound investments and improve their socioeconomic status. The most successful activities were those that improved liquidity at key times by making credit available in cash rather than in-kind. In fact, liquidity appeared to be a more important factor than access to credit, since farming households were often in need of cash during the planting time. Participating lending institutions benefitted significantly when projects helped introduce or reinforce effective, financially sound management practices. Government or donor involvement in targeting credit beneficiaries had a deleterious effect on the financial viability and independence of credit unions and other financial institutions. Moreover, the institutions' absorptive capacity was sometimes overwhelmed when supplemental funds were provided to ensure additional directed credit for target groups. Only the Cameroon project had a strong, positive impact on rural financial market development. Its success is attributable to a well-managed credit union which effectively bridged the gap between rural, informal financial markets and urban, formal sector financial markets. This was achieved by building upon existing indigenous informal savings and credit associations. Three key lessons emerged. (1) Success is dependent upon local participation and local control at all levels. (2) Entities are most valuable to farmers when they offer both savings and credit services. (3) Agricultural credit institutions must have sound management and financial viability in order to make a sustainable impact on rural development.