Kordofan rainfed agriculture development project - credit component

With assistance from Technoserve, the Agricultural Bank of Sudan (ABS) is implementing the component to provide credit to small farmers for crop production and inventory (storage). Evaluation covers the period 2/87 - 11/89 and is based in part on interviews with participating farmers. A spiraling 200% annual rate of inflation has left the viability of the credit program, ABS, and the farmer cooperatives uncertain. Apart from this constraint, however, the component has been fruitful. Farmers have been able to diversify their income by substantially increasing their livestock holdings. They have also repaid their loans in a timely manner: of 40 cooperative borrowers interviewed, only 8 had overdue loans. Further, the amount of credit available is sufficient to service demand over the life of the project. This, coupled with ABS"s potential for covering all operating costs and providing a reserve for bad debts, makes sustainability, sans inflation, a realistic possibility. After a baseline survey, the focus of institution-building efforts changed from the cooperatives to ABS. Results were positive, including: the creation of a budget analysis unit in ABS" Khartoum office; appointments of Agricultural Loan Officers; establishment of a profit center and cost accounting measures; and the provision of on-the-job, in-country, and participant training for ABS personnel. The shift in emphasis also allowed the planned savings program to be refocused, and farmers are now being counseled that keeping funds in cash during periods of high inflation is the worst possible investment for a saver. The inventory loan program, which was to be the major type of credit extended, has had few participants, mainly due to low productivity and high harvest costs. This confirms the baseline survey finding that traditional farmers may produce too little to qualify for both production and inventory loans. Three lessons were learned. (1) Cooperatives can be used as a vehicle to deliver credit to small farmers whom financial institutions would not otherwise reach due to high transaction costs. (2) Baseline studies, properly undertaken, can help in designing implementation plans and can give projects a greater chance to achieve their intended impacts. They can also help to make the measurement of progress easier to accomplish. (3) Inflation is a major constraint for rural credit projects, and when it is encountered, a decision needs to be taken regarding the merits of the long-term institution-building aspects of the project, rather than exclusively focusing on inflation.