By Jean-Herve Fraslin
Abstract
This paper documents the CECAM (Caisses dAoEpargne et de Credit Agricole Mutuel) experience in Madagascar, an experience of cooperative organizations with a strong agricultural orientation. These cooperatives have proved to be a successful alternative to the expensive rural informal lending because of their strong linkages with farmer organizations, foundations of stable equity capital and credit tailored to farmers. The strength and growth of the cooperatives has allowed them to set up an Interregional Union of CECAMs, which is a recognized credit institution and which will supply common financial services and technical assistance to the CECAMs.
The main considerations of this paper are:
CECAMs experience shows that strong agricultural orientation and decentralization of decision-making has allowed the organization to run efficiently. Products are flexible and adapted to the specific needs of farmers.
The cooperative basis has allowed it to have stable equity capital, which has also promotes ownership.
Cooperatives are organized at the regional level, which have access to technical support from the national union of cooperatives. Additionally, other support organizations that serve the cooperatives have been created, such as a guarantee fund to cover risks taken at the regional level.
The model keeps cooperative management at village level and banking competence at central level.
Summary
Background: 62% of MadagascarAos population is involved in agriculture. Crops are produced on small plots and mostly consumed by families. ItAos mostly a subsistence economy. Although industrial and export cash crops are significant for the economy, less than 20% of population are involved.
Formal financial sector: There are 6 private banks, poorly developed in rural areas and almost inaccessible for small-scale producers. Less than 10% of households have a bank or savings (associated with post-office) account. Informal lenders dominate rural areas. Transaction costs such as transport, red tape, collateral, etc. continue to deter rural households from acceding the formal financial sector. Less than 3% have bank accounts, but over one third of them get loans from moneylenders.
CECAMAos, main activity, credit has been geared almost exclusively towards agricultural and stock breeding. Its success is characterized by three features:
Cooperative network based on share capital and collateral. It has a stable equity capital to which each member contributes some Aufixed sharesAu when joining (all the same). Members can increase their partnership buying more Auvariable partnership sharesAu (the total amount of shares must be proportional to the loan requested). These shares represent the main stock of capital. Savings only play a secondary but increasing part of total resources (10% Ai 35% depending on the region).
Network has followed a bottom-up approach with strong involvement from producer and farmers. Even after the important growth of the organization, decision-making continues to be on the groups of farmers (i.e. they decide who takes or not a loan, since they are the ones who know fellow farmers better).
Monitoring of the institution. The network has become more institutionalized with local committees united in federations, although decisions remain at the local level, CECAMs require services from regional mutual societies, such as training, accounting and monitoring.
CECAMAos offer five types of credit that have been designed to specifically meet farmersAo needs (usually designed in an interactive way with the groups of farmers). Terms and interest rates are usually decided according to the production cycle. Other products offer storage of produce, which serves as collateral for a loan or allow to buy durable or capital goods under a leasing-like structure.
CECAMAos have preferred to receive collateral than to focus on the sole mobilization of savings due to the fact that their clients have low confidence in cash, especially after high-inflation rates in the mid-nineties. Also, savings are mostly done in forms other than cash, such as livestock, stocks of crops, commodities, which usually have a higher rate of return than money (5-12% in CECAM).
CECAM model has allowed the institution to be close to self-sufficiency. During 1999, CECAMs received important funding from NGOs and development agencies, but starting from 2000 they implemented a development plan to achieve technical and financial autonomy. An inter-regional Union of CECAMs has been formed, which has been recognized as a credit institution or cooperative, which is now under the surveillance of the Banking commission. The new institutionAos structure is a joint capital society joining the regional mutual societies, the interregional union and other financial partners.