Financing smallholder production: A comparison of individual and group credit schemes in Zimbabwe
| DOI | http://doi.org/10.1002/pad.4230060202 |
| Date | 01 April 1986 |
| Author | Michael Bratton |
| Published date | 01 April 1986 |
PUBLIC ADMINlSTRATlON AND DEVELOPMENT, Vol. 6,
115-132
(1986)
Financing smallholder production: a comparison
of
individual and
group
credit schemes in Zimbabwe
MICHAEL BRATTON
Michigan State University
SUMMARY
Credit programmes aimed at individual smallholders in Africa have had disappointing results,
particularly with regard to loan repayment. This article enquires whether group lending under
terms of joint liability is a more effective approach. Data are derived from the performance
of
smallholder credit schemes in Zimbabwe in the period
1980-1984.
The findings are as follows:
(a) access to credit
is
easier for small farmers if they belong to voluntary agricultural
associations; (b) loans issued on terms of joint liability have lower administrative costs; (c)
most importantly, joint liability arrangements lead to higher repayment rates than schemes
based on individual liability; (d) although joint liability is better enforced by mandatory
sanction than by selective incentive, this advantage is offset by
a
disintegrative effect on
farmer organizations. The conclusion is that
a
policy of group lending is generally more viable
than an individual approach, but only in the context of the creation and strengthening of local
farmer institutions.
INTRODUCTION
Financial institutions in Africa have found production credit for small farmers to be
an expensive and unprofitable venture. The severest critics of smallholder lending
have termed it ‘neither warranted nor generally possible’ (Howse, 1974, p. 259).
By contrast, considerable support has been voiced for group credit-a method of
extending loans to associations
of
small farmers rather than
to
individuals-as a
potential organizational solution. Leading authorities have claimed that ‘group
approaches may be an economic necessity in organizing credit systems’ (Lele, 1975,
p. 97) and that ‘indigenous village organizations . .
.
deserve consideration and study
. .
.
as channels
for
delivering credit’ (Miller, 1977, p.
86).
The World Bank has
declared that ‘the best prospects, in the future, will lie in some form of group
responsibility
for
individual borrowings’ (World Bank, 1975b, p. 49).
The purpose
of
this paper is to put the supposed advantages of group credit to an
empirical test. The best cross-national study to date arrives at the mixed conclusion
that ‘some group lending programs have performed poorly, while others have
yielded satisfactory results’ (Adams and Ladman, 1979, p. 91). It is difficult to
compare credit schemes in diverse countries, however, because variations in
ecological, agricultural, economic, social, and infrastructural settings may be
Dr. Bratton is an Associate Professor in the Department
of
Political Science and African Studies Centre,
Michigan State University, East Lansing, Michigan 48824-1032,
USA.
0271-2075/86/020115-18$09.00
0
1986
by John Wiley
&
Sons, Ltd.
116
Michael
Bratton
responsible for observed outcomes. This study makes a comparison of three
institutional credit programmes in a single setting (the ‘communal lands” of
Zimbabwe) over one time period (1980-1984) in an effort to control for background
variation and to focus analysis on the effects of institutional arrangements.
I
wish to discover whether agricultural credit agencies can use financial resources
more efficiently by lending to groups rather than individuals.
I
am also interested in
the strengths and weaknesses of different forms of joint liability, for example by
comparing voluntary and mandatory methods of collecting loan repayments. In
addition,
I
would like to explore the relationship between the institutionalization of
self-help organizations among farmers and the administration of credit schemes.
This is an important theme in the light of the observation that joint liability ‘appears
to work well [only] where village organizations are strong’ (Adams and Ladman,
1979, p.
87).
Two bodies of theoretical knowledge illuminate the processes at work in group
lending. The literature on ‘local organizations’ in rural development (Korten, 1980;
Esman and Uphoff, 1984) indicates that a ‘third sector’ lies beyond the public and
private sectors. It operates
at
community level according to principles of voluntary
association, like self-government by members and social control by peer pressure.
We need to know, and
I
try to spell out, how local organizations can articulate with
central credit agencies in patterns of institutional development that are beneficial for
manager and client alike. The literature on ‘collective action’ around ‘public goods’
(Olson, 1965; Ostrom and Ostrom, 1979) proposes conditions under which self-
interested individuals will choose between joining with others or withholding
collaboration. The case study in Zimbabwe confirms that either a selective incentive
or a coercive sanction is required to enforce joint liability and maintain group
organization.
I
try to specify the conditions under which joint liability leads to the
repayment of loans and the conditions under which
it
encourages farmers to default.
The general finding is that group lending
is
an effective organizational device except
in years
of
severe drought and in cases where coercive enforcement of joint liability
leads to the disintegration of farmer groups.
SOURCES
OF
CREDIT
IN
ZIMBABWE
Credit for peasant farmers in Zimbabwe originates mainly from the Small Farm
Credit Scheme of the government-sponsored Agricultural Finance Corporation
(AFC). The programme was launched in 1978 and expanded substantially after
independence in 1980 with financial assistance from the International Development
Association of the World Bank. In 1983 the AFC made loans to peasant farmers
totalling $23.4m.*, about
85
per cent of which was short-term loans to purchase
seasonal crop inputs (AFC, 1984; Mutunhu, 1984, p. 9). The average seasonal loan
I
The term ‘communal lands’ is used
to
designate the peasant farming areas where land
is
held under
a
traditionally-derived tenure system. Land is vested in the community-at-large and was originally allocated
by traditional chiefs and headmen. The legal power to assign plots was passed to locally elected district
councils in
1981.
Households do not enjoy freehold title but have access
to
an identifiable plot
of
land
for
as
long
as
it
is
productively used. The term ‘communal’ is something
of
a
misnomer since land is not
operated on
a
collective basis but by independent family
with.
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