Input credit...through pictures

So a bit of context on input credit in Ethiopia. For the last few years, there has been limited (and in some regions, no) input credit available for farmers. Input credit is very risky since you’re lending without collateral to farmers who could have a crop disaster any year. Also, Ethiopia is experiencing a liquidity crunch (because of a major import-export disparity and the government now working to slow inflation) and smallholder farmers have not been as high of a priority for credit as the major infrastructure projects (the giant hydroelectric dam that is upsetting Egypt…though now they have their own issues, the light rail system in Addis, road construction, etc.).

Turns out, a lack of input credit significantly decreases the adoption (number of farmers using inputs) and the intensity (amount of inputs being used) of input use. Shocking, I know. Input credit was in part limited because of low repayment rates. The old system had several issues that led to low repayment rates, including the following:

·        Loan diversion – farmers using credit for other things.

·        Regional governments provide guarantee but do not have collections responsibility, even though they are guaranteeing the loans.

·        Collection on loans takes place through multiple sets of interactions (primary cooperatives collecting from farmers, cooperatives unions collecting from primary cooperatives, etc.) so ultimately responsibility for collections is diffused throughout value chain and funds can be misappropriated.

·        In case of default, Commercial Bank of Ethiopia (CBE) is paid fully by regional governments, reducing incentive for CBE to apply collections pressure throughout the value chain.

We designed a new system to be pilot this year (and hopefully be expanded nationally next year) to provide input credit while limiting these risks. The new system channels credit through microfinance institutions (MFIs) because they have local presence and historically low default rates (farmer loan groups are one of the ways they keep default low). This keeps the cooperatives out of the credit distribution/collection process. We have also replaced the cash in the system with a voucher, which prevents farmer loan diversion and cooperative cash misappropriation. Over time, regional government loan guarantees will be phased out and replaced by a partial credit guarantee fund.

Everyone asleep now? Bueller? Bueller?

Alright, enough context; picture time.

OCSSCO (MFI that serves 90%+ of Oromia region) branch office in Gassera.

Farmers at one of the primary cooperatives in Gassera being instructed by the MFI about the credit they are about to receive.

Hey, I have those boots.

Farmers waiting for their turn to sign all the paperwork (there’s a lot of paperwork; definitely too much).

While the farmers were waiting, we interviewed some of them about input credit and how it affects the amount of inputs they use. One guy, Mulatu, spoke pretty good English, so needless to say, I spent a lot of time talking with him. He’s the second guy from the right. He’s two or three years into a sublease on a couple hectares of land from some family (all land is originally leased from the government, so everything else is a sublease).

People signing paperwork; I know, super exciting right :)

 

The manager of the primary cooperative.

Due to some…let’s say “issues,” the inputs weren’t distributed until the next day. You’ve got to feel bad for the farmers who had to sit around for the better part of two days just to get fertilizer (improved seed wasn't available at the primary cooperative, which is a whole other can of worms, aka problems).

The next day came with, you guessed it, more paperwork!

The farmers are organized into groups of about five who are all responsible for each other’s loans. Then, all the groups from a primary cooperative meet together monthly to lend support and peer pressure. At the monthly meeting, everyone also has to bring a small amount of money to add to a savings account opened in their name at the MFI. This way, farmers are getting training and experience in overall financial literacy (not just in taking loans). The larger group decides the penalties for tardiness or absence at a monthly meeting, which is what they are discussing in this picture.

After the paperwork was all done, it started to rain, so we hung around for a while before distributing fertilizer. Maybe the largest umbrella I’ve ever seen.

Fertilizer!

A bunch of the fertilizer was caked, which happens when it gets too wet either from rain or too much humidity. This makes the DAP really hard to use and the Urea absolutely worthless. This led to several heated discussions and a trip to the woreda agricultural office to talk with the cooperative promotion office. Each woreda (think county) has a cooperative promotion office, which is the part of the office responsible for the performance and training of the woreda cooperative union and primary cooperatives. Anyway, long story short, more training is needed (as you might expect, some of the trainings from different organizations contradict each other).

Why is the fertilizer caked, you ask? Well, first of all, the country orders way too much so it sits around for 1-2 years. Secondly, the pictures below show the warehouses being used to store the fertilizer. The first one is essentially a big basket (pretty easy for rain to get in). The second one is a metal shed (which in the sun is probably going to make it pretty hot and humid inside).

Fertilizer delivery system.

Ewenetu, one of the analysts on my team, is on the left. Morkema, the representative from OCSSCO headquarters in Addis, is on the right. Major props to both for putting up with me for five days.

Head of the Gassera cooperative promotion office.

The store at the primary cooperative. We went to several primary cooperatives, and each of them has a store that sells consumer goods. This is because the government has made the margins so small on fertilizer that they don’t even cover the cooperatives’ costs. They have to sell consumer goods (and misappropriate money) just to keep things running. In case you’re wondering, yes, the cooperative is selling some kind of Teletubbies biscuits.

  

In Tiyo, where planting had already happened a few weeks ago, we interviewed some farmers, the cooperatives, and the MFI branch office. We went to visit one of the farmer’s fields with him. He talked to us about planting and how input credit had changed his input use. I love that as soon as he got to the field, he started weeding. No reason to waste the time he was talking to us not working.

Until next week...