Livestock Services and the Poor: A global initiative - IFAD

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LIVESTOCK SERVICES AND THE POOR
Directed credit
systems for
agricultural
activities have
been unsustainable
and have mainly
reached the more
well off farmers
in times of crisis. If rural livestock keepers are to use their
livestock more productively, they need other ways to secure their
profits, make investments and cover expenses. Moreover, the
poor have fewer livestock to draw on in times of crisis. Without
these productive assets, they are more vulnerable to change and
have no possibility to invest in new activities. Increasing the
productivity of livestock always demands a capital input and
access to credit, and these are thus preconditions if the poor are
to invest in livestock production.
Savings and credit schemes
Developing rural financial markets
In developing countries, different models for enhancing
agricultural production through credit schemes have been tried.
For two or three decades, credit has been directed towards
agricultural production in the form of loans for field crops inputs.
The credit has been supplied through government banking
systems (national commercial banks), or has at least been highly
regulated and subsidized by governments.
This mode of financing rural production has become politicized
and is very fragile. Many loans have been made, but the largest
sums have reached only the more well off and powerful farmers.
Overall, repayment rates have been extremely low. The national
commercial banks in Bangladesh reported a recovery rate of
around 20% from 1999 to 2000 (Mallorie, 2001). Interest rates
have been subsidized at below-market rates, which have made the
loans attractive to the wealthy and powerful. Loan decisions have
usually been based on the level of political connection rather than
on financial criteria. The subsidies have helped make the system
even more unsustainable and have also hindered the development
of commercial credit. During the nineties, there was a consensus
that directed credit should be set aside in favour of the
development of what is generally known as ‘rural financial
markets’. The shift has involved policy reforms to remove
government regulations and controls, as well as the subsidies.
Table 3.1 shows major differences between the directed credits
and rural markets. The objective of a rural financial market is to