33393 Human Development Network ­ Social Protection Unit ­ Social Funds Thematic Group Volume 2 No. 3 March 2002 Holding the Door Open: Facilitating Access to Microcredit in the Benin Social Fund by John Elder and Maurizia Tovo "Before receiving the loan, we were dependent on our husbands for all our expenses. Now that we have a small business, we pay our own expenses and even buy pants for our husbands" (Members of a women's group in Kandi, Benin). The Benin Social Fund program to respond to popular pressure for reforms. In June 1994, the Government requested that the Bank assist The Benin Social Fund project is a $16.7 million project with the promotion of community driven development. that began operating in 1998 to support community-level The social fund project emerged as a response to both the infrastructure and services, capacity building and income Government request to support the Social Dimension of generation activities. An income-generating activity Development program and the Bank's own poverty component has been a particular success. As a result of reduction strategy for Benin. this component, in the eighteen months since project launch, 38,000 poor farmers have become members of savings and credit cooperatives, 17,000 savings accounts Box 1: The Benin Social Fund at a Glance have been opened by beneficiaries and more than 23,000 people have received small loans. Over 80% of Benin Social Fund is implemented by Agence de beneficiaries have been women. Financement des Initiatives de Base (AGeFIB), an entity that was established specifically to manage the project. The Project has three main components: 1. Small socio-economic infrastructure at the community level ($7.7 million). In the infrastructure component, communities decide on priority needs and apply to AGeFIB for financing, either directly or with the assistance of local NGOs. By the time of the mid-term review in June 2001, the community infrastructure component had achieved almost 80% of the target for the entire project and field assessments revealed a high degree of beneficiary satisfaction. 2. Support to income-generating activities through financial intermediation ($4.2 million). 3. Capacity building for grassroots communities and civil society ($1.6 million). The capacity building component has been less successful, mostly because demand has to be stimulated (communities are much more likely to identify the need for infrastructure than for a skill). However, disbursements on capacity-building have increased substantially in the last 12 months. Background Benin is a small, low-income country in West Africa. It has a population of 6.3 million and a per capita income of $380. In the early 1990s, Benin began to emerge from a long period of Marxist military rule and, in 1992, the Government adopted a Social Dimension of Development Box 2: To Microcredit or not to Microcredit groups (especially women), organize itinerant (mobile) banking services, simplify procedures if needed, and During project preparation, all levels of society indicated facilitate monitoring and evaluation by providing timely that lack of access to credit was a major problem for poor information. In addition, AGeFIB, the intermediaries and people. At the same time, there was reluctance to put in a financial institutions negotiate arrangements for follow-up micro-credit component, as an assessment of this type of services to ensure high repayment rates. component in social funds had yielded mixed results. The Bank's financial specialists working on Benin felt that there Results. This sub-component has worked very well. At was sufficient liquidity in the country and the real problem the time of the mid-term review, over 4,200 informal was linking the poor to the available credit. The Bank was savings groups had been put in contact with formal already supporting the Second Rural Credit Project, financial institutions (the target at project completion was providing technical support to a national association of 2000). Over 80% of beneficiaries have been women. The cooperative savings and credit societies to increase the average size of a credit is 32,000 Benin CFA Franc (Franc availability of credit. Nonetheless, the Government, de la Communauté Financière Africaine) or about $50. having identified microcredit as a priority, was keen to have microcredit activities in the AGeFIB as well. The project has been able to fill a gap between poor To balance these somewhat conflicting points of view, the households and formal credit sources. Critical for the project team decided to develop financial intermediation success were the already-existing formal credit services for low-income groups, without providing the organizations that offered financial services relevant to the actual credit. To take into account the heterogeneity of needs of poor groups. In Benin, the largest credit group institutions involved in microfinance at the time, the was running a program called Small Credits for Women unequal distribution of financial services in the country that used group-based lending appropriate for the poorest (especially urban/rural) and the characteristics of different households, but the credit group did not have the capacity types of clients, the microfinance component was divided to reach many poor communities. AGEFIB, through its into three sub-components, two dealing with formal intermediaries, was able to bridge this divide. financial systems, the other with informal ones. Working with Formal Financial Systems: Social Intermediation How it works. Poor people have trouble accessing credit due to geographic and social distance, illiteracy and lack of information. This sub-component helps fill these gaps. A number of formal institutions were already involved in microfinance and expressed interest in collaborating with AGeFIB, the NGO established to manage the social fund activities. They agreed that AGeFIB would facilitate access by the poor to these formal systems through selected intermediaries (NGOs and private firms). Intermediaries were selected in a competitive process with successful microcredit experience being the primary qualification. Working with Informal Financial Systems: AGeFIB and the intermediaries identify suitable formal Institution Building financial institutions operating in a given area, negotiate a collaboration agreement with them, conduct information How it works. During the preparation of the poverty and outreach campaigns (e.g., explanation of services assessment, it became clear that, although access to formal available and ways to access such services), and assist finance services was very limited, many poor people had prospective clients in making contact with the institutions, access to informal financial systems, such as rotating opening an account and obtaining credit. savings and credit clubs (tontines), communal savings and credit groups, and itinerant private bankers. However, Intermediary NGOs may literally take prospective clients these informal financial systems were restricted in their by the hand, helping them bridge the geographic and impact by lack of capital and low skill levels. AGeFIB social distance that separates poor farmers from banks, therefore finances institutional development assistance to explaining procedures and helping them fill-out the informal financial systems delivered by carefully selected required paperwork. As part of the agreement, formal intermediaries (NGOs and private consultants). Such financial institutions participate in promotion activities, assistance takes two forms, and is generally delivered in offer products appropriate to the needs of disadvantaged sequence: (1) training and consulting services to improve the efficiency and safety of operations, and (2) provision more in control. In some cases, after rapid expansion, of matching funds to allow for an increase in the credit groups decided to reduce their membership to a slightly portfolio, and therefore outreach, while at the same time expanded core group. Although this went against the stimulating savings (because the funds match what is project's objective of increasing the size of informal raised from savings). groups, AGeFIB wisely accepted their decision. Criteria for selecting informal financial systems include: Lessons Learned years of successful operation, membership (number and gender), accounting procedures and discipline, savings OEExpertiseonmicrofinanceishardtofind. AGeFIB mobilization, and credit repayment rates. Matching funds had trouble finding qualified NGOs and some that are made available on a limited basis, with the ultimate appeared qualified on paper did not perform up to purpose of preparing receiving organizations to gain standards. As a result, the turnover rate for NGOs access to commercial sources of funds. All assistance working in microfinance has been much higher than for provided to informal financial systems is in the form of those working on infrastructure. In some cases, NGOs grants, contingent on performance. with qualified personnel did not put those people in the field and instead used less qualified and poorly remunerated staff. AGeFIB has had to make contracts with NGOs more explicit in terms of the qualifications of the field staff and in terms of the salary of the field staff to ensure that quality work is performed. · Intermediationonlyworkswherecreditisactually available in a form usable by the target population. Over the course of the past two years, the amount of credit available to poor people has declined. The largest credit and savings association has had severe liquidity problems and many local branches have stopped giving credit. This has had an impact on the credibility of AGeFIB and its intermediary NGOs. In addition, many formal credit associations do not want to offer small loans to poor people. The Government has been pressuring Results AGeFIB to shift from social intermediation to providing credit itself. At the time of the mid-term review, 89 informal financial systems had received technical assistance and 18 had Z Sometimes people know better than experts. received matching funds averaging slightly over $1500 per Despite the insistence of financial and banking experts group. While the number of groups given technical that there was no liquidity problem in Benin, and assistance was larger than anticipated, the number of therefore no need for a credit line, it turned out that our groups receiving matching grants was significantly smaller. local informants were right in insisting that funding for This was due to the difficulty in finding NGOs with the credit was part of the solution. While including a credit line requisite skills and to the low level of technical skills in the in the project might have been too complicated, the situation informal financial systems. The skill level required to help described above points to the fact that listening to the these informal groups was higher than expected because communities can validate (or invalidate) "expert" opinions. each group needed an individually tailored set of training activities. Capital turnover increased in groups given · Adjust targets to focus on what is important to the assistance and group members cited increased control beneficiaries. While the project has numerical targets for over their own finances as a primary benefit of monitoring progress, the primary impact most frequently participating. mentioned by beneficiaries was one of empowerment. Beneficiaries mentioned that having more control over their Some of the informal groups experienced exponential lives or being less dependent on spouses, moneylenders, or growth as their capacities increased, encouraged by strangers was what they appreciated most. When project AGeFIB and the intermediary NGOs. However, it targets such as increasing group size worked against the beneficiaries' own target of increased empowerment, the became clear that rapid growth sometimes worked against social fund supported the beneficiaries and agreed to keep the the social bonds that had caused the informal groups to be group size the same. successful and that the project's vision of the informal groups continually expanding did not match the group member's vision of a better functioning informal system with more or less the same membership in which they felt Box 3: Gender Issues in the AGeFIB The gender impact study of the Benin Social Fund sought to identify who participated and how in the community driven projects and what were the gender impacts of both the projects (infrastructure and microcredit) and the processes (management committees and microcredit groups) initiated by the Social Fund. "Fetani" (Leaving Our Shame), "Unity is Power" and "Tomorrow Will Bring Prosperity" are all names of microcredit groupements supported by the AGeFIB Social Fund in Benin. The names illustrate participants' goals of providing a base for both individual and collective economic and social advancement and point to the dynamism that underlies many of the projects. Ranging in size from 14 to 70 members, access to small loans has allowed many participants (80% of whom are women) to increase their activities and invest profits in children's education and healthcare access. In several cases, the gender impact study found that groupements had created their own systems of health insurance with explicit rules regarding appropriate beneficiaries and repayment schemes. Gender issues were found to be important in the microcredit projects. Because of the legal code which denies women the right to own land and pass it on, groupements' abilities to invest in fields were limited. Likewise, the ability to own the land upon which storage structures could be constructed were also viewed locally as limitations on expansion of activities. Specific Benefits Interviews with local participants in AGeFIB projects described many positive impacts of the project. First, and foremost, is that the projects actually do materialize and they do so quickly. Driving the length and breadth of the country, it is clear that numerous schools, clinics, markets and latrines have been built with community participation in the past three years. This has helped participants to believe in the process of community driven development initiated by AGeFIB and to feel as if the systems initiated might be useful for other endeavors as well. For women involved in the microcredit scheme, participants focused on the following benefits as a result of their involvement: - Greater control of assets and resources has led to decision making roles. Women's access to regular income from their personal activities has allowed them to take greater control of decisions within the household and the community. Many participants now pay for school supplies for their children, healthcare and medication without having to first ask their husbands. In addition, many women's groups have used collective profits to construct village storage facilities or other communal assets. - Voice within the home and community and greater autonomy. Many participants commented on their increased voice in the household and community as a result of their successful personal activities - The AGEFIB program has allowed participants to enhance their activities, begin new activities and especially to think beyond the confines of their local markets. Many participants described their desire to reach larger regional markets, create new commercial relations and construct storage facilities so that they could command greater prices during seasonal market fluctuations. At the same time as participating in the AGEFIB microcredit opportunities, participants have maintained various tontines in their communities. These have served as financial safety-nets for emergencies and as a kind of delayed investment scheme. The two systems seem to function well together. - Several of the microcredit groups interviewed had already begun creating apprenticeship roles for young girls. This allowed mothers to expose their daughters to the training, record-keeping and solidarity needed to run a successful group. For more information on the "Holding the Door Open: Facilitating Access to Microcredit in the Benin Social Fund," contact John Elder at (JElder@worldbank.org) and Maurizia Tovo at (Mtovo@worldbank.org). "Social Funds Innovation Updates" are published informally by the Social Funds thematic group of the Human Development Network - Social Protection. For additional copies, contact the Social Protection Advisory Service, The World Bank, 1818 H Street, NW, Washington, DC 20433, USA, Fax: (202) 614-0471, E-mail: socialprotection@worldbank.org. Copies are also available on-line through http://www.worldbank.org/sp then click on "Social Funds". For more updates please check the Social Funds website.