Moving from Savings Groups to Agroenterprises

Among the questions posed in the last entry was:  What are the best ways to organize farmers and achieve economies of scale? What models outside of cooperatives may be more realistic and sustainable?

Contained within the question is whether how a group is formed matters. Does the path to forming a group orientated around a business objective matter? Do farmers need to come together with the business goal first in mind, or can groups of farmers be first joined together around other objectives, in this case specifically savings, then later move towards forming a business? 

Community-led savings and loans group, often called VSLAs, have long been a favorite tool of the development community and have achieved impressive results, building group cohesion, facilitating access to finance (albeit lower levels), and often proving more sustainable than many other program interventions. Given these successes, there is a natural inclination to use these organizations as entry points for other program interventions, for other forms of trainings and group activities. Participant time is valuable. So is staff and private sector time. Every opportunity to build off of successful existing organizations to achieve economies of scale and program impact should be taken.

Others advocate for keeping the groups centered on savings alone, or risk diluting the groups effectiveness and instilling mission drift. And just because a group can collectively manage their finances, why would we assume they can successfully engage in an entirely new activity, especially as one as risky and internally contentious as operating an agroenterprise? 

Very little evidence appears to exist on these questions (Please prove me wrong and point me in the right direction!). CRS’ microfinance team and Latin American team have published a new paper delving into some of these issues using evidence from the Savings and Internal Lending Communities (SILC) being used within two separate and distinct coffee programs – one in Guatemala, the other in Colombia. “Developing Smallholder Group Agroenterprises through Savings and Internal Lending Communities – Experiences and Lessons from Two Coffee Development Projects in Latin America

Within the Borderlands project in Colombia, different local implementing partners used three different models, thus allowing for comparison. One partner, Carcafe, did not utilize SILC at all, while Pastoral Ipiales used SILC groups in a limited fashion, or ‘partial’ capacity. Lastly, Pastoral Pasto implemented the ‘full’ SILC package. All three partners formed agroenterprises in their respective areas. 

In summary:

No SILC model: Carcafe opted to skip the formation of SILC groups and move directly to forming businesses

Partial SILC Model: Pastoral Ipiales promoted SILC independent of the smallholder coffee organizations to diversify household income. Some members of the coffee organizations belonged to SILC groups but there was no formal relationship between the two. 

Full SILC Model: Pastoral Pasto facilitated clustering of SILC  groups into clusters (the GAAPsazo), and then the GAAPsazo became the base to form businesses.

The study produced interesting results, comparing the success of the three distinct groups in each category across a number of metrics:

Income from coffee more than doubled for both the Full SILC and Partial SILC model beneficiary families, despite the fall in international coffee prices. These families belong to organizations that have established direct trade relationships with buyers—thereby commanding higher-price premiums—and likely contributing to this outcome. 

Group Performance: Focus group discussions with members of the organizations formed during the Borderlands project sought to capture and record the individual and collective perceptions of participants as to the performance of their respective organizations. This self-evaluation centered on three areas of practice: managing members, managing finances and managing the business 

As the study notes, these scores suggest that members can perceive the relative strengths and weaknesses of their respective organizations. They also indicate that a fully SILC-based or group savings based organizational model may offer advantages over the other models in terms of transfer of good practices from base organizations to higher-order organizations (e.g., formal group enterprises based on SILC clusters, large farmer associations or farmer federations).

The paper conducts a similar analysis of the Café Verde project in Guatemala, and draws important conclusions:

Finding 1. SILC groups provide an effective vehicle for delivering services to improve smallholder production and marketing

Finding 2. SILC groups provide a platform for collective action, but the process requires motivators and motivations. 

Finding 3. The transition from informal clusters of SILC to formal business organizations consumes time and requires investment

Alongside the findings, the paper is clear about the remaining knowledge gaps and what needs to be studied further. Importantly, the study takes advantage of two programs that did not intentionally set up group savings as a stepping stone towards Ag-Enterprises. As lead author, Rupert Best, notes:

“When we started the study, there was excitement among those that had been involved about the value of SILC clustering as the basis for achieving strong entrepreneurial farmer group enterprises. The results back this up, but also reveal that further intentional validation and development is required since in both cases – Borderlands and Café Verde – clustering SILC came about serendipitously without intentional planning at the design phase. So, the most important thing that can happen now is that interest is sparked among ag. and savings-led development practitioners to do some further ‘heavy lifting’ to take what appears to be a useful approach to the organization of vulnerable smallholder farmers from being a half-proven concept to one that is fully useful in development projects. 

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