Strengthening the Dairy Value Chain in Bangladesh Funded By Bill and Melinda Gates Foundation Goal of the Project Targeted landless and smallholding households (income<$2/day) in North and Northwestern Bangladesh have increased incomes and more sustainable livelihoods through incorporation into a strengthened milk value chain Objectives of the Project Improve the milk collection system in rural and remote areas Increase production by improving access to inputs, markets, and services by mobilizing groups of poor producers and input service provider. Improve the breeding/Artificial Insemination (AI) network Ensure access to quality animal health services at the producer level Improve the policy environment. Project figures till date Area of operation Total participating households District 9 Upozila 23 Union 91 Village 385 27068 Farmer leaders 2529 Milk collectors 276 Livestock health workers 171 Information Service Centers (ISC) 47 Community Agri-Shops (CAS) 130 Household average production 1.47 (liters/day) Household average milk sales income 33.54 (Taka/day) Average income of Input shops 18141 (Taka/Month) Livestock health worker income 12604 (Taka/Month) “ The project has employed a group approach to mobilising farmers. From engagement, farmers progress through categories C, B and A (chronologically), graduating from C to B to A on the basis of their skill and competency acquisition ” SDVC Group status Year Only Women Group Only men group Mixed group Total % of women group Year 1 115 6 170 291 32% Year 2 66 1 161 228 36% Year 3 142 6 216 364 41% Total 323 13 547 883 37% Group Savings Prospect & Progress “Access to finance is critical for small holder farmers to enable them further invest in dairy development. But due to lack of attractive financing options, farmers, who have one or less than three cows, are reluctant about seeking loans from financial institutes since the conditions are not favorable ” Access to Finance by Smallholder farmers The traditional financial institutes in Bangladesh are wary of the dairy industry in general for its exposure to various forms of risk and are thus unwilling to provide seasonal loans without some risk mitigation. Very few loans are available that cater to the specific needs of the industry. Dairy farmers need relatively larger loan than an average micro-finance loan and if held to the weekly or monthly repayment schedule like others, it becomes problematic to repay because a cow does not become profitable or, in other words, it can not generate milk, as soon as it’s bought. The financial institutions exist in the working area, that SDVC has observed, are: Public Bank Private Bank NGOs Moneylenders Families, Friends, and Relatives Role of Financial institutions to support smallholder farmers: The loan requirements of Public banks in Bangladesh, albeit encourage various agro based industry to apply for financing, may be too stringent for small scale farmers to apply. In reality, on the local level, small scale farmers are often out of the lending net because of various inadequacies in terms of meeting bank requirement. As a result, only mid size farmers, who are potentially less risky clients with collateral, can only use these loans. Interestingly cooperatives do not mitigate the risks for the banks as well, as there is no one to hold responsible in case of defaults. There is apathy and indifference in the Private banks about giving loans to dairy industry. The industry is considered to be too risky and inefficient to be considered for large loans. The issues regarding NGOs credit are like: Paying in weekly installment did not go with the milk production cycle; very high interest rate (12%-15%) was detrimental to the small farmers;imposing flat method of interest rather than decline method, and Do not have risk mitigating coverage for damage to the cattle Group Savings “Since banks and other financial institutions are not interested in providing loan to the small producers in the bottom of the pyramid, SDVC facilitated an informal savings activities through clustering efforts; i.e. encouraging farmer groups in group savings mechanism.” Group Savings status No of Groups engaged in savings (As of Mar'2011) Region Year-1 groups Year-2 groups Year-3 groups Total SDVC 109 175 252 536 # of groups formed 291 228 344 863 37 77 73 62 % of groups engaged in savings Savings figures across the regions Region Avg total savings per group (As of Mar'2011) In BDT Year-1 groups Bogra Year-2 groups Year-3 groups Total 9890 8361 3310 7187 Rangpur 13912 6501 2451 7621 SDVC 12125 7327 2833 7428 How do the groups utilize their Savings? Utilization of Savings Group members are using the savings amount in different mechanism; such as: 1. Revolving savings amount as loan within group members. Group members taking loan from savings amount to meet their dairy related need 2. Weekly savings providing to members by rotation to purchase feed only. In this process producer can purchase big volume of feed which results lower purchase cost. 3. With the savings amount few groups purchasing cross breed cows and giving to members based on agreement among group and members. In some groups members are providing cross breed cows with a view to ensure improved breed cow for 100% group members. 4. Group purchasing bulk volume of feed and medicine or arranging schedule vaccination with the group savings. This cost low for bulk purchasing and they can arrange vaccination and de warming program maintaining schedule. 5. Deposit savings money in Bank or in group fund (Some groups that yet couldn't set mechanism for utilization of savings. 7. In maximum cases members using the savings amount in dairy purpose; but some times groups are also providing loan to meet other emergency needs. % Distribution of Savings Usage by Year 1, 2 & 3 farmer groups Input purchase Input seller Group year by Development Members (%) (%) Cow/ cattle Purchase (%) Credit for other dairy Cash in related hand/ purposes bank (%) (%) Total savings (%) Yr-1 groups 16 5 13 33 33 100 Yr-2 groups 13 2 3 29 54 100 Yr-3 groups 7 1 0 27 65 100 All Year 13 3 6 30 47 100 Success Of savings groups Key successes: • Savings help small-scale producers reduce their costs in ensuring access to services and markets. • In group activities higher participation rate is observed among the savings groups than other non-saving groups • Savings group have become more organized than non-savings group • Savings group get easy access to different input and services; e.g.: groups can easily purchase necessary inputs and services utilizing their savings and organize regular vaccination and de-worming campaign with their savings money.) • Savings groups also invest their money to purchase high breed cows for their group members • The relatively large amount from savings can be used as collateral when a group seeks credit from financial organization. Group savings: • increase resources for potential group or individual activities and reduce dependency on outsiders; • serve as a form of “insurance against risk”; • improve a sense of group ownership and promote group repayment discipline; • facilitate access to outside loans (banks are more willing to give loans to groups that save); • can lower the costs of banking and can be used to give bigger loans to members of the group; • can be used as emergency loans to members in times of need. Group savings enable Credit facility Credit within the group: nce the group saving fund becomes big enough, the group may decide to lend part of their funds to individual members to help them meet their short-term emergency credit needs. These loans should be small and should be repaid in a short time, so that other members can also use the fund. Credit with formal institutions: The advantages of getting group credit from formal institutions are: • a group can get more credit; • members can assist each other in preparing loan applications; • a group is in a better position to discuss credit with the organization or bank; • the group can provide evidence of profitability of milk production in the area; Group loans are usually granted with group liability. This means that each member is individually responsible for repaying his or her part of the group loan. If any member fails to repay his or her part, the other group members must repay it. This rule ensures that all group members repay their part of the loan - otherwise, the group will not be able to borrow from the bank again. Challenges With savings groups Impediments: • Some of the savings groups failed to figure out the savings utilization process • Challenge in keeping fund, credit and accounts by semiliterate members is commonplace. Though some groups have few literate persons, but they are not capable enough to keep proper records of savings. • It is seen that group members can manage small amount of savings money by themselves, but for big volume they need full assistance from CARE staffs. • In maximum cases banks are reluctant to open group bank account due to factors like policy of central bank, and absence of proper registration of such informal groups from government. • However, registration of the savings groups remains a challenge. It is due to complicacy of various preconditions, rules and regulations of different ministries of the government. Registration of savings groups “ Registration of the savings group under agencies of government like ministry of Youth, ministry of Women Affairs, or ministry of cooperatives is important to provide farmers a legal recognition for their group. This formal recognition will help farmers attain annual grant / aid from government, take financial loans from banks or from other microfinance institutions” Importance and plans for registration Importance of registration: (1) The annual grant/aid from government departments will help the farmers in their group mobilization after SDVC exits. (2) Registration will give the group recognition as a unique entity which will encourage farmers to continue different group activities. (3) Extreme poor producers from registered group can get easy access to VGD card or other aids (sewing machine, cow etc.) (4) Other CARE/Non CARE Project may give prioritized support to the registered groups (5) women affairs will work in awareness and empowerment issues with registered groups. They will also keep the group in close follow up through regular communication. Group registration plan: SDVC is actively facilitating the registration process with government ministries like Youth, Women Affairs and Cooperatives etc. Though 50% of the groups will be eligible for Registration by year 5 of the project, but for government’s internal policies of enrolment, SDVC opts for registering 10% of the savings groups, which will work as model groups for other dairy Communities to be registered gradually in future.