Assessing the Participatory Aspects of Credit Programmes – Evidence From a Village Adoption Scheme in Nigeria

A major choice for governments in developing countries is that of strategies for agricultural and rural development. The centrality of a system of affordable agricultural credit to most rural development efforts makes credit programmes  a top priority. In Nigeria, as in other developing countries, large-scale directed credit programmes have proved far too costly to manage, dogged as they are by poor co-ordination, inadequate funding, administrative overlap, corruption and general inefficiencies. The failings of mainstream financial institutions in rural (and agricultural) lending generally, and in Nigeria in particular, are considered elsewhere (see Hoff and Stiglitz, 1990; Oloniniyi, 1977). In Nigeria, such programmes as the Agricultural Credit Guarantee Scheme Fund (ACGSF) and the Rural Banking Programme, although conceptually sound, have made limited impact on the ground.

By the early 1980s, the strains of government over-investment in directed credit programmes were becoming noticeable, thanks mainly to the economic restructuring sponsored by the World Bank and the IMF. In Nigeria, with the inception of the Structural Adjustment Programme and liberalisation since 1986, two important features came to be identified in terms of rural development approaches: a tendency towards reduced government investment in agriculture, and a growing need for private/public sector partnerships in economic activity. It was in this context that the Village Adoption Scheme (VAS) was initiated, thus complementing  other government-supported credit programmes, but with a special bent towards greater commitment and participation on the part of beneficiaries and credit managers.

This development is not unique to Nigeria. Thompson (1995) has noted the rising trend among governments, albeit reluctantly, to establish new partnerships with non-governmental organisations, adopting participatory approaches which give local people more control over development processes. Evidence abounds of public sector agencies formulating, implementing and institutionalising more people-centred approaches and attaining positive results (World Bank, 1994;

Development Policy Review Vol. 16 (1998), 115–130* Research Fellow, Centre for Rural Development and Co-operatives, University of Nigeria, Nsukka, Nigeria

© Overseas Development Institute 1998. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK, and 350 Main Street, Malden, MA 02148, USA.

Chambers, 1994). Of particular interest is the World Bank’s expressed commitment to building participation into its lending practices. In Thailand, Indonesia and Bangladesh, rural credit programmes emphasising participatory processes include those of the Bank for Agriculture and Agricultural Co- operatives, the Baden Kredit Kecamatan, the Bank Rakyat Indonesia Unit Desa and the Grameen Bank, respectively.

Yaron (1994) has analysed what makes rural finance institutions (RFIs) successful. However, he does not deal specifically with perspectives on participation in such programmes. To the best of our knowledge, the full options and variations of the beneficent possibilities inherent in partnerships for rural credit administration in terms of participation have yet to be described. This article draws on the experience of a rural credit programme (the Village Adoption Scheme in Nigeria) to explore how participation can remove some of the acknowledged causes of failure in RFIs and credit programmes.

Key features of the VAS

The Village Adoption Scheme (VAS) is an Indian model of rural development, aimed principally at the formulation and implementation of a suitable action plan for supplying credit to small farmers, together with the provision of extension services, input supply and technology transfer. In addition, it is intended to constitute a multi-agency forum for studying and analysing the socio-economic conditions of the farmers on the scheme, from which to formulate a micro-plan for village advancement. To this end, eligible farmer groups are ‘adopted’ by lending institutions and other private sector organisations. The scheme was first introduced in Nigeria in the early 1980s at Oke-Igbo Egun in Lagos State with the support of the Indo-Nigerian Merchant Bank Limited (CRDC, 1986).

The management committee of the VAS in the former Anambra State (now Anambra, Enugu and Ebonyi States) was composed of representatives from the Central Bank of Nigeria, the Centre for Rural Development and Co-operatives (CRDC), the State Ministry of Agriculture and Natural Resources, the adopting (funding) institutions and the Chief Registrar of Co-operative Societies, plus a local government official and the traditional rulers of the participating village communities. In 1986, farmer groups (of 100 to 150 members each) were selected in 15 communities to take part in the scheme on a pilot basis. Two years later the number of villages adopted by 11 commercial banks stood at 38 (CRDC, 1991).

The obligations of the various participants are as follows. Villagers are expected to form into groups which are later registered as co-operative societies with the State Ministry of Commerce and Industries. They participate in group meetings, undertake and repay loans, and provide information for loan screening and enforcement. The traditional rulers provide legitimisation and information on land tenure and other relevant customary practices. The CRDC conducts the initial inventory surveys, provides research and training and supervises field  operations and documentation. The State Ministry of Agriculture and Co- operatives is responsible for overall co-ordination, planning/extension, inputs, the funding of empirical surveys, and the facilitation of contacts with local communities and funding agencies. The Central Bank of Nigeria approves and guarantees the loans, inspects the group farms and holds seminars/workshops, while the adopter agencies supply the finance, supervise the credit and document the transactions.

Credit given under the VAS is sourced from commercial banks but guaranteed by the CBN-managed Agricultural Credit Guarantee Scheme Fund (ACGSF), set up in 1977 by the Federal Government to support lending institutions extending loans to agriculture. The ACGSF guarantees commercial banks’ lending to agricultural enterprises by up to 75%. Small-scale farmers can borrow N5,000 or less without tangible security but with a reference from a prominent member of their community.

The pre-VAS situation in the adopted villages

The original 15 communities in five agricultural zones of the former Anambra State where the VAS has operated are as shown in Table 1. The average population of these rural communities amounted to about 1,500 households with very high levels of illiteracy.


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