Innovative Financing of Small Scale Farming: The Role of Credit Unions

• Celebration of today, October 18th, as ICU day, when over 186 million credit union members get the opportunity to remind the public of their ability to improve the lives of individual families, communities and countries around the world by providing affordable and secure financial products and services. The theme – “Members matter most”.

What is a Credit Union?

• A credit union is a co-operative financial institution that is registered under the Cooperative Societies Act in force, is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

What is a Credit Union (2)

• Many credit unions exist to further community development or sustain international development.

• Credit union systems vary significantly in terms of total system assets and average institutional asset size - ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members.

What is a C.U (3)

• Credit unions are typically smaller than banks. • As a financial co-operative, the credit union is

a legal entity owned and democratically controlled by its members adhering to the co-operative philosophies and principles.

• The World Council of Credit Unions (WOCCU) defines credit unions as “not-for-profit” co-operative institutions.”

What is a Credit Union (4)

• Credit Unions are safe, convenient places to access affordable financial services.

• Credit Unions offer a full range of financial services, giving members greater flexibility to meet their individual needs.

• Members receive dividends from surplus gained by the credit union.

Problems Facing Small Farmers

• Praedial Larceny Pests/diseases• Damage to Livestock Limited land tenure• Natural Disasters Drought/Climate Change Farm Maintenance Under capitalization Gluts in production Limited use of

technology Limited access to affordable financing/credit

support

Problems facing small farmers (2)

• Limited Business management Knowledge• Absence of significant Co-operative Activity• Ongoing effects of global recession and

changing weather patterns.• Both vegetable farming and raising of livestock

subject to the whims of nature and competition of businesses which import food

• Small farm size

Credit Unions and their commitment to the ordinary person

• Prepared to lend to every member as long as savings are adequate

• No problem lending small sums of money for provident or productive purposes

• Gives members greater flexibility to meet their individual needs

• Economic benefits distributed proportionally according to each member’s level of economic interest in the institution.(Permanent Shares)

Commitment (2)

• Despite commitment to lending to all small entrepreneurs, the uncertainty surrounding land tenure has from time to time prevented the credit union from lending to small farmers.

• CFCCU has engaged with Min of Agriculture to ensure collaboration in the area of credit to small farmers, develop mechanisms and methodologies for establishing standards, liaising with extension officers etc

Examples of recent CU financing in OECS

• Case of Grenville Credit Union – Financing to vendors who are ensuring that food is transported from the rural areas to the markets both local and overseas, making the crucial link between farmer and small business persons.

• Merger of rural and urban credit unions in Dominica, giving greater access to persons in the agricultural sector and giving loans in specialized areas

Financing Examples (2)

• In St.Kitts/Nevis the FND, in 2009 converted into a credit union, turning its customers who had received small business loans into members and continues to provide funding for agribusiness.

• Despite the harsh economic times - dividends of 3% were paid out to members for 2011.

Financing Examples (3)• St. Vincent and the Grenadines provides with the best example

of credit union collaboration in its efforts to provide funding for productive lending, to include agriculture, housing and other small and micro businesses.

• Following the launch of the Govt’s policy for Small and Micro Business Development, the League, on behalf of its affiliates commissioned a study to explore the possibility of establishing a financial consortium for encouraging the development of SMMEs.

• The result today is a co-operative (COMFI) owned by 9 credit unions, committed to providing access to a variety of services, including insurance, loans and financial education for farmers, agro-processors, vendors and generally members involved in micro and small business enterprises

Financing Examples (4)

• We were advised that COMFI is moving ahead with operational logistics and has recently appointed a Manager, answerable to the Board of Directors, represented by credit union senior staff and officials.

• COMFI represents the best example of the pooling of resources by an institution better equipped than most other financial institutions to respond to the needs of it members

Opportunities for future Collaboration• What is needed? A definite paradigm shift in the attitude and approach

by the Govts through their Ministries of Agriculture – particularly in this climate of economic recession.

Establishment of specific policies which would address a number of issues, to include land tenure for small farmers.

Creation of avenues for development of scientific, technical and technological systems in agro- processing, marketing and networking

Conclusion• Co-operative entities like credit unions must

collaborate to access some of the finances by external agencies for specific activities aimed at improving the life of the people who live in farming communities.

• Like the members of COMFI, they must also pool their own resources to conduct research, feasibility studies and use the results to introduce products and services that demonstrate to members that it is they who “matter most”.