Provision of low interest and collateral-free credit strengthening Seed Producer Cooperatives’ financial system: Lessons learned from ISSD Ethiopia
Despite its rising number of members and increasing seed production, Koticha Kuyu Seed Producer Cooperative (SPC) faced significant challenges that were affecting its sustainable development – especially in raising the necessary working capital needed to expand their business and benefit its members. Most members were not capable or willing to increase their contribution in the business and financial institutions are not prepared to offer affordable financial credit.
In response to this challenge, ISSD Ethiopia and the Regional Cooperative Promotion Agency (RCPA) of Oromia analyzed the situation of Koticha Kuyu SPC and facilitated the establishment of a Rural Saving and Credit Cooperative (RuSACCo). The aim was to mitigate members’ personal financial constraints through the provision of low interest and collateral-free loans to secure the timely procurement of seed through the provision of input vouchers. The effort resulted in the establishment of Gamachu RuSACCo in 2015.
Koticha Kuyu SPC is located in Lokloka Abe kebele in West Shewa zone, approximately 70km west of Addis Ababa. The SPC was founded in 2013 with 41 members including four women and initial capital of ETB 19,000. Today, the total number of members has reached 59, 12 of whom are women, and their capital has more than doubled. The area under seed production in 2018 was 92.5 ha, which yielded an estimated 1,843 quintal of quality seed.
Since 2015, Gamachu RuSACCo provided ETB 166,700 (~ € 4,765) loan to 93 individual with an interest rate of 5% or less. In 2018, the scheme took off, where 46 SPC members borrowed ETB 131,900 for very low interest rate of 1%. The SPC current savings has reached ETB 230,000. Gamachu RuSACCo has enacted two forms of saving in its cooperative bylaw. The first is a mandatory saving of each member, which was increased from ETB 50 to ETB 100 per month, and the second allows for voluntary monthly savings of whatever is affordable for members. Today, over a fifth of the cooperative’s members contribute ETB 200, more than the mandatory amount of ETB 100 per month.
- Efficient Rural Saving and Credit Cooperative (RuSACCo) significantly reduce SPC’s financial constraints contributing to their sustainable development. The Koticha Kuyu SPC currently has more than 200,000ETB to run its business efficiently.
- Time and continuous support is needed to build trust and show evidence on the benefit of RUSACCos to members. In the case of Koticha Kuyu SPC, it took three years to generate the proof of concept needed to convince members to save. While enacting bylaw that stipulates mandatory savings of members was important, voluntary savings from the members’ belief in the value of the scheme are even more powerful. For example, Ato Mulugeta Bekele, member of Gamachu RuSACCo, not only met the mandatory required savings for 2018/19 but made a voluntary contribution of ETB 5340 to his personal savings account. In addition, over time, due to the increasing drop in interest rate (as low as 1%), there is a significant increase in loan frequency and size.
- A well-coordinated effort (Koticha Kuyu SPC, Oromia RCPA and ISSD Ethiopia) is relevant to build capacity and provide necessary support through regular monitoring to create an efficient and effective delivery of saving and credit services.