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Making Markets Work for Small HolderFarmers & Rural Producers - Bangladesh Key points Donor: European Commission Dates: April 2007 – Present Sector: Dairy Location: Gaibandha district, Bangladesh Successes: 200% increase in business transactions, 300% increase in paravet incomes Impact Awards winner 2011 Background The ‘Marking markets work for smallholder farms and rural producers’ project focuses on four districts of Bangladesh. The Gaibandha district is used here to illustrate the impacts and lessons learned. Practical Action is working with four local NGOs and 12 small-scale grassroots associations. Dairy, beef and pottery were selected as the most promising subsectors to help smallholder farmers challenge poverty. Objective: To increase income and employment opportunities from production and trade in farm and non-farm activities for marginalised rural communities in Bangladesh. The problem: One of the main challenges addressed by the project is the low income and livelihood opportunities of dairy producers and other marginalised market actors, such as local vets, due to lack of access to appropriate credit, low investment and low returns. What we did: Participatory Market Mapping: bringing market actors together to find blockages and opportunities 1
Once the dairy sub-sector had been selected for Gaibandha district, the project teamfacilitated Participatory Market Mapping Workshops along with key actors from the marketsystem to identify constraints and opportunities. The main barriers to sector growth wereidentified as: Low volumes of milk production Low working capital for collectors No capital for purchasing motor vehicles to increase paravets’ outreach No reinvestment in the agro-vet drugs and inputs shop No credit options for commercial grass cultivationTo address these constraints, the project facilitated the formation of groups or associations ofproducers, collectors, paravets and processors to increase their coordination and influence.The project also created the District Enterprise Development Network (DEDN), a space forpublic and private market actors to collaborate around the implementation of strategies andactivities aimed at tackling some of the barriers mentioned above.The project organised “market tours” for key market actors to listen to the experiences ofsmallholder farmers who were not getting appropriate credit and other services and inputs.Helping market actors to identify critical problems and come up with solutions that work forthemDuring the market mapping workshops, market actors identified that access to appropriatecredit services at different points of the value chain was a critical leverage point to transformthe market system. The team conducted rapid market surveys which showed that aroundTk8’125,000 ($110,000) were required for 284 value chain actors. The survey also showedthat the available credit was 10 times greater than required in only four finance institutionsthat were providing small agricultural loans.The project sent a list of interested actors and their credit needs to those four banks so thatthe banks could meet them and assess their credit needs and business capacity.Building connections and trust between market actorsThe project team consulted with partner NGOs which have existing micro-credit programs toextend credit of a maximum of Tk10,000 ($140) with 12.5% interest rate. After a series ofconsultations, they customized their credit program to increase the loan ceiling, increase theduration of repayment etc. for small holder livestock farmers.The project identified finance institutions who were providing loans to small and mediumlivestock enterprises and tried to link them up with marginalised farmers. At the beginning,project staff had difficulties helping smallholder livestock farmers access Tk40,000-50,000($550-$680) for purchasing hybrid cows to produce higher volumes of milk. However, visibleimpacts at the market system level are motivating banks and other finance institutions tochange their attitudes and practices to give credit to the entire value chain. For example,loans have been disbursed to 122 dairy market actors in Gaibandha District. This is alsomaking smallholder farmers in other sub-sectors more confident about the growth potential oftheir own plots and business. 2
Building the skills of strategic actors (not just the “poor”)The project carried out learning sessions for finance institutions about credit policies andproducts and to share experiences about appropriate credit packages, facilities andrepayment system, amongst other issues. As a result, a bank which has SME and agriculturaldevelopment credit programs (BSCIC) and other local credit providers introduced improvedcredit packages that are more suitable to the needs of different market actors and less riskyto the most marginalised smallholders.Improving LivelihoodsOver the past two and a half years, value chain actors in the dairy market in Gaibandhadistrict have increased their business volumes after receiving customised credit amounting toTk2’972,000 ($40,000). As a result, business transactions of milk and calves producershave increased by 200% in two years.With this extra income, producers are more aware of children’s schooling, quality food, socialresponsibilities, as well as proper cattle management. By observing these changes in theproducers’ livelihoods, milk producers who were not part of producers groups are now formingthem or joining existing ones to increase their access to credit. Based on producer groups’recommendation, banks and other credit institutions have assessed non-group members forvalue chain financing.Increased Paravet IncomesA total of 24,397 marginalised farmers are getting services from paravets selected by theproject. These local veterinarians are carrying out vaccinations, primary treatments anddeworming.Using credit provided by the local finance institutions, paravets purchased motorbikes andtreatment kits which, in turn, allowed them to provide faster, higher-quality services to moresmallholder farmers. As a result, paravets’ incomes have increased 300%.Milk Collectors Loan AssistanceWith the help of the project, milk collectors received their first loan ever for businessexpansion. They invested part of the money in better and larger milk pots which allowedthem to trade larger amounts of milk. “If we see the collectors’ milk market is ensured andthe processors are proactive to buy milk, we feel secure to give loans as the collectors arealready in the market chain” said the manager of the credit provider KSB. This pro-activenessof the processors leads to increased sales targets with higher quality, processed milk.Lessons LearntThe project created an understanding that value chain financing in the dairy sub-sector offersan opportunity to increase the scope of the sector while reducing the associated cost and risk.The changing attitudes of the credit organizations led to more stability of each business and acomprehensive new look at the value chain financing model, tools and approaches. 3
If all market actors build strong relationships between them, credit institutions are morewilling to extend credit. This was one of the most important lessons for the facilitation ofimproving credit services.If the project had not facilitated links with DEDN, but rather provided seed-money to thevalue chain actors, the project would have created market distortions, dependency andbusiness uncertainty.Carrying out Participatory Market Mapping is vital to identifying the leverage points for futureinterventions. Through this process, the stakeholders themselves identified that lack of value-chain financing is the common barrier for sector growth. The project team easily designed theintervention whilst staying within budget. This cost-effective approach for marketdevelopment increased the stakeholders’ confidence and ownership of the process of marketdevelopment. After the market map had been reviewed and the changes visualised, theparavet association has now drawn a separate market map to identify the leverage points ofthe paravet service sector.Another lesson learned from this project is that credit can give access to simple technologiesthat make a great difference such as: Gloves and covered milk pots to improved hygiene Lactometers for measuring quality of milk Women-friendly grass-cutting machines to reduce required effort and time Using aprons during vaccination and minor operations to reduce livestock infection and mortalityThese simple and low cost technologies could inspire the credit providers to extend furthercredit as they can observe their credit is providing added quality and improved incomes. 4