External factors are identified in IRED publications as major obstacles or, more rarely, facilitators?
IRED publications identify several external factors influencing the financial autonomy of African organizations. Among the major obstacles are:
LENDERS’ PRACTICES (CONDITIONS, LACK OF CAPITALIZATION SUPPORT) #
IRED publications highlight many ways in which donor practices can constitute obstacles to the autonomy of DOs/NGOs:
- Dependence on external aid for operations: DOs/NGOs often depend on external aid for a very significant portion of their annual revenue (80 to 98%). This dependence creates a habit of planning development in this dependence.
- Project-based rather than capital-based funding: Aid is often provided for specific projects and has an end date. When project-based aid ends (often after 10 to 12 years), organizations may disappear if they have not planned for a successor. Donor funding methods are often unsuitable for financing economic activities. It is emphasized that aid should prioritize infrastructure and start-up funding over the medium- and long-term operating costs of productive projects.
- Lack of support for capitalization and equity: Donors often focus on financing specific activities without sufficiently supporting the creation of equity and reserves that would enable long-term autonomy. The logic of aid is not that of business, and reconciling the two requires encouraging banks to be more flexible and demanding adaptation from international aid. It is noted that aid agencies are realizing that the financial volumes of aid are marginal compared to the “total turnover” (social and economic) of their partners in the South.
- Donor conditions and requirements: Aid has its requirements and conditions that must be understood before committing. There’s no point in submitting an application if the required criteria aren’t met. Donors may have different approaches and priorities, with some funding micro-projects with no vision of regional impact, others concrete programs with “photographable” results, and others large, heavy-duty projects that encourage waste.
- Bureaucracy and cumbersome procedures: Access to funding from bilateral and multilateral cooperation (World Bank, IFAD, etc.) is often difficult due to the bureaucracy and administrative burden of the institutions that manage these funds.
- Interest rate subsidy: Sometimes, lessors, through the ODs, subsidize the interest rates on loans granted to members, which is in reality a “disguised grant” that can create long-term distortions of competition.
- Repayment rate-based evaluation: Credit programs are often evaluated by international aid on the sole criterion of the final repayment rate, which may not reflect the real impact on self-reliance.
- Tied Aid: Aid is sometimes tied, requiring organizations to find partners/donors that fit their own terms.
However, IRED also notes positive developments and ways to improve donor practices:
- Need to “play the game” for alternative financing models: The application of alternative financing models requires international aid agencies to establish complicities based on trust and apply the rules flexibly to overcome administrative and financial blockages.
- Joint “end of aid” planning: International aid should plan with associations for the “end of aid” by helping them create their own revenues, reserves, and capital.
- Support for institutional development: Aid should support the institutional development of partners by planning with them for the end of aid [Financing Otherwise, mentioned in].
- Possibility of negotiating the capitalization of local institutions: Why not negotiate with international agencies a greater capitalization of local institutions in the form of donations or credits, with the DOs/NGOs being able to reimburse?
- Tailoring aid to countries with high inflation: In these countries, aid should enable DOs/NGOs to cope with the adverse effects of devaluation, for example by facilitating remittances in hard currency.
DIFFICULT ACCESS TO TRADITIONAL BANK CREDIT (“ONLY LEND TO THE RICH”) #
Access to traditional bank credit is presented as a major obstacle for DOs/NGOs and the populations they support:
- Banks reluctant to lend without collateral: Banks are very reluctant to extend unsecured credit to development organizations due to their perceived fragility. They only lend to the wealthy, i.e., those with wealth or capital to mortgage.
- Lack of access to credit for poor populations: Farmers, small entrepreneurs, artisans, women’s or youth groups who lack collateral have no chance of accessing credit from commercial or development banks.
- Inadequate Southern Banks: Southern banks are often replicas of Northern banks, with structures, products (types of credit), and theoretical operations that are ill-suited to local economic realities. The way credit is presented, distributed, and collected needs to be rethought.
- Bureaucratic and lengthy credit access procedures: The procedures for reviewing applications and accessing credit from development banks are often extremely bureaucratic and so lengthy that producers give up submitting their applications.
- Mistrust of the informal sector: Commercial financial institutions recognize the importance of the informal productive sector, but are not equipped to respond to it.
- Reluctance of savings and credit unions to lend collected savings locally: Despite joint and several guarantees, savings and credit unions frequently encounter difficulties lending the money they have collected within the same sector, leading to a decapitalization of the sector. It is essential to seek to lend the collected savings locally.
- Need for bank guarantees: Obtaining bank guarantees is often a condition for accessing commercial credit.
Faced with these difficulties, IRED is putting forward alternative solutions:
- Development of local savings and credit unions: Their creation and development are essential because they are closer to the population. However, they must involve more representatives of the population in their decision-making and orient their management towards local and sustainable development.
- Mobilizing local and national savings: African savings are not negligible and must be better utilized. Tontines represent a preferred tool for traditional savings. This mobilization system must be prioritized and modernized.
- Creation of alternative banks: Many players have mobilized to improve financial management by creating alternative banks.
- Revolving Credit Funds: Creating repayable revolving credit funds that capitalize the organization is a solution for obtaining credit.
- Joint and several surety systems: Joint and several surety groups can facilitate access to credit.
- Role of specialized guarantee support organizations: Organizations such as RAFAD and WWB offer guarantee schemes to cover the risks taken by local banks when lending to DOs/NGOs.
- Venture capital: Venture capital can be used to finance short, medium and long term credit.
- Negotiation with banks: It is necessary to arrange meetings with the banks, discuss mutual criticisms and examine concrete ways of working together. Some commercial banks may become preferred partners after a few successful operations.
THE ROLE (OR LACK OF ROLE) OF NATIONAL PUBLIC POLICIES #
The role of national public policies appears ambivalent in IRED publications:
- Lack of support for food production activities and small businesses: Administrations, often influenced by the colonial system, prioritize files concerning export crops, without making any effort to develop activities based on food production or the creation of small businesses.
- Lack of availability of support services for small producers: Support services with useful equipment and technology are not made available to small producers who request them.
- Difficulties accessing government funds and international credit lines: Although national development banks receive funds for work with rural and urban producers and manage international credit lines, their bureaucracy makes access difficult for DOs/NGOs and their members.
- Potential of the social state and danger of its regression: The development of the social and solidarity economy (SSE) is closely linked to the level of socialization of income. The downward pressure on compulsory levies has a negative impact on the ESS. The emergence of the notion of social enterprise is positive if it combines entrepreneurial efficiency and social purpose, but risks being negative if it suggests that social entrepreneurs could replace a declining welfare state.
- Influence of State policies and international aid on the economic progress of associations: The creation of favorable conditions for the economic progress of associations depends largely on the policies and practices of States and the international aid system. We must therefore think about how to influence these actors.
- Importance of political commitment for access to finance: The issue of obtaining lower credit rates for poor populations is political and requires local and international lobbying action by DOs/NGOs.
- Role of local authorities: It is important to obtain from local authorities all the advantages reserved for foundations, as is the case in North America and Europe.
- Government support for microcredit: The example of the World Bank’s Janasaviya project in Sri Lanka shows that the government can also provide credit to producers.
- Public guarantee funds: Public authorities can create guarantee funds to facilitate access to traditional banking resources for companies that do not provide sufficient guarantees.
IRED emphasizes the need for NGOs/ODs to influence decision-makers and public policies to create an environment more favorable to their financial and political autonomy.
THE LOCAL SOCIO-ECONOMIC CONTEXT (AVAILABLE RESOURCES, CULTURE OF SAVINGS) #
The local socio-economic context has a significant impact, both as an obstacle and as a potential facilitator:
- Blockages due to poverty and the economic context: The economic context of the countries where DOs/NGOs operate, often marked by colonial history, dependence on raw materials and the consumption of finished products, creates blockages. Decreasing raw material prices and increasing input costs are making businesses unprofitable. Inflation wipes out potential savings.
- Undervalued local resources: Often, NGO and DO leaders do not know how to leverage available local resources (land, water, people, ideas) to build up local capital before requesting external aid, creating dependency from the start.
- Importance of local savings and savings culture: More than one might think, African savings are not negligible, but they are often misused. Tontines represent a preferred tool for traditional savings, although they are often used to finance non-productive social expenditures. Some tontines of wealthy people can reach large sums used for investment. It is essential to mobilize and capitalize on existing savings in the community.
- Own effort: There is no development without own effort (in kind, work or money) when launching economic projects.
- Role of local elites: Successful local elites may have a duty of solidarity and be associated through their skills, financially, or by directing money from their tontines towards local economic activities.
- Development of the informal economy: The development of the activities of informal bankers seems linked to the economic crisis and the development of the informal economy. These activities represent an important alternative for job and income creation.
- Importance of a structured and vibrant associative network: Businesses in rural areas can only be born and develop by relying on such a network.
- Context-related risks: Risks related to climate, calamities and lack of security can impact the viability of economic activities.
IRED therefore underlines the importance of relying on local resources, mobilizing existing savings, promoting local skills and strengthening the associative network to promote autonomy, while being aware of existing socio-economic constraints.
