i

This study has been realised with funding from the European Union

and from the Dutch Ministry for Development Cooperation - DGIS

APPLIED STUDY OF CREDIT AND FINANCING

OPPORTUNITIES FOR FARMERS IN

URBAN AND PERI-URBAN

FREETOWN

PAMELA KONNEH

Ministry of Agriculture Forestry

and Food Security (MAFFS)

November 2010

i

CONTENTS

List of Abbreviations ii.

Definition of Terms iii.

List of Tables iv. - v.

List of Figures vi.

Acknowledgements vii.

Abstract viii.

CHAPTER 1. Background and Introduction

Background, Problem Statement, Objectives of the Study,

Significance, Limitations, Hypothesis 1-3

CHAPTER 2. Literature Review 7-12

CHAPTER 3. Methodology

Study Area, Research Design, Population and Sampling Procedures,

Research Instruments, Data Analysis 13-25

CHAPTER 4. Institutions providing credit and finance in Western Area

Commercial Banks, Micro Finance Institutions, Government Institutions

and Local Authorities, Non Governmental Organisations 26-41

CHAPTER 5. Need Demand and Use of Credit and Finance by Poor Households

engaged in (peri) urban Agriculture

Characteristics of Poor Households engaged in (peri) urban Agriculture,

Access to and Use of Credit and Finance, Need and Demand for Credit

and Finance, Challenges to Access Financial Institutions 42-57

CHAPTER 6. Summary of Findings, Conclusion and Recommendations 58-66

References 67

Annex 1 Information Gathering Forms on Financial institutions

Annex 2 Questionnaire for poor households engaged in (peri) urban agriculture

Annex 3 Information Gathering Form on informal credit and finance (osusu and remittances)

ii

LIST OF ABBREVIATIONS

ARD - Association for Rural Development

BRAC - Bangladesh Rural Advancement Committee

CMC - Chiefdom Micro-credit Committee

COOPI - Cooperazione Internazionale

CSO - Central Statistics Officer

FAO - Food and Agriculture Organisation

FCC - Freetown City Council

FUPAP - Freetown Urban and Peri-urban Agricultural

Platform

GDP - Gross Domestic Product

GGEM - Gender and Grassroot Empowerment Movement

IDRC - International Development Research Centre

IPES - Promotion for Sustainable Development

IWMI - International Water Management Institute

LAC - Latin America and the Caribbean

LAPO - Lift Above Poverty Organisation

MAFFS - Ministry of Agriculture, Forestry and Food Security

MPSA CCO - Matila Prayas Savings and Credit Cooperative

NaCSA - National Commission for Social Action

NAFSL - National Association of Farmers Sierra Leone

NGOs - Non-Governmental Organisations.

PCIB - Philippines Commercial and Industrial Bank

RPSDP - Rural and Private Sector Development Project

RUAF - Resource centres for Urban Agriculture and Food

Security

SAPA - Social Action and Poverty Alleviation

UA - Urban Agriculture

UBA - United Bank for Africa

UMP - Urban Management Programme

UPA - Urban and Peri-urban Agriculture

VAM - Vulnerability Assessment Mapping

WARDC - Western Area Rural District Council

iii

DEFINITION OF TERMS

Agro-processing - Processing of agricultural products

Fisher folks - People involved in fishing activities

High Input Processors - People engaged in processing agricultural products

like cassava that require large quantity of resources for that

activity.

Long distance marketers - People engaged in trading of agricultural products

obtained from up country and elsewhere. They travel to market

places outside the city to buy produce to sell.

Low Input Processors - People engaged in processing of agricultural

products like vegetables that require small quantity of resources

for that activity.

Micro-credit Small loans provided for poor families to help them

engage in production activities

Micro-finance - A broader range of services (savings, loans

insurance, transfer of money etc.) because poor and very poor

people require a variety of financial products

Ornamental Producers - People engaged in raising and selling of flowers.

Osusu - Money put together by a group to help members. It

is rotational one receiving at a time promising to contribute for

others.

Respondents - Those people who answer questions from a

questionnaire.

Urban & Peri-urban

Agriculture - Agriculture practised in and around the city.

Urban Poor - Poor people living in the urban areas.

iv

LIST OF TABLES

Page Table 1 - Sample size determination and distribution of target population 20

in urban - and peri-urban areas.

Table 2 - Distribution of Credit and Finance Institutions 27

Table 3 - Descriptive Statistics of Challenges face by the banks. 30

Table 4 - Future Prospects for Financing UA by the banks. 31

Table 5 - Descriptive statistics on value of cumulated & outstanding 34

loans from Institutions.

Table 6 - Basic Information on Financial Institutions. 41

Table 7 - Descriptive Statistics on reasons for not pertaining to an 42

organization by respondents.

Table 8 - Descriptive Statistics of specific osusus use for UA by 43

respondents.

Table 8.1 - Details on the specific osusus use by respondents. 43

Table 9 - Description of remittances from relatives use by respondents. 45

Table 10 - Descriptive statistics of uses of credit and finance by respondents. 45

Table 11 - Percentage distribution of sex accessing credit and finance from 46

informal sources.

Table 12 - Percentage distribution of sex accessing credit and finance from 47

informal sources.

Table 13 - Percentage distribution of sex accessing credit and finance from 48

formal Sources.

Table 14 - Descriptive statistics of demand for credit by respondents. 49

Table 15 - Descriptive statistics of required time for credit by respondents. 50

v

Table 16 - Amount of credit received and amount demanded. 51

Table 17 - Challenges in accessing credit from multiple responses. 52

Table 18 - Recommended linkages of urban poor in agriculture with possible 57

financial institutions for accessing credit and finance.

vi

LIST OF FIGURES

Page

Figure 1 - Map of Sierra Leone showing Western Area - 14

Figure 2 - Map of Western Area showing Urban & Peri-Urban - 15

Areas

Figure 3 - Distribution of main occupation of respondents - 37

Figure 4 - Distribution of respondents by sex - 38

Figure 5 - Distribution of respondents by position in the - 39

household

Figure 6 - Distribution of respondents by belonging to a group - 40

Figure 7 - Percentage distribution of Informal sources of money - 42

for agricultural activities.

vii

ACKNOWLEDGEMENTS

I would like to thank COOPI Sierra Leone most sincerely for giving me the opportunity and financial

support for carrying out this study. I would also like to extend my gratitude to Mr. Tamba Dambabla of

SLARI for his reliable comments and inputs during the various stages of this study. I would like to

extend my gratitude to Mr. Richard Bockarie also of SLARI for taking the pains in editing this report.

I also thank FUPAP for their comments on the final version of this paper. I remain responsible for any

error in the paper.

viii

ABSTRACT

The study identified and assessed existing opportunities for financing small scale urban and peri- urban

agriculture and the needs and demand for finance from the urban poor engaged in urban agriculture,

agro-processing and marketing. .

The results of the study show that 14 out of the 27 formal finance institutions that exist are possible

financial sources for urban agriculture and provide finance opportunities for the urban poor engaged in

agriculture. Out of a sample of 269 respondents, 98.1% expressed the need and demand for credit and

finance for their activities. The groups of marketers and fisher folks interviewed also expressed a need

for credit and finance for expansion and improvement of their business.

The study concludes that in making credit available for urban agriculture, improving the lending terms

and conditions of the financial institutions, in favour of the urban poor engaged in agriculture would

facilitate their access to credit and finance.

Key words: Credit and finance, financial institutions, urban poor engaged in agriculture.

1

CHAPTER 1

BACKGROUND AND INTRODUCTION

Agriculture in and around the cities has been on the development agenda of many national and

international bodies in recent times. Sierra Leone is no exception to this development approach.

For instance, the “Agriculture Sector Review of Sierra Leone” sponsored by the government of

Sierra Leone, FAO and World Bank recognised the importance of agriculture in and around the

cities i.e. Urban & Peri-urban agriculture in poverty alleviation and ensuring food security.

Consequently local and international Non-governmental Organisations (NGOs) initiated Urban

and Peri-urban programmes in Freetown. In 2006 to 2008 a major project title Freetown Urban

& Peri-urban Project (FUPAP), within the frame of the cities farming Network of Resource

Centres on Urban Agriculture and Food Security (RUAF) launched by the International Water

Management Institution (IWMI) responsible RUAF centre for Anglophone West Africa was

implemented by the Ministry of Agriculture, Forestry and Food Security.(MAFFS).

The project aimed at supporting city authorities in recognising the benefits of urban agriculture

and at the same time addressed food security, Urban Poverty and improved urban environmental

management. The outcome of this intervention has made city authorities become more aware of

the importance of urban agriculture including Freetown city and its environs, hence the need to

lay emphasis on and sustainably address the issue of urban food crisis and unemployment. This

notwithstanding, and for urban agriculture to develop fully as a productive force, it requires not

only political recognition or legitimacy but also financial support.

Several challenges constrain urban and peri-urban production (UPA) in Freetown and therefore

prevent the sector to achieve its full potential of contributing to the City‟s Gross Domestic

Product (GDP). Among these challenges includes the promotion of investment in and financing

urban agriculture.

Yves Cabannes (2004) stated that financial support can make a significant difference to poor

urban families who are involved in a diversity of activities such as production, agro-processing,

trading/marketing waste collection and recycling. These entrepreneurs require access to working

capital, but often face limited access to credit and investment schemes for urban agriculture.

2

The experience gained in the implementation of the pilot projects implemented in the Freetown

Urban Area by RUAF city partners in the years 2007 and 2008 showed that access to credit and

other sources of financing (e.g. subsidies, grants) are crucial to sustainably and meaningfully

develop agricultural production and or processing and marketing activities, as most of the

producers have limited or no access to credit and finance.

As in most cities in the developing world available loans are not adapted to the specific

conditions of the poor urban producers. Most of the available credits are either from institutions

financing rural agriculture that still not consider urban agriculture as an issue by itself or existing

credit programmes for the urban poor (e.g. micro-enterprises) are handled by those that hardly

have experience with financing agricultural activities. As a result, the lending conditions in terms

of collateral and guarantee are in effective unsustainable as most urban producers do not have

land use rights, amount of down payments, duration of the loan often not allowing longer term

investments and length of the grace period often both too short to be able to pay back, interest

rates often too high, process to disburse a loan often too lengthy and therefore costly.

So, not only do the urban producers face limited access to credit and investment schemes, but

also the information on those who do (such scheme) is even sparse or scarce. Evidence of the

benefits or urban agriculture is anecdotal and deals mainly with highly localised small scale

experiences.

Worse still, little is known about credit and finance interventions for UA in the Freetown urban

area and even elsewhere, that could benefit large numbers of producers, agro-processors and

marketers and thereby make urban agriculture a major contributor to more productive and

inclusive urban economies.

As a result, COOPI Sierra Leone in collaboration with the Freetown Urban and Per-urban

Agriculture Platform (FUPAP) set up a study group with its members drawn from the Ministry

of Agriculture, Forestry and Food Security, MAFFS, Concern World Wide, Sierra Leone,

Association for Rural Development ARD, and National Association of Farmers of Sierra Leone

NAFSL .The purpose was to find out and provide information and knowledge on credit and

finance interventions namely: “Applied Study of Credit and financing opportunities for farmers

in urban and peri-urban Freetown”

3

On this score, the paramount focus of this study hinges on finding out the current practices of

institutions and programmes that finance urban agriculture or other informal productive activities

like micro-enterprise development in and around the city of Freetown.

Chapter One of this work looks at introduction to the study, statement of the problem, objectives,

significance limitations and hypothesis of the study.

Chapter Two looks at literature review especially or relevant issues in financing and investment

for urban agriculture in other areas of the world.

Chapter Three reviews the methodology used to conduct the research is explained including the

parameters used to find existing credit and finance opportunities and other related issues as

demand/need for credit and finance urban by urban producers, agro-processors and marketers of

urban agriculture products.

Chapter Four presents analyzes and discuss the data collected about institutions providing credit

and finance in Western Area,

Chapter Five presents analyzes and discussions of the data gathered on needs demand and use of

credit and finance by poor households engaged in urban and peri-urban agriculture in and around

Freetown as well as the challenges they face in accessing formal credit and finance.

Finally, Chapter Six looks at the mis-match between credit and finance offer and demand, draws

the study conclusions and presents recommendations for credit and finance practices and

products which tailored on the needs and conditions of poor households engaged in (peri) urban

agriculture.

Statement of the problem

Generally speaking, the Sierra Leone economy is characterised by a high incidence of the

informal sector. Despite the introduction of credit facilities through the country by NGOs and

others, very little achievements have been made particularly as its impact has not been

meaningfully felt at grass roots level especially on urban and rural resource poor producers.

The situation is especially acute for the urban farmers who are the main producers and

contributors to the urban food security household.

4

Furthermore, limited income and lack of information on existing credit opportunities for urban

agriculture further restrict urban producers‟ access to credit and finance from financial

institutions and agencies.

Significantly, most of the urban producers in the developing world are agrarian. Therefore if the

quality of life of these people is to be improved, access to resources including land and other

related inputs, the availability of credit and finance intervention becomes a top priority.

In the urban and peri-urban Freetown, the low level of community financial assistance among

the urban producers, processors and marketers suggests that indeed access of credit and finance

is a major bottleneck for the development of agriculture in the sector. A relevant issue for

empirical investigation is therefore that of the factors behind the lack of access to credit and

finance for urban agriculture from financial institutions.

This study is therefore intended to investigate into:

1. The main features of existing finance institutions that offer the poor urban producers

processors and marketers access to their credit facilities in urban and peri-urban

Freetown.

2. The need and demand for credit and finance by resource poor urban producers from the

formal and informal credit sources.

Study Objectives

The overall aim of the study was to provide information knowledge and clear recommendations

that will serve to broaden collective and individual financial opportunities for poor urban and

peri-urban producers in and around Freetown and in the other RUAF partner cities.

The specific objectives were:

To identify and assess the current practices of institutions and programmes that finance urban

agriculture or other informal productive activities. (Like micro-enterprise development) in

the city and the existing opportunities, difficulties and bottlenecks encountered for financing

small scale urban and peri-urban agriculture.

To identify the needs and demands for finance from urban poor engaged in urban agriculture,

agro-processing or marketing.

5

To make recommendations that will facilitate the access of small scale urban producers to

finance.

Significance of the Study

The result of this study will serves as resource base material for research students of

Universities, teachers‟ training colleges, agriculture and NGO workers, extension agents and

financial institutions (banking and micro finance institutions). It also attempts to give a clear

picture of the financing and investment situation for urban agriculture in the urban and peri-

urban area of Freetown and also serve as baseline information for future studies and the design

and implementation of credit and finance programmes for urban poor engaged in agriculture, and

small-scale micro enterprises.

The recommendations serve as a guide to generate a better enabling environment for financing

urban agriculture through changes in the existing financial programmes that require institutional

changes and support from third parties (e.g. provision of guarantees, additional resources and

other risk reducing mechanisms).

The recommendations also provide advice to the NGOs, producers organisations involved in the

Freetown farmbul Farm Project in the urban and peri-urban areas of Freetown, thus giving

concrete workable solutions to meet the short term financial needs of the producers.

Limitations of the study

The study covers the urban and peri-urban areas of Western Area of Sierra Leone i.e. the

Freetown Municipality, York, Waterloo and Mountain Wards.

Data was collected from the urban poor engaged in production, processing and marketing

activities consisting of groups of vegetable, pig farmers selected randomly, ornamental

producers; low input processors of agricultural products like cassava leaves, pepper and

groundnut; short and long distance vegetable sellers and fishing communities in and around

Freetown. Also data was collected from farmers groups working with the Ministry of

Agriculture Forestry and Food Security already registered as farmer based organisations, since

there were no statistical information on the total farming population in the Freetown urban and

peri-urban areas and conducting a census would have been costly and time consuming.

It was also limited to the services of banking and financial institutions operating around

Freetown. The study was constrained with a lot of formalities in approaching the banking

6

institutions, and their code of conduct on the release of information. The exercise therefore took

more time than expected because each Institution had to be well informed before audience was

given to the researcher.

Assumption of the study

It was assumed that:

1. All respondents from which data was collected were true residents of the study area and

that;

2. the information given by the sample population was true

3. the sample population have or have not benefited from financial services in the study area.

Hypothesis of the study

The study tested the following hypothesis:

1. H0 = Urban poor engaged in production, processing and marketing

activities have knowledge of and access to credit and finance from financial

institutions.

= Financial institutions offer credit and finance for urban agriculture

2. Ha = Urban poor engaged in production, processing and marketing activities

have no knowledge of and no access to credit and finance from financial

institutions.

= Financial institutions do not offer credit and finance for urban

agriculture.

7

CHAPTER 2

LITERATURE REVIEW

Financial and investment for Urban Agriculture

The provision of credit and finance for urban agriculture has increasingly been regarded as an

important tool for raising the incomes of the urban producers mainly by mobilising resources to

more productive uses.

Despite the current difficulties in making credit and finance for urban agriculture available from

financial institutions, yet some innovative initiatives are taking place in various RUAF Partner

cities such as participatory budgeting, farmer savings and credit schemes, corporate

responsibilities, financing, public - private partnerships funding, micro-credit for urban

agriculture, subsidies in form of tax or fiscal incentives or exemptions etc, etc, though generally

only on a limited scale and serving therefore only a portion of the current needs for finance of

the urban producers.

In other cases where no direct financing for urban and peri-urban agriculture exists, other

financing sources (such as those for rural agriculture, urban micro-enterprise development and

marketing or other small scale urban productive activities) are being or could be directed towards

urban agriculture (Dr. Yves Cabannes 2006).

In recent past though, there has been an increased tendency to fund credit programmes in

developing countries aimed at small-scale enterprises (Daniels et al, 1995) .For instance ,a city

survey and evaluation of significant and diverse modalities of credit and investment provision to

urban agriculture was commissioned in 2002 and 2003 by UN-HABITAT, the Urban

Management Programme - Regional Coordination for Latin America and the Caribbean (UMP-

LAC), IPES – promotion for Sustainable Development, International Development Research

Centre (IDRC) and the International Network of Resource Centres on Urban Agriculture, and

Food Security (RUAF). Thirteen cases were commissioned and assessed giving innovative

experiences of credit and investment schemes, geographically representing various Africa, Latin

America, Asia and Europe. (Technical report on survey of city experiences 2002) - Rose Ngara -

Miray

The work revealed that urban and peri-urban agriculture is financed through a combination of

savings, subsidies/grants, credit (primarily micro-credits), or loans which are provided by

8

Banking institutions (Commercial) micro-finance institutions, NGO, government/or municipal

and self financed.

Savings and resource mobilisation

Urban farmers rely heavily and primarily on the mobilization of their own funds. Therefore, by

and large, urban agriculture for subsistence is self-financed. Mobilization of the financial

resource and savings is done through individual, family-based and collective savings of small

groups of producers that are community based.

Additionally, subsidies/grants for agriculture in the city are many times in different forms:

These include financial subsidies to the banking system, referred to as “Soft conditions for

Credit”,( subsidies directly to the farmer for main agricultural inputs/land, water, seed etc.) or

subsidies in the form of free technical assistance and training or support to obtain inputs as in the

case of Botswana, Nairobi Kenya; and subsidies to generate a facilitating environment

(transport) such as in St. Petersburg for agricultural production in and around the city.( Dr.Yves

Cabannes)

Credit either micro-or soft loan can be supported by international donors (as in Bulgaria),

National governments (Argentina), Federal or municipal governments, private banks, informal

private credit or NGOs and cooperatives (Sudan). Most of these existing finance and investment

schemes however are not accessible by the poor or other vulnerable groups as in Bulgaria. Poor

urban farmers usually cannot afford the requested collateral or the high interest rates.

Financial Institutions/Intermediaries

The analysis of all cases researched showed that a large number of actors are involved in

providing (sources) and managing funds (intermediaries) for urban and peri-urban agriculture.

Financial institutions/intermediaries transform available financial resources into loans that can be

directed to urban farmers in three typical situations:

Public financial institutions/intermediaries which include the national government and municipal

government as in Texaco (Mexico) and Rosario in Argentina.

Private & community-based institution that is credit and savings cooperatives as in Nepal.

9

Private banking system which include commercial banks and micro finance institutions.

Example of this is seen in Prove Pantanal (Brazil) and Botswana.

Municipal Financing/Intermediaries

The local government of Texaco, in the Metropolitan region set up an innovative agricultural

loans programme a few years ago. Resources from the central government were transferred to

the local government as part of the National Social Programme. The Texaco municipality

decided to transform these resources to limited and innovative sets of loans to agricultural

cooperatives (in particular for flower production) and to small solidarity groups of producers that

had not yet formed cooperatives as was the case with a group of rabbit keepers.

However, public resources and subsidies have been a crucial source of funds for facilitating the

access to credit of small urban farmers and for leveraging and channelling additional resources,

the dependence on public money has the risk of a sudden interruption to or closing of excellent

and economically successful urban agricultural activities. The case of Texaco for instance shows

the risk of depending on public resources as the urban agriculture programme was halted after a

change of local government.

As much as possible and in order to reduce the dependency of a credit system on political will, it

is fitting to build strong financial intermediary institutions that can lend and work with public

money, but will not depend on political orientations for the continuity. (Cabannes 2006).

An NGO can be a specialised financial intermediary with some outside help. For example

ACCION international is a U.S. - based non-profit consulting firm providing assistance to urban

micro-entrepreneurs in four foundations in the Latin American countries.

ACCION‟s clients, mostly market stall holders and street traders, and predominantly women are

organised into „Solidarity groups‟. A group of about five members‟ guarantees loans made to

each individual business. If one member does not pay, the rest must make up the repayment or

all members will be denied of access to credit. Pay back is usually weekly. Loans are generally

short-term from one month to six months and build slowly the capacity for absorbing credit

increases. The loan size is from $50 to $300 for micro-commerce and the smallest industries and

from $100 to $1,000 for micro industries and services. (Jeffry Ashe 1989 credit for the poor).

Thus, ACCION assisted programmes provide training and business orientation during meetings

so that business owners can tell each other how they have sorted out problems using peers to

10

train and encourage one another is effective and helps micro-business owner mange their

business as they expand.

One major strength of projects involving NGOs is that they provide services beyond credit; such

services may include technical assistance, village organising and linkage of community groups

with other agencies.

Private and community based financial institutions

In Nepal, in 1998, a cooperative body called the “Matila Prayas Savings & Credit Cooperative

Ltd. (MPSACCO) was set up to offer individual and peer lending for agricultural activities for

setting up shops and diary farming. The financial resources of the cooperative‟s members

generate from various savings such as regular compulsory or, voluntary monthly savings,

marriage and festival saving etc (Cabannes 2006).

This community-based banking facility is tailored to cultural and local practices and is different

from the conventional banking systems wherein savings are compulsory and pre-conditioned for

the poor for getting a loan (though the cooperative and the central government provide loan and

limited grants). Also, various economic institutions provided loans, occasional subsidies and

technical assistance to MPSACCO and its members.

Private and Banking Institutions

In Brazil, the Prove Pantanal Institution provides credits and technical assistance to home-based

producers, so that they can add value to their agricultural family-based production by processing

primary produce and selling it to supermarkets. The credits provided by Prove are funds from the

central government resources, while the technical assistance comes from the state government

budget. The state government separated the technical assistance component from the

management of the credits and delegated the financial management to a bank operating within

the state. The bank authorises various loans and the borrowers to repay at the bank in a fairly

conventional way. Through this programme, the financial set-up has the opportunity to open the

doors of the banks to family-based urban farmers. If they repay their first loans, they will be in a

better position to apply for future loan from the bank beyond the subsidised PROVE credit line.

This programme also acts as a bridge between informal producers and the formal banking system

making it especially attractive. (Araujo, P.Szukala, S. Programma Prove Pantanal, Study case of

the IPES/UMP Research Programm-Cabannes, Y 2004a).

11

In Sierra Leone, in an economy marked by high incidence of the informal sector, the government

has identified the provision of micro-credit as a key mechanism to help reduce poverty. The

provision of financial services (savings insurance, loans) to low-income households aims at

enabling them to acquire capital, improve livelihood and generate employment.

In mid 2001, the government adopted a new approach to micro credit scheme through the Social

Action and Poverty Alleviation (SAPA) Programme of the National Commission for Social

Action (NaCSA) to manage the scheme country-wide with a sub committee from the Ministry of

Development & Economic Planning. Chiefdom Micro-Credit Committee (CMC), chaired by the

Paramount Chiefs, were established to supervise the scheme and loan Managers were appointed.

However, because of the difficulties caused by the slow economic activity and the lack of

mobility of loan monitors, the overall process was deemed satisfactory (NaSCA, 2002).

Although the availability of micro-credit from the banking system, NGOs, local associations and

cooperative remain limited, yet there are viable organisations and institutions in the country that

could lend and recover funds on a revolving basis even for the promotion of urban agriculture

Need and Demand for Credit and finance

Farmers both urban and rural feel the need to borrow. From a study on rural banking and credit

conducted in Sierra Leone (J.E. Bessel et al 1981) it was revealed that farmers have the desire to

borrow additional funds. They needed these funds (in order of priority) for hiring labour,

purchasing seeds, expansion of crops and livestock, trading, education and housing. James

Kamara in his survey reported that out of the 184 farmers interviewed, 183 expressed a desire to

borrow for several reasons: in expressing the desire to borrow additional funds from a bank, they

probably felt that it was an additional source of ready credit from an institution far away and

therefore they could ask for what they needed rather than what they could afford. Also farmers

may have exhausted that resources and therefore need to borrow from other sources even though

the repayments could be more than they can afford. Farmers need to and do borrow funds during

the planting season. When there is high demand for labour and during the time when farmers‟

savings are low. The amount that a farmer needs to borrow depends on the harvest in the

previous cycle. As indicated in the study approximately 40% of the total borrowing of farmers

was for production of which 28% was for labour and seeds and 60% for non-farm investment.

In short, farmers need credit and finance not only for production but also for investment in non-

farming activities. Therefore loans to farmers should be based on their needs rather than standard

packages.

12

The immediate potential demand for credit and finance for agriculture is restricted to traditional

practices. While there is a need to demand for credit in the form of available capital, affordable

for the poor urban producers, giving them the ability to use resource conserving farming

technology, grow higher value crops and raise higher value livestock, handle in safer ways inputs

and outputs as well acquire implements and equipment (Rose Ngara-Muraye Technical Report

2002), yet according to Malik (Malik et al, 1991) “Often socio-economic characteristics of the

borrowers (urban producers) of credit affect the demand for credit.

A potential borrower of credit will demand credit based on the need for it and the satisfaction to

be derived.

13

CHAPTER 3

RESEARCH METHODOLOGY

3.1 Study Area

The study was carried out in and around Freetown (urban & Peri-urban areas) of Western Area

as shown in Figure 1. The study was also carried out in various communities within the

Freetown Urban & Peri-urban Area. (Figure 2).

The study area is located in the Freetown municipality and peninsular within the Western Area

of Sierra Leone. It lies about 80 and 9

0 North of the equator and 4

0 and 5

0 West of Greenwich

Meridian. It is bounded on the West by the Atlantic Ocean, and extends through the peninsular

mountains. South & westwards, it is bounded by the Sierra Leone River (Rokel Estuary)

The Freetown Municipality is categorised into Urban East, Central and West. The Urban East

comprises Allen Town, Wellington, Calaba Town, Cline Town and Kissy. The Urban Central

comprises King Jimmy, Tower Hill, the central Business area, Brookfields, New England,

Dwarzack, Kroo Bay, Kroo Town Road and the Urban West comprises Tengbeh Town, Murray

Town, Aberdeen, Wilberforce, Lumley, Juba and Pottor Levuma. The Peri-urban Areas of

Freetown comprise the Thunder Hill, Mountain, York and Waterloo Wards. In the mountain

ward there are three (3) village areas: Regent, Leicester and Motaim. The Waterloo Ward has six

(6) village areas: Campbell Town, Lumpa, Benguema, Macdonald, Hastings and Waterloo. Also

the York Ward has seven (7) village areas: York, Kent, Goderich, Tombo, Sattia, Hamilton and

Banana Island.

14

Figure 1.

15

Figure 2.

Land Area & Physiography

The total land area of Western Area is 2,009sq. km of which Freetown Municipality is 82sq.km

(essay et al, 2006).

The cities of Freetown urban and peri-urban area is generally fairly steep and hills are drained by

a number of rocky seasonal flowing streams. It occupies narrow chain of hills approximately

37km long and 14m wide with average of peaks. The highest being the picket hill in the South

which rises to about 900m (Gywne-Jones et al, 1978). Where as much of the Freetown urban is

made up of semi circular hills, less than 300m high and interspersed by stream valleys from the

East to the West. The hills are well drained, where as there are waterlogged areas within the

raised beaches in the rainy season. The low lying beaches have badly drained stormy rainfed and

tidal flooded areas in the rainy season and daily throughout the seasons respectively (T.Winneba

Urban Agriculture Weekly Report, 2007).

16

Climate

Freetown urban and peri-urban area experiences hot and tropical climate with average

temperatures ranging between 230c and 34

0c with March and April being the hottest months and

August the coldest month. However, night temperatures in the interior can drop to as low as

140c during the period between December and February.

Two main seasons exist: the raining season running from May to November and the dry season

from December to April. Over half of the rainfall occurs between July & August. The highest

average annual rainfall is about 800mm occurring in August.

There is a short dry spell in September which farmers take advantage of, to dry some groundnut,

maize, spinach and krain krain seeds for second cropping in the uplands late in the month.

Vegetation characteristics

The climax vegetation of most of the Freetown Peri-urban Area forest is classified by White

(1993) as Guinea-Congolian rain forest of the hygrophilous coasted type. It has a close langay at

about 30m or more with emergent tree rising above this canopy. The drier rocky slopes and

summit support low shrub forest as their climax. The latent parts are covered by grassland since

the forest is too poor to support shrubs on high forest. The present vegetation of Freetown urban

and peri-urban area is mainly influenced by land use pattern which had resulted to biotic climatic

type of vegetation with patches of original montage forests in the reserve areas of mountain

ranges encircled by a secondary formation of farm bush in the slopes and base plateau,

exemplary only the narrow coastal strips between Juba and No.2 River villages on the Western

face and that between Kissy and Calaba Town where are found grass foundation.

Soils

The soils of the Freetown Urban and Peri-urban Area are feralitic in origin and are developed

under continuous high temperatures and constant leaching due to heavy rainfall, high rates of

run-off and rapid infiltration of water to the lower horizons. In the Greater Freetown Area most

of the soil in the highland and raised beach are greatly intent loams, and those in the low-lying

raised beaches comprise sandy loams and alluvium.

Relatively fertile soils are found at the middle and lower course of the mainstream villages

where eroded soils rich in slit and clay from the hills and mountains are deposited. It is within

these areas that farming crops is practiced.

17

Population

There are dynamics in the population of the Freetown urban and peri-urban area. The population

in the entire Western Area has increased from 554.243 in 1985 to 1,134.132 in 2004 (CSO,

2004) Freetown Peri-urban area has 361,259 (VAM survey 2005) and Freetown Urban has a

population of 772,873 consisting 15.5 percent of the National figure of 4,976,871 in 2004

(Thomas et al, 2006 Sesay et al, 2006)

Economic activities

The main economic activities of the populace in the study area are agriculture, trading, coastal

sea fishing fuel wood/charcoal collection and mining particularly sand and stones and office

work.

There are two types of farming: upland in which crops like cassava, groundnut vegetables and

rice are grown under shifting cultivation system; Swamp/lowland cultivation in which rice is

grown in the rainy season and vegetables in the dry season.

The main farming activity is vegetable growing in small farm holdings and backyard gardening,

pig and poultry production. Cereals (rice and maize) are seasonally in a subsistence manner.

Marketing/trading of agricultural products such as fruits and vegetables cassava, palm oil is

actively done mostly by women.

Also most of the active labour forces are engaged in tertiary livelihood strategies like processing

of food stuff and local vegetables in the market centres.

3.2 Research Design

The study was designed to gather qualitative and descriptive statistics from service providers

(lenders) of financial institutions and from producers groups (vegetable, pig and ornamental,

fish) and individual processors and marketers of agricultural products, receiving credit/finance

from formal and informal credit institutions as well as those who did not. The formal financial

institutions considered in this study were the Banks, Micro-finance institutions, NGOs

(development financing organisations) and the central and local government institutions.

(Ministry of Agriculture, Forestry and Food Security, Freetown City Council and Western Area

Rural District Council) Informal finance has been used to refer to all transactions, loans and

savings outside the regulation of a central monetary or financial market authority. (Adams and

Von Pischke, 1992; Aryeetey and Udry, 1997). The informal financial institutions in this study

18

consisted of self savings; remittance from relatives, rotating saving and credit schemes (Thrift

and credit, Osusu), pre-financing by input providers/traders and money lenders.

The survey was carried out during March 2010 in the financial institutions, producers sites &

market centres in the urban and peri-urban areas of Freetown: Urban East and West, Mountain,

Waterloo and York Wards.

The target population were service providers of institutions providing finance and credit and

small scale urban entrepreneurs engaged in farming, marketing and primary processing of

agricultural products who were therefore selected as the Units of study.

Data used in the study are primary data collected directly from the target population with the use

of structured questionnaires and focus group discussions. The structured questionnaires were

developed to collect information from financial institutions and the small scale enterprises.

The information collected from the financial institutions indicate a profile of the institutions and

information collected from the small scale urban entrepreneurs indicate

their responses on access to credit and finance and the views on need and demand for credit and

finance for agricultural activities.

The data collected was translated into qualitative statistics, which was analysed using descriptive

statistics. The statistical information of the survey was presented in tables and graphs.

3.3 Population and Sampling Procedures

The population selected for the study were service providers (lenders) of financial institutions;

(Banks, Micro-finance, NGOs, Central & Local Government) small scale entrepreneurs in

groups of farmers organisations involved in the production of vegetable, pig, ornamental and

aquaculture, processing and marketing of agro-products (e.g. vegetables, cassava, groundnut, hot

pepper etc.) in the urban and peri-urban Freetown in Western Area of Sierra Leone. The data

collection process required a preliminary survey in order to construct the sampling frame and

draw up a sample. A pilot survey was conducted for this purpose during the last week of

February. With the help of the Ministry of Finance, all financial institutions operating within

Freetown were identified. A population of small scale farmers (vegetable, pig, ornamentals and

aquaculture) and processors and marketers were also identified in the study area with the help of

the district offices of the Ministry of Agriculture, Forestry and Food Security and the Sierra

Leone Petty Traders Union. This included both credit and non credit users. Since there is no

official register of individual processors and marketers operating in the market centres, listing

19

was done in each market centre. Also there were no statistical information on the total farming

population in the study; therefore a list of farmers groups was obtained from those working with

the Ministry of Agriculture.

A sample size for such category of entrepreneur was determined using the small sample formula

of Cochan (1963) showing relationship between the sample size and the total population.

No sample was taken from the financial institutions that were identified through the help of

Ministry of Finance. Hence, all of them were investigated.

Sample Size Determination and Selection of Members of target population in the Urban

and Per-urban of the Western Area

To determine the sample sizes (n) of the target population for the administration of the

questionnaire, the formula given below that was propounded by Cochran (1963) will be used:

2

1 eN

Nn

Where the level of precisions for 90% confidence

Where n is the sample size, N is the population to be sampled and e is the level of precision

(which, in this case is the 90% confidence level)

Appling the formula for:

2

1 eN

Nn

Where n = sample size of the membership of the target population.

N = total membership of target population in the sample area for both Urban and Peri-Urban .

Table 1 below is shows the determination and distribution of sample size of the target

population.

Table 1: Determination and Distribution of Sample Size of Target Population

Target Population

Total

No.

Sample

Size

Distribution of Sample Size

Urban

Peri-Urban

Vegetable Producers 964 100 48 52

Small Livestock Farmers 74 14 7 7

Low Input Processors 291 75 54 21

Short Distance Vegetable

Sellers

240 71 39 32

Ornamental Producers 4 4 4 -

High Input Processors 25 5 - 5

2,594 269 152 117

20

Vegetable Producers

The sample selection of the vegetable producers was done in a way that bias was not introduced;

on reaching the area where the farmer groups whose members are to be interviewed are located

for both Urban and Peri-Urban, the first farmer group contacted was interviewed, then the

second, the third and so on. At most five members were interviewed in a farmer group. If up to

four members of a group were not present at the

period of the interview, other members of another farmer group present were interviewed to

complete the four.

A vegetable farmer in his local hot pepper production plot at Regent Village

Small Scale Livestock Farmers

The survey frame of the small scale livestock farmers consists of all the small scale livestock

farmers in the Urban and Peri-Urban areas of the western area.

We consider 20% of the total small scale livestock farmers to be taken as the sample size and

this sample size is proportional distributed among the areas. Twenty percent of the total number

of small scale livestock farmers is approximately 12.

The number of small scale farmers in each of the areas were randomly selected and interviewed.

Low Input Processors

The survey frame of the low input processors consists of all the low input processors in the

Urban and Peri-Urban areas of the western area.

The distribution of the low input processors is already shown in table 1.

The selection of the processors to be interviewed was done randomly from the list of the low

input processors.

21

Peri-urban food processors grinding groundnut and cassava leaves at the Waterloo market

centre

High Input Processors

The survey frame of the high input processors consists of all the high input processors in

Waterloo Ward in the Peri-urban area. The total number of high input processors in the Waterloo

Ward is 25.

We consider 20% of the total high input processors to be taken as the Sample Size. Twenty

percent of the total high input processors are approximately 5.

The number of high input processors in Waterloo Ward in the Peri-urban area were randomly

selected and interviewed.

High input food processors processing cassava into bread in the peri-urban area at

Waterloo village.

22

Short Distance Vegetable Sellers

The survey frame of the short distance vegetable sellers consists of all the Short distance

vegetable sellers in the Urban and Peri-Urban areas of the western area.

The distribution of the Vegetable sellers is shown in Table 1

The selection of the short distance sellers to be interviewed was done randomly from the list of

the short distance sellers.

Vegetable (plasas) sellers selling in the peri-urban area.

Ornamentals Plants and Flowers Producers

In this survey, producers of ornamental plants and flowers were also interviewed. However since

there were only four in the area, all of them were interviewed.

Long Distance Marketers

Focus group discussion was also used to obtain information from the long distance marketers.

Since there are only two big marketing centers for the long distance marketers, two focus group

discussions were done; one in each of the market centre.

23

Aquaculture (Fish)

For the purpose of this survey, information was got from the fishing communities through focus

group discussions.

Twenty percent of the fishing communities were selected at random and focus group discussion

were done in the selected communities. There are 16 fishing communities; one in the Urban area

and 15 in the Peri-Urban area. Twenty percent of the 17 fishing communities is approximately 4.

Therefore the one community in the urban area was selected and three were randomly selected

from Peri-Urban area.

Tokeh fishermen undertaking fishing along the village beach in the community.

3.4 Research Instruments

Structured questionnaires were developed with a focus on the research objectives of the study to

be achieved. Questionnaires were used to obtain relevant information of the study. A pilot test

was conducted to verify the validity and reliability of the questionnaire. The questionnaire was

later modified for the final implementation. This was to ensure that the questionnaire was free

from errors and the questions would give the appropriate information for achieving the

objectives of the study. Data collection was carried out by the researcher and members of the

study team from the stakeholder institutions. Data collectors were given a day training on how to

24

collect valid and reliable data. Focus group discussions were also conducted and held with four

fishing communities and two communities of long distance marketers in order to obtain

information on credit and finance.

The items on the questionnaires focused on the specific variables of the study: Existing financial

institutions and demand for credit and finance. The items on the questionnaire for existing

financial institutions were further categorized into four (4) parts namely: basic data, financial

products for agriculture factors/challenges in financing small scale urban agriculture and future

prospects for financing urban agriculture.

Basic data: Information collected in this section was based on the name and type of institution,

year of creation, operational areas within the study area.

Financial products: Information collected in this area was based on the products offered by the

financial institutions and available for agriculture, conditions and terms of access; minimum and

maximum value of the products.

Factors/challenges in financing small scale urban agriculture: Information collected in this

area was based on main factors that hamper financing of small scale producers and what might

be done to foster financing of urban agriculture.

Further prospects for financing urban agriculture: Information in this area was based on the

institutions expectations regarding financing urban agriculture with regards to volume, type of

financing and conditions.

Also additional information was collected from the financial institutions involved in financing

UA and the target population.

The information collected from the institutions financing UA include: origin of financial

resources, value of cumulated loans given, value of outstanding loans and financial assistance to

the urban poor farmers.

The items on the questionnaire focusing demand for credit and finance were also categorized

into six (6) sections namely: Basic data, occupation, access to credit and finance, need for credit

and finance, demand for credit and finance and challenges in accessing credit and finance.

Section 1 Basic data:

Information collected in this section was based on the respondent‟s name, sex, address, religion,

ethnicity and membership in farmers‟ organisation or traders‟ union.

25

Section 2 Occupation:

Information collected in this section was based on respondent‟s engagement in agricultural

activity:

Section 3 Access to credit

Information collect in this section was based on the respondent‟s way and means of financing his

or her activity.

Section 4 Need for credit and finance

Information collected in this section was based on respondent‟s financing needs to undertake his

or her activity.

Section 5 Demand for credit and finance

Information collected in this section was based on the respondent‟s demand for credit and

finance to improve and expand his or her activity.

Section 6 Challenges in accessing credit and finance

Information collected in this section was based on the respondent‟s (1) Problems encountered to

access credit and finance from financial institutions. (2) Views on possible solutions to the

problems encountered in accessing credit and finance.

Also additional information on the type of osusus and remittances channels and practices

were also collected as follows: size of the osusu groups, duration of the cycle, value of savings,

kind of relative, estimated amount received, channel of receiving money, conditions for

remittances and frequency of money remitted

3.5 Data Analysis

The data collected from the survey was analysed using statistical description represented in

graphs and tables. The figures illustrate the outcome of the study. Discussion of the result of the

findings in relation to the objectives stated form part of the analysis. Highlights of the

implications of the findings were included in the discussions. Finally, summary of findings and

recommendations was given.

26

CHAPTER 4

INSTITUTIONS PROVIDING CREDIT AND FINANCE IN WESTERN AREA

This chapter and next present the results of this study. This Chapter examines the existing

financial institutions that provide credit and finance facilities in the urban and peri-urban

Freetown for producers, processors and marketers. The next Chapter assesses the need and

demand for credit and finance from financial institutions by the urban poor engaged in

production, processing and marketing activities in and around Freetown.

The study shows that there exist a number of credit institutions that provide credit and finance in

the study area. These institutions include commercial banks, micro-finance institutions, central

government ministries, local councils and NGOs. From the inventory survey, there are twenty-

seven of such, thirteen commercial banks, eight micro-finance, three NGOs and three

government institutions. As shown in the table below commercial banks are the principal service

provider of credit and finance and accounts for 48% of all credit and financing.

Table 2: shows distribution of Credit and Finance Institutions

Institution No. Percentage

Commercial Bank 13 48.2

Micro-finance 8 29.6

NGOs 3 11.1

Governmental (Local & Central 3 11.1

Total 27 100

4.1 Commercial Banks and their Financing Practices

The thirteen commercial banks that are operating are: First International Bank, Union Trust

Bank, Rokel Commercial Bank, Eco Bank, Access Bank, Standard Chartered Bank, United Bank

for Africa UBA - SL, Skye Bank, Zenith Bank Ltd, International Commercial Bank, Guaranty

Trust Bank and Sierra Leone Commercial Bank.

Majority of these banks started operations from the late 90‟s up to now; the oldest in 1894 and

that is the Standard Chartered Bank. The banks provide credit loans including overdraft

advances and amortise to a wider range of beneficiaries which include farmers/farmers groups,

small and medium entrepreneurs, importers, exporters, corporate borrowers, traders, fisherfolks,

27

legal companies and employees of credible institutions. First International Bank, Access Bank,

Zenith Bank and Guaranty Trust Bank specifically offer financial assistance to farmers and

fisherfolks.

All the banks provide financial services for either agriculture and or trading with the majority

(eight banks) for Production, Marketing and agro-processing. These banks are First

International, Union Trust, Eco Bank, Access, Standard Chartered, Zenith Bank, Guaranty Trust

and Sierra Leone Commercial Bank. The United Bank for Africa UBA, Skye Bank,

International Commercial Bank and Bank PHB Sierra Leone do not provide financial services

for agriculture in and around Freetown.

It means that, in the area of credit and financing opportunities for agriculture and according to

the study, commercial banks can provide financial assistance for urban agriculture.

The loan terms and conditions of the banks vary from one bank to the other. Collateral is

required in various forms depending on the bank. Most of the banks require guarantee including

personal guarantee except for Access and Standard Chartered.

From the study, no loan terms and conditions were set by United Bank for Africa UBA, Skye

Bank, Bank PHB Sierra Leone and Zenith Bank since they do not offer loans for urban

agriculture.

The minimum amount of loans offered by the banks varies and range from five hundred

thousand Leones (Le500,000), offered by Eco Bank to five hundred millions Leones (Le500m)

offered by Zenith Bank The maximum amount of loans range from one million five hundred

thousand (Le1.5m) offered by Eco Bank to one and the half billion Leones (Le1.5B) which is

offered by Access Bank.

It means that agriculture in around the Freetown city can be financed for small scale enterprises

as well as for large investments through the Commercial Banks. The Rokel Commercial Banks

are negotiable on a case by case basis.

Interest rates charged by the banks range from fifteen percent (15%) offered by First

International Bank and Guaranty Bank to forty seven percent (47%) offered by First

International Bank and Eco Bank. However, most of the banks charge between twenty and

twenty-five percent (20%-25%) interest rates. The highest interest rate of forty to forty-seven

percent is charged by First International Bank and Eco Bank. In respect of the loan terms and

conditions of the banks, it implies that large amount of loans are or can be offered for agriculture

28

but with high interest rates, and the collateral and guarantee required actually would stand in the

way of smallholder and the poor in obtaining credit.

Down payment is not a requirement for most of the banks except for Rokel Commercial Bank

which requires down payment depending on level of comment and the type of financial product.

Loan repayment period range from one day up to seven years depending on the loan amount.

First International bank allows seven (7) years repayment period because of the Agriculture Hire

Purchase Scheme for farm machinery, tractors it offers, whereas Eco bank allows a day up to

eighteen (18) months because it offers small credit (micro-credit).

The repayment period therefore depends on the size of the loan offered by the banks that is, for

small amounts, the repayment period is short and for large amounts the period is long.

Grace period for loan repayment varies with the banks but range from two (2) to three (3)

months.

However, some banks like Access bank, International Commercial Bank and Guaranty Bank do

not have grace period.

For Standard Chartered Bank the grace period is negotiable and it varies for Union Trust Bank,

Rokel Commercial Bank, and Sierra Leone Commercial Bank as it is applied wherever possible.

In short, the grace period a bank allows is a necessity for loan repayment but may or may not

suit the interest of the target group (urban farmers). Accessing loans from the banks involves the

following: application from the customer, appraisal or review of application, discussion on loan

terms and conditions, approval or acceptance and disbursement. For Guaranty Bank, Zenith

Bank, Sierra Leone Commercial Bank and International Commercial Bank the process is short

and requires just application from the customers.

The challenges the banks face in giving out loans for agriculture from the multiple responses

include the following as outlined in the table below:

Table: 3- Descriptive Statistics of Challenges face by the banks.

Challenges Faced By Banks Count %

In Security of land tenure 2 10

No mechanism in the city to get secure land 4 20

Late payment of loans 2 10

29

Formal deed require for credit 5 25

Lack of savings account 3 15

Beneficiaries in ability to handle & manage

loans

1 5

Lack of legislation 3 15

Total 20 100

It is seen that the problems of formal deed required for in credit, no mechanism in the Freetown

City to get secure land, lack of savings account legislation (in ranking order) are faced by banks.

The perception of the banks with regards to what might be done to foster financing urban

agriculture are that proper mechanism or law for land tenure system should be put in place by

government, reduction of risk entailed in informal businesses through business development,

increased commitment of the beneficiary farmers towards repayment of loans.

First International Bank, Union Trust Bank, Eco Bank, Access Bank, Standard Chartered Bank,

Bank PHB Sierra Leone and Sierra Leone Commercial Bank intend to finance agriculture

(production, marketing, marketing and agro-processing) in and around the Freetown City while

the other remaining six (6) banks have no intention.

Future prospects of the banks for financing urban agriculture from the multiple responses are

outlined below:

Table: 4. Future Prospects for Financing UA by the banks

Future Prospects for financing UA Count

Involvement in agric hire purchase through individual and group loan offer 1

Access to farm – sites, assumed markets and readiness of the beneficiaries to pre

finance the business

1

Required business plans for viability and profitability management potentials and loan

security

2

Finance those already involved in agriculture activities 1

Advance loans to agric groups guaranteed by agro-project funds 1

Finance those that fall under the normal banking consideration 1

Total 7

30

Of the Seven Banks that intend to financial Urban Agriculture one of them, that is, First

International Bank would want to involve in agriculture hire purchase scheme through individual

and group loan offer. Two of the banks Eco Bank, and Standard Chartered would require

business plans for viability and profitability management potentials and loan security. Union

Trust Bank will require the Bank‟s access to beneficiaries‟ farm sites, assumed matters and

readiness of beneficiaries to pre-finance the business for financing Urban Agriculture.

Only one bank, PHB Sierra Leone that intends to finance beneficiaries already involved in

agricultural activities and those with security from Government or Insurance Company, where as

another bank that is the Access Bank, will advance loans to agricultural groups guaranteed by

agro- project funds. The Sierra Leone Commercial bank also indicates that they will finance

beneficiaries that fall under the normal banking consideration for production and agro-

processing.

In addition, the banks intend to provide loans based on requests, individual‟s business plan

projection for procurement of agricultural inputs and machinery.

4.2 Micro Finance Institutions and their Financing practices

The eight micro-finance institutions studied are:

Lift above Poverty Organisation LAPO, Luma Micro Finance Trust, Salone Micro-Finance

Trust, Finance Salone, Hope Micro-finance, BRAC micro-finance (SL) limited, Gender and

Grass root Empowerment Movement GGEM Micro-finance Services Limited and Association

for Rural Development ARD.

Almost all of the micro-finance institutions started operations in the city between 2002 - 2009,

but Association for Rural Development ARD started in 1986. The micro-finance institutions

offer micro-credit to women traders, monthly salary earners, and vegetable sellers for agriculture

and mainly petty trading and also as salary loan.

Only four of these institutions (LUMA, Salone micro-finance, Finance Salone, Hope micro

finance) offer assistance for urban agriculture mainly marketing and agro-processing. LUMA

and Hope Micro finance offer financial assistance also for production.

The Lift above Poverty Organisation LAPO, BRAC micro finance Limited, GGEM and ARD do

not fund urban agriculture.

31

With terms & conditions for the micro-credit, most institutions require collateral of ten to fifteen

percent (10% - 15%). Only BRAC micro-finance Limited does not have terms and conditions

for the micro-credit because it does not provide finance for urban agriculture.

All the institutions require guarantee in the form of group solidarity except for LAPO which

does not require this.

The minimum value of the micro-credit that the institutions offer is between three hundred

thousand (Le300, 000) and five hundred thousand Leones (Le500,000).

LAPO offers two hundred and ten thousand Leones (Le210, 000) as minimum and three hundred

thousand Leones as maximum.

The maximum value offer is between five hundred thousand to four million Leones. The Salone

micro-finance trust gives one million (Le1m) Leones as maximum amount for micro-credit

whereas Finance Salone gives four million Leones (Le4m).

Interest rate charge per year is thirty to thirty-six percent (30% – 36%) and per month is (two and

the half to three percent (2.5% - 3%).

When comparing the interest rates of the banks and micro institutions the highest rate for the

banks is forty-seven percent (47%) and that of the micro finance institutions is thirty six percent

(36%). On the average the interest rate of the banks is thirty one percent (31%) and for the MFIs

thirty six percent (36%) This can be attributed to the fact that the MFIs obtain loans from the

banks for subsequent disbursement to beneficiaries and would require paying interest.

The micro finance institutions do not require any down payment for the micro-credit provided.

Repayment period is between one (1) month to one (1) year, but some institutions allow four (4)

to five (5) months.

Accessing micro credit from the institutions requires the following steps: sensitization of

beneficiaries, application from beneficiaries, and verification by the institutions, approval and

disbursement.

All the micro finance institutions stated that they face no challenges in giving out micro credit

except that some of them LUMA and Salone Micro Finance Trust may require adequate funds to

meet the demand of the beneficiaries.

Almost all of them do intend to finance urban agriculture except for Hope micro-finance and

Association for Rural Development ARD. They intend to provide finance under these

considerations:-

32

LAPO, LUMA and Salon Micro Finance Trust indicate that beneficiaries to be finance

should be the right kind of clients engaged in agricultural business

Salon micro- Finance Trust indicates that beneficiaries should exist in groups with

government and National Associations of Farmers Sierra Leone NAFSL as third party

LAPO and Finance Salone will finance beneficiaries who have the capacity to provide

the required collateral.

Under future prospects for financing urban agriculture Salone Micro Finance Trust intend to

provide finance for inputs (seed, fertilizer) and processing machines. GGEM Micro Finance

Services Limited intends to give small loans for short term cropping. Finance Salone, Luma

Micro Finance Trust and LAPO will finance marketing of produce and agro-processing business.

It is seen that micro-finance institutions are possible financing sources for urban agriculture as

they are already providing and intend to provide financial assistance for urban agriculture.

The micro-credit provided by these institutions is small enough to meet the short term financial

needs of the urban poor engaged in production, marketing and processing. Group solidarity is a

strong guarantee for accessing micro-credit loans and therefore the urban farmers, marketers and

processors must be organized in functional groups.

The short repayment period does not permit any down payment although interest rates are high

with an average of 31 % for the banks and 33 % for the MFIs.

Value of cumulated and outstanding loans from banks and MFIs.

Table 5 Descriptive statistics on value of cumulated & outstanding loans from

Institutions

Financial Institution

Total value

cumulated Loans

Le’000m

Total value

outstanding of

Loans

Le’000m

Percentage

of

Outstanding

Loans

Access Bank 2,000,000 - 0

First International

Bank

8,500,000 3,500,000 41.2

Finance Salone

Limited

1,600,000 640,000 40

Luma Micro-finance

Trust

99,661 66,440 67

33

Hope Micro-Finance

Services

1,500,000 1,100,000 73.3

Salone Micro-Finance

Trust

775,900 460,651 59.3

Total 14,475,561 5,767,091 39.8

Information was also obtained from the institutions on the value of cumulated loans that were

disbursed and outstanding loans to be recovered from the beneficiaries. It was found that only

two banks and four MFIs have given credit and finance to the urban poor engaged in agricultural

activities. A total of 14 .4 billion Leones have been given out especially for marketing and agro-

processing with a little for producing. However a total of 5.7 billion Leones are outstanding

about 39.8 % to be collected within the given time that the repayment period. These funds have

been given by various donors for instance Salone Micro finance trust has received funds from K

IVA an American based organization and partly from UNIDO;LUMA from CORDAID , Eco

Bank and Rokel Commercial Bank; Finance Salone from American Refugee Council and Hope

Micro finance trust from World Hope International United States of America.

4.3 Government Institutions and Local Authorities and their Financing practices

The Government Institutions that operate in the study area provide finance and credit for urban

and peri-urban agriculture are the Ministry of Agriculture, Forestry and Food Security MAFFS,

the Local Councils, Freetown City and Western Area Rural District Council. There is also the

Rural and Private Sector Development Project (world bank funded) jointly implemented by the

Ministry of Trade and Industry and the Ministry of Agriculture, Forestry and Food Security,

(MAFFS) providing finance for peri-urban agriculture.

Ministry of Agriculture Forestry and Food Security (MAFFS)

The MAFFS has been in operation in the entire Western Area providing extension

Services to urban and peri-urban farmers. Such services include input supply in the form of

seeds, fertilizer, tools, livestock treatment with veterinary drugs and vaccines and training. Funds

were provided by the central government to finance these activities for the farmers.

Freetown City Council (FCC)

In 2006, funds for agriculture were devolved from the Central Government (MAFFS) to the

Councils FCC for the implementation of devolved agricultural functions in the form of tied

grants. The grants are used to finance small projects purely production designed by MAFFS and

FCC for urban farmers.

34

There are no terms and conditions for the grant except that the beneficiaries (urban farmers) are

organized into functional groups inorder to benefit from such assistance.

The amount of grant allocated from Central Government MAFFS to FCC for 2010 is Le132,

921.351M .The grant funding by MAFFS through FCC is on-going.

The Challenges faced by the Council are lack of meaningful implementation of agricultural

projects and programmes and also the 2009 remittance of funds does not meet the planned

budget of the programmes.

Western Area Rural District Council (WARDC)

The Western Area Rural District Council Started operations in 2004 by the Local Government

Act in the Western Area Rural District which is the peri- urban area of Freetown. In 2006 funds

from the central Government through the Ministry of Agriculture was remitted to WARDC to

support small scale farmers within the peri urban area in the form of production inputs like seeds

cassava and sweet potato cuttings and fertilizer and small hand tools including veterinary drugs

and vaccines for livestock treatment. The Council aims at promoting small scale farmers in food

security within the frame work of the Poverty Reduction Strategy Paper pillar 2 (PRSP 11).

The amount of grant remitted to the council by the central government is thirty five million

Leones (Le35M) minimum and maximum one hundred million Leones (Le 100M).

The challenges the council faces are lack of cooperation from the farming communities and

inadequate funds to fully and effectively support the farmers. The council therefore requests the

central government to increase the grant allocation in order to empower farmers in the district.

Rural and Private Support Development Project (RPSDP)/ MAFFS/MTI

The Rural and Private Support Project RPSDP of MAFFS & the Ministry of Trade and Industry

(MTI) started operations in 2008 in the Western Area Rural District part of which forms the peri-

urban areas. (Mountain, waterloo, York)

This project provides grants to farmers groups, traders in agricultural products purely for

marketing and agro-processing activities. The project does not fund production.

The terms and conditions of the project for grant assistance are group solidarity as a guarantee,

group registration with WARDC and group savings account. The minimum value of the grant

provided is five thousand dollars ($5,000) the maximum is forty thousand dollars ($40,000).

(One dollar $1 is equivalent to four thousand Leones Le4, 000).

35

To access the grant, it requires application from the beneficiary group, group project proposal,

approval by a coordination committee and disbursement.

The challenge this RPSD Project faces is lack of current account of the beneficiary groups which

limits investment.

The perception of RPSD project on what might be done in financing peri-urban agriculture is

sensitization of beneficiary groups on the commercialization of agriculture (farming as a

business) and ensuring that the groups have current accounts with commercial banks.

The RPSD project will continue to provide finance for agro-processing activities and intend to

expand by creating market linkages in or out of the country and supporting improvement of

marketing and preservation facilities.

The RPSD project is a possible financing source for peri-urban agriculture.

It provides opportunity for the peri-urban poor engaged in production, marketing and agro-

processing to finance and make investment in their business.

4.4 NGOs and their Financing practices

The three NGOs studied are: BRAC- Sierra Leone, Concern World wide Sierra Leone and

COOPI. BRAC- SL started operations in 2008 in the study area and Concern and COOPI in

2009. Concern Worldwide, Sierra Leone and COOPI have been working with farmers groups

(subsistence and commercial), slums inhabitants and youth groups providing inputs and training

for production and agro-processing

BRAC Sierra Leone

BRAC offers micro credit for small-scale businesses of petty traders in non- agricultural

activities and does not offer financial assistance for agriculture not even, urban agriculture.

However, BRAC-SL also supports farmers groups through the provision of subsidies for crop

and livestock production in Port Lokko, Bombali and Tonkolili districts. They are not interested

in financing urban farmers in the Freetown area because of insecure land tenure system.

36

Cooperazione Internazionale COOPI

COOPI is working with 1500 beneficiaries in the EU funded project of 1.7 million Euros. (1

Euro is equivalent to five thousand and twenty five Leones Le 5,025).

Beneficiaries are in three categories, 400 commercial farmers, 700 unemployed youths and 400

subsistence farmers. COOPI supports the commercial farmers with agricultural inputs, packing

materials and labels, sealing machines; training on packaging, labeling, sales and marketing

strategies. COOPI also organizes the commercial farmers to form various teams like production,

packaging and delivery, sales and marketing through the Farmers Field Schools for urban

producers.

The youth groups are 24 and are being supported in establishing their businesses right from

doing Inventory of options to Market scan, and selecting the most promising options for the

business. These groups are engaged in business like vegetable selling in the street, fruits selling

in the roads sides, Yogurt making, piggery, groundnut paste making , producing green chili,

catering, jam making bread making and soap making from palm oil.

The subsistence farmers groups are mainly in slums areas of Freetown eastern and western parts

of the city. The main support that COOPI provides is training in basic nutrition – growing

kitchen garden, hygiene and cleanliness and training on improving their nutritional status.

Challenges faced by COOPI include lack of cooperation, interest and support from the groups,

frequent requests from the groups for many more things and looking always for immediate

benefits, huge expectations from the NGOs and less effort to develop their business set- up.

To overcome these challenges COOPI intends to provide frequent trainings and motivations,

arrange weekly meetings to discuss about the groups‟ business activities, make exchange visits

to successfully running communities, conduct regular monitoring and evaluation of all the

groups‟ activities.

Concern Worldwide Sierra Leone

Concern Worldwide Sierra Leone is implementing a five year project funded by the European

Union since January 2009 titled the Peri and Urban Community Action for Food Security

(PUCAFS) in the urban and peri –urban areas of Freetown. The total cost of the project is one

million four hundred and ninety nine thousand four hundred and eighty four point four three

Euros (Euro. 1,499,484.43)

The main objective of the project is to empower 5,000 extremely poor and marginalized

households to exercise their right to sustained food security through community driven and risk

complaint livelihood initiatives, in 20 vulnerable communities in 13 locations in urban and peri-

37

urban Freetown. The target beneficiaries are farmers 1,950, business groups 900, vocational

skills groups 400, and disaster risk reduction 1,150 and governance groups 300. The farming

groups targeted are those initially formed by MAFFS in collaboration with NAFSL. Forty

groups made up of 957 members in 10 locations were assessed, reactivated, and supported by

Concern, Community Animation and Development Organization and National Farmers

Association of Sierra Leone (NAFSL) through a wide range of capacity building activities

which include leadership training for the farming groups, training on improved agronomic

practices, training of Para-veterinarians on animal health and husbandry techniques, the supply

of farm inputs (e.g. seeds, tools, and watering cans ), the facilitation of exposure visits to other

farms as well as crosscutting activities aimed at awareness on HIV/AIDs, gender based violence

and equality issues which has led to greater participation of women in the programme. In

strengthening business potential and increasing employment opportunities through vocational

training and apprenticeship placements the project has indentified and verified along with its

partner Association for Rural Development (ARD) beneficiaries with master artisans of 1,300

households to build their knowledge on business enterprise identification, business planning,

accessing relevant marketing information and research. Thirty one registered business enterprise

groups have been sensitized to set up consumer store activities in their communities.

Challenges faced by Concern include lack of legislation for farmers‟ organizations and no

mechanism in the City to get secure land tenure system.

To overcome these challenges Concern will advocate with the urban and rural councils (FCC&

WARDC) for secured lands for the farmers through the Freetown Urban and Peri- Urban

Agricultural Platform (FUPAP) a body of stakeholders that is responsible for promoting the

development of urban agriculture in Freetown.

Basic information on all the financial institutions studied is given in Table 6

.

38

Table 6: Basic Information on Financial Institutions

No.

Name of Institution

Actual Involvement in

financing UA

Possibilities for financing UA

Actual difficulties for

financing (obstacles)

Action to be developed Financial product

offered

Amount (Le)

Repayment

period

1.

2.

3.

4.

5.

First International Bank

Union Trust Bank

Rokel Commercial Bank

ECO Bank

Access Bank

Loan

Loan

Loan

Overdraft advice

Foreign Exchange

for Importers

Loan to individuals

in groups involved

in textile and

electronic items

business

Loan

Min:

Max: 500M

Min: 5M

Max: 90M

On a case

by case basis

Min: 500T

Max: 1.5M

Min: 20M

Max: 1.5B

1 - 7 years

3 - 6 years

1 day to

18 months

6 months to

1 year

Production and agro-

processing

Marketing and agro-

processing

Not involved in

financing UA

No

Marketing

Agro-processing

Will finance production

marketing & agro-processing

Will finance marketing & agro-

processing

No possibility for financing UA

No intention to finance urban

agriculture.

Will finance production,

marketing and agro-processing

Absence of collateral and

security.

- Formal deed

required for

corporate lending

- Loans cannot be given

depend on financial

soundness & risks

involved:

- Lack of legislation for

Cooperative

- Lack of savings account

of beneficiaries

- Project of political &

controversial nature

None

Does not finance agriculture

because of seasonality and

perishabilty of agricultural

products.

No structured collateral

available.

-Government intervention,

like by way of hire

purchase scheme being

greatly subsidized.

- Reduce the risk

entailed in informal

business through

business development

services

Agriculture is not within

the bank‟s loan portfolio.

Government to invest in

UPA through international

NGOs.

Government guaranteed

scheme for farmers.

Formation of strong

cooperatives to act as

unified front for bulk

lending.

39

Basic Information on Financial Institutions (Contd.)

No.

Name of Institution

Actual Involvement in

financing UA

Possibilities for financing UA

Actual difficulties for

financing (obstacles)

Action to be developed

Financial product

offered

Amount (Le)

Repayment

period

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

Standard Chartered

United Bank for Africa

UBA- S/L.

Skye Bank

Zenith Bank Ltd.

International Commercial

Bank

Bank PHB/Sierra Leone

Guaranty Trust Bank

Sierra Leone Commercial

Bank

LAPO lift above poverty

organisation

LUMA Micro Finance

Trust

Loan

Loan

Loan

Loan

Loan for non

agricultural

activities.

Loan

Loan

Loan

Micro - credit

Micro-credit

Negotiable

“ “

“ “

Based on

requests and

available

funds.

Max: 1 Billion

Negotiable

“ “

Min: 100M

Max: 500M

Varied

Min: Le300T

Max: Le 2M

Negotiable

“ “

“ “

Negotiable

Negotiable

“ “

1-4 years

Varied

5-8 months

4 months

Marketing

Not involved in

financing UA

Not involved in

financing UA

Not involved in

financing UA.

Not involved in

financing UA

Not involved in

financing UA

Production marketing

agro-processing

Not really financing

urban poor but those

involved in large scale

production agro-

processing

Not involved

Involved in financing

production, marketing

agro-processing

Will finance marketing

No possibility for financing UA

No possibility for financing UA

Can possibly finance UA based

on the provision of business plan

by the groups especially for

livestock.

Possibility for financing UA in

the near future ( fishing and

livestock )

Will finance production through

provision of loans for purchase

of agric. machinery

Will finance production

marketing and agro-processing

Will finance large scale

production, agro-processing and

marketing

Will finance production and

marketing.

Will finance marketing, agro

processing

- Proper business plan &

Projections

Financing UA is not part of

their loaning programme.

Financing UA is not part of

their loaning programme.

Very difficult to give seasonal

loans to farmers for production

because of uncertainty of loan

pay back.

Lack of collateral and security

do not permit financing of UA.

Financing UA is not part of

their loaning programme.

Formal deed required for a

credit.

.

Formal deed required for a

credit

Inadequate funds to meet

beneficiaries‟ demands

Management decision to

finance UA in the future.

do.

Unwilling to give out

loans for long period for

agricultural production.

Government to give

guarantee for the loan

takers.

Management decision to

finance UA in future.

Trying to make a broad

base policy for financing

agriculture.

Government to put in

place legal framework to

protect MFIs.

Solicit more funds from

donors for disbursement.

40

16.

Salone Micro-Finance

Trust

Micro-Credit

Min: 300T

Max: 2M

8-10 months

Involved in financing

marketing

Will finance production, agro-

processing and marketing

When business goes bad

recovery of loans is difficult.

Group solidarity.

17.

18.

19.

20

21..

Finance Salone

Hope Micro-Finance

Institution

GGEM Micro finance

services Limited

Association for Rural

Development ARD

MAFFS/MTI Rural and

Private Sector

Development

Micro-credit Loan

Micro-Credit

Micro-Credit to

petty traders in non

agric.

Commodities.

Micro credit

Grant

Min: 300T

Max: 4M

Min: 400T

Max: 600T

Average loan

size 500 T

Min: 500T

Max: Le1.1M

Min: 300T

Max: 1M

Min: $ 5,000

Max: $ 40,000

4-12 months

1 months -

1 year

6 months to 1

year

6-12 months

No repayment

period. 5

years project

duration

Involved in financing

marketing of

agricultural

commodities.

Production, marketing,

Processing of local food

stuff.

Not involved

Not involved

Agro-processing,

marketing in

agricultural products in

the Peri-Urban Area.

Will finance marketing

Will finance production, agro-

processing and marketing

No intention to finance UA.

Will finance agro-processing and

marketing in the Peri-Urban

Area.

Production

People are not willing to pay

back loans.

-Mode of tailoring loan product

not always in line with

beneficiaries need ( method of

payment loan type payment

frequency to meet clients need )

-External drop in purchasing

power of consumer.

Legal environment, law of the

land in lending and borrowing

not in favour of MFIs

-Major state events (election

,civil strife )

-Breech in agreement on the

part of the clients in repayment.

-Deliberate deception ( fraud)

Long payback period not

favorable. Lack of security/

collateral. No legal framework

to protect MFIs

Financing UA is not part of

their loan package because of

the possible occurrence of

natural disaster such as

flooding, drought condition.

Lack of current account of

beneficiaries limiting

investment

Involvement of the police.

Now the institution is

under Bank of Sierra

Leone as a legal entity.

-Redesign products to

meet clients‟ needs and to

offset operation costs.

-Sierra Leone Association

of Micro finance to

advocate for favorable

legal environment for

MFIs.

-Legal intervention

dialogue with defaulters

where possible reschedule

the loan.

Short payback period.

Require collateral that is

equivalent to loan.

Government to put in

place legal framework to

protect MFIs.

Special funds for UPA

farmers to be sought.

- Encourage beneficiaries

to have current account

- Sensitization on

business Plan

preparation.

41

22.

23.

Freetown City Council

Western Area Rural

District Council

Tied Grant

Tied grant

Max:132,921.3

51M for 2010

Min. 35M

Max: Le100M

No repayment

period

required

No repayment

period

required

Production

Financed production in

the Peri-urban area

Will Finance production in the

peri-urban area

- do -

In adequate funding from the

central government.

Funds allocated to not meet the

planned budget for UA

programme.

- do -

- Government should

increase budgetary

allocation for

agriculture.

- Funds remitted to the

Council should meet the

planned budget for UA

Programme

- do -

24.

25.

26.

BRAC SL

“

Concern World Wide

Sierra Leone

COOPI

Subsidies to

farmers groups

in the rural areas.

Micro - Credit

Grant

Grant

Min.$ 100

Max.$ 300

EU.1,499,484.

43

EU. 1.7M

Programme is

up to2011.

40 weeks

instalmemts.

Weekly

payment

5 years

project

duration

4 years

project

duration

Not involved

Not involved

Production marketing

agro-processing

- do -

Not interested in supporting

urban farmers.

No intention to finance UA.

Will finance production,

marketing and agro-processing

- do -

Urban farmers have insecure

land for farming and have not

much land for expansion of

agriculture.

Financing UA is not part of

their loan package.

- Lack of legislation for

Farmers organisations

- No mechanism in the City

to get secure land tenure.

-Groups always look for

immediate benefit. Lack of

cooperation and support.

Always ask for more things.

Have huge expectations from

NGOs. Less effort to build their

business set-up. do

-

Possibility of establishing

seed production centers

and capacity building for

farmers in enterprise

development in the peri-

urban areas.

Management will have to

decide on financing

possibly peri-urban

agriculture.

Advocacy with the urban

and rural councils for

secured lands for the

farmers through the

Freetown Urban and Peri-

Urban agricultural

Platform (FUPAP).

Provide them frequent

training and motivation.

Make exchange visits to

other successfully running

communities. Arrange a

weekly meeting to discuss

about their business

activities. Regular

monitoring and evaluation.

Note: 1Euro. is equivalent to Five thousand and twenty five Leones (Le 5,025)

1 Dollar is equivalent to four thousand Leones. (Le 4,000)

42

CHAPTER 5

NEED AND DEMAND FOR CREDIT AND FINANCE BY URBAN POOR

HOUSEHOLDS ENGAGED IN (PERI) URBAN AGRICULTURE

5.1 Characteristics of urban poor households engaged in (peri) urban agriculture

This Chapter presents the major characteristics of urban poor households engaged in

production, agro-processing and marketing activities that are likely to determine their

needs and demand for credit and finance, and where it could be sourced for their uses.

Such characteristics include main occupation, position in the household, sex and social

grouping.

Different people choose to use the available sources of credit and finance depending on

how they suit their personal and economic needs. These characteristics have been

found to determine the decision to apply for credit and whether to apply from financial

institutions or informal sources. Figure 3 gives the distribution of the occupations of

the respondents.

Figure 3 Distribution of main occupation of respondents

We observed that almost half of the respondents sampled were involved in agricultural

production (vegetable, pig and ornamentals). Almost one third was involved in selling

43

vegetables (local & exotic) and more than one third were engaged in processing of

agricultural products including cassava leaves, groundnut, hot pepper and cassava

bread.

The results indicate that most of the sampled urban poor households involved in urban

agriculture were small urban producers as compared with those engaged in processing

and selling of vegetables.

Majority of urban poor engaged in vegetable production and selling are women

constituting 53.4 and 42.7 percent respectively. This can be attributed to the fact that

women continue to bear primary responsibility of household sustenance and well-being.

However, men dominated the processing of agricultural products especially grinding of

cassava leaves, groundnut and hot pepper; small scale pig production and raising and

selling of ornamentals as indicated in Figure 4 below.

The reason for this male dominance is that they are more likely to have access to

resources (land, cash) to commence market oriented agricultural activities than the

women. (Zibrilla and Salifu 2004). Even so, these activities are traditionally done by

men.

Figure 4 Distribution of respondents by sex

44

Figure 5 Distribution of respondents by position in household

From Figure 5 we see that most of the respondents involved in urban agricultural

activities are household heads constituting 50 percent while 33.5 percent are wives and

7.5 percent are other dependants (elder son and relatives). It means that the household

heads bear the responsibility of financing their activities and would therefore need more

cash income for household expenditure and investment.

45

Figure 6 Distribution respondents by belonging to a group.

Looking at those who belong to a group in relation to accessing credit and finance from

Institutions, we found that belonging to a farmers group or trade unions give guarantee

for borrowing. In Figure 6 it is seen that 79.5 percent of the respondents that are

members of farmers groups are those involved in vegetable production.

A good number of the respondents 147 out of 269 do not belong to any form of farmers

group or trade unions.

From our findings, such groups/unions are partially functioning; they do meet regularly, pay

monthly membership dues and have an oversight executive body. Interestingly, almost all of

them lack bank accounts, except for a few which might give them better chances for any

financial assistance. Those who do not belong to a farmer‟s group/traders union gave a number

46

of reasons for not doing so. The main reason was limited awareness and sensitization about

existing institutions. Other reasons the respondents gave are outlined in Table 7.

Table: 7. Descriptive Statistics on reasons for not pertaining to an organization by

respondents

Reasons Vegetables

Producers

Small

Scale Pig

Producers

Ornamental

Producers

Low input

Processors

Nigh input

Processors

Vegetable

Sellers

Total

Count

Not aware

of the

existence of

group

organization

0 7 4 48 4 10 73

Group

organization

not

beneficial

0 0 0 0 0 22 22

Dishonesty

among

group

members

0 3 3 33 0 30 69

No unity 0 0 0 13 0 0 13

One man

business

0 0 4 0 0 8 12

Majority of the low input processors, vegetables sellers and a few of the small scale pig

producers responded that they are not aware of the existence of any group organization

and also feared the dishonesty among group members.

All the four ornamental producers interviewed do not belong to a group because of their

limited knowledge of group organization and consider ornamental production as a one

man business.

Also some of the short distance vegetables sellers consider vegetable selling as a one

man business.

47

The reasons advance contradicts the advantages of group organization like group

solidarity and accessibility to financial assistance. However, it can be noted that more

and proper awareness creation and sensitization are pertinent issues to be addressed in

relation to finance and credit for urban agriculture.

The study therefore gives a representative picture of the respondent‟s responses to credit

needs and their use of various credit and finance sources in and around Freetown. This

is particularly so since the sample was drawn from major market centers and producers‟

sites in the urban and peri-urban area of Freetown.

5.2 Access to and use of credit and finance

Different sources of money used by the respondents were investigated. These were the

informal and formal sources.

Respondents were asked about how they got money to finance their agricultural

activities. A total of 246 respondents indicated informal sources and 23 respondents

indicated formal sources. Based on the responses we see that out of those who got

money from informal sources 54% had used self savings, 19% had used remittance

from relatives; 16% had used group based savings/credit schemes (Osusu) 4% had used

input providers/traders, and 7% had used money lenders:.

Figure 7 Showing informal sources of money for agricultural activities.

48

Various types of osusus are used by the respondents namely daily, weekly and monthly

as in Table 8. It is seen that the processors and vegetable sellers had mostly used the

daily and weekly „osusus‟ where as the producers (vegetable, small scale livestock &

ornamental) had used the monthly osusus to finance the business.

Table 8. Descriptive Statistics of specific osusus use for UA by respondents

Type of

Osusu

Group Vegetable

producers

Small

Scale pig

producers

Ornamental

producers

Low input

processors

High

input

processors

Vegetable

Sellers

Daily N

Sum

0

0

0

0

0

0

15

181

0

0

1

10

Weekly N

Sum

7

192

0

0

0

0

1

10

2

10

3

37

Monthly

N

Sum

14

271

3

38

1

12

0

0

0

0

0

0

Table 8.1

Details on the

specific osusus

use by

respondents.usu

Group Size of

groups

Amount

Le’000

Duration of

Cycle

Value of

Saving

Le’000

Daily N

Sum

Mean

16

191

12

16

81

5

16

191

12

16

738

46

Weekly N

Sum

Mean

12

249

20

12

105

9

12

249

20

12

2,265

188.7

Monthly N

Sum

Mean

28

304

11

28

605

22

28

304

11

28

6,205

221.6

The average size of the groups that used the daily osusu is twelve (12) and average

amount contributed per person per day is five thousand Leones (Le5, 000) for 12 days

on the average the value of the savings is forty six thousand Leones (Le46, 000).

In the weekly osusu 20 is the average size of the groups and the average amount

contributed per person for week is nine thousand Leones (Le9, 000) for 20 weeks. The

average value of the savings therefore is one hundred and eighty eight thousand seven

hundred Leones (Le188, 700).

49

In the monthly osusu the average size of the groups is eleven (11) and the average

amount contributed per person per month is twenty two thousand Leones (Le22, 000)

for 11 months. The average value of savings in the monthly osusu is two hundred and

twenty one thousand Leones (Le221, 000).

When comparing the three types of osusus used, it could be seen that more money is

saved and used from the daily osusu than the weekly and monthly osusus. This is so,

because in working out the amount of money saved for every 12 days of the weekly

(140 days) osusu with a total savings of one hundred and eighty eight thousand seven

hundred Leones (Le188, 700) it is sixteen thousand one hundred and fourteen Leones

(Le16, 114). Also money saved every 12 days of the monthly (330 days) osusu is eight

thousand and fifty Leones (Le8, 050).

Remittances used by the respondents are obtained from various relatives as explained in

Table 8. The minimum amount used is between thirty thousand Leones (Le30, 000) and

one hundred thousand Leones (Le100, 000) received from sisters, uncles, brothers, sons

and husbands. The maximum amount ranges from two hundred thousand Leones

(Le200, 000) as received from husbands and brothers to four million Leones (Le4,

000,000) from sons, daughters, mother, father, and uncle as well.

The Channel of remittances is mostly direct although some cases it is through the banks.

The small amount of money received is used mostly for repairs and maintenance of

processing machines and purchasing small inputs like seeds. The large amount of

money received is used mainly for house hold expenses as family support although

some of it is used to finance the business

50

Table 9. Description of remittances from relatives use by respondents

Relative

Amount

Channel

Condition for

remittance

How often

money is

remitted

Husband Minimum

Maximum

100,000

200,000

Direct No condition 1 to 2 times

Son Minimum

Maximum

50,000

4,000,000

Through other

relatives,

Direct

No condition 1 to 2 times

Daughter Minimum

Maximum

50,000

4,000,000

Direct

Through

husband

No condition 1 to 2 times

Brother Minimum

Maximum

50,000

500,000

Direct No condition Once

Sister Minimum

Maximum

30,000

2,000,000

Through bank

Direct

No condition 1 to 2 times

Father Minimum

Maximum 1,000,000 Through brother No condition 2 times

Mother Minimum

Maximum

2,000,000 Direct No condition Once

Uncle Minimum

Maximum 40,000

1,000,000

Direct

Through bank

No condition

Loan for 6

months without

interest

Once

These funds are used for (in order of priority) buying inputs, working capital and hiring

of labour as shown in Table 10 from the multiple responses. Looking at the uses of

credit and finance from the informal sources we see that for the improvement and

expansion of their activities there is a need for additional finances. Also it is seen that

more women, 146 of the 246 respondents have accessed the informal sources of credit

and finance than the men as in Table 11 mainly from self savings, remittances from

relatives (husbands) and Osusu.

Table 10: Descriptive statistics of uses of credit and finance by respondents

Credit needs Veg,

Producers

Small/S

Pig

Producers.

Ornamental

Producers

Low

Input

Process.

High

Input

Process.

Veg.

Sellers

Total

count

% within

Responses

Working

Capital

Count

55

10

4

`56

4 54

184 38.6

Buying

Input

Count

93

6

4

52

4 28

187 39.3

Hiring

Labour

Count 78 2 3 10

2

10

105 22.1

476 100

51

Table 11: Percentage distribution of sex accessing credit and finance from

informal sources

Source of Finance Female Male

Self Savings Count

%

83

57

50

50

Remittance from

relatives

Count

%

28

19.2

19

19

Osusu Count

%

25

17.0

14

14

Pre-financing

traders/input

provides

Count

%

8

5.5

2

2

Money Lender Count

%

2

1.3

15

15

Total Count

%

146

100

100

100

Majority of the respondents had used money from the informal sources as already

explained. When asked about the reason for not receiving money from any financial

institution, those who had not received gave a number of reasons for this. The main

reason for not accessing credit and finance was lack of knowledge on how to obtain

credit. This was followed by fear of harassment from financial institutions and lack of

required guarantee and security, (bank account, collateral).

In this sample the 23 respondents are those who had borrowed and can be classified as

having had a demand for credit.

Of 23 respondents that access the financial institutions for their working capital, 2

received from micro-finance institutions, 7 from government institutions, 6 from NGOs

and 8 from the Banks. Fifteen (15) of the respondents are vegetable producers and six

(6) are low input processors, one (1) ornamental producer and one (1) vegetable seller

as shown in the Table below.

52

Table 12: Descriptive statistics of access to credit and finance from financial

Institutions by respondents

Institution Vegetable

Producers

Small

scale Pig

Producers

Ornamental

Producers

Low Input

Processors

High Input

Processors

Vegetable

Sellers

Total

Count

% within

responses

Bank 4

0

1

2

0

1

8 34.8

NGO 3

0

0

3

0

0

6 26.1

Micro

finance

2

0

0

0

0

0

2 8.7

Government 6

0

0

1

0

0

7 30.4

Total 15 0 1 6 0 1 23 100

This indicates that most of those who access the financial institutions are the vegetable

producers and low input processors, where as the least are the ornamental producer and

vegetable seller. Interestingly the small scale pig producers and high input processors

do not access any financial institution

Comparing gender access to credit and finance the study showed that 12 men and 11

women have accessed the financial institutions as is shown in Table 13. Although the

difference in number between men and women is not great yet, it means that the men

have more access to credit and finance from the formal sources than the women. The

reason for this is that the women do not have savings accounts with the banks and

collateral, although most of them belong to groups and traders union that serve as a

guarantee for accessing credit and finance.

Women traders group meeting at the Traders Union office in Waterloo village.

53

Table 13: Percentage distribution of sex accessing credit and finance from formal

Sources

Source of Finance Female Male

Bank Count

%

3

27.3

5

41.7

NGO Count

%

2

18.2

4

33.3

Micro-finance Institution Count

%

1

9.1

1

8.3

Government Count

%

5

45.4

2

16.7

Total Count

% 11

100

12

100

Respondents indicated that loans were received from the banks, micro-credit from

micro finance institutions and NGOs and grant from government institutions. These

were used mainly during the 1st cropping season that is the dry season when vegetable

production and marketing of agricultural products are more profitable.

5.3 Need and Demand for Credit

During the interviews conducted, almost all the respondents expressed a desire to

borrow more money for their agricultural activities.

Out of the total of 269 respondents, 264 (98.1%) expressed a desire to borrow. The

fisherfolks and long distance marketers also indicated that they needed credit for the

expansion of their business.

The study showed that there is a high demand for credit and finance, the 264

respondents expressed the desire to expand and improve their activities and would

therefore require additional resources like more input, land space and labour, additional

cash for shed (baffa), irrigation and processing machines.

Demand for credit is based on the type of agricultural activities undertaken by the urban

poor and the purpose for which additional finance is required.

The processors (high & low input), producers of small scale pig and ornamental

producers require more cash for shed construction and purchasing processing machines

54

like cassava graters and grinders, where as the vegetable producers demand cash for

purchasing of irrigation machines. The fisherfolks require additional cash for

preservation facilities (cold rooms and rehabilitation of processing ovens), and outboard

engines. The long distance marketers however, require cash for transportation and

storage facilities.

Women fisher folks processing fish on a local processing oven (Banda).

Table 14: Descriptive statistics of demand for credit by respondents

Required Items

Veg,

Producers

Small/S.

Pig

Producers

Ornamental

Producers.

Low

Input

Processors

High

Input

Processors

Veg.

Sellers

Shed Construction Count

% within

responses

8

7.7

11

73.3

4

100

33

47

5

100

31

67

Irrigation Machine Count

% within

responses

90

87.3

1

6.6

0

0

0

0

0

0

2

4.3

Processing

Equipment

Count

% within

responses

3

2.9

2

13.3

0

0

38

52.9

5

100

-

-

Transport/

Storage

13

28

55

The sellers also require additional cash for transport and storage facilities.

The vegetable producers and sellers require credit and finance mostly during the 1st

cropping season which is the dry season when most vegetable planting takes place and

there is demand for inputs, more capital for labour and trading. The small scale pig

producers and ornamental producers require credit all year round since their activities are

not time specific. The low and high input processors do not have any specific time in

which they require credit. Credit is required at any time for continuous operations.

Table 15: Descriptive statistics of required time for credit by respondents

Time for Credit

Veg,

Producers

Small/S.

Pig

Producers

Ornamental

Producers

Low

Input

Processors

High

Input

Processors

Veg.

Sellers

1st

Copping

Season

Count

% within

responses

86

69.4

0

0

1

20

9

11.4

0

0

33

37.5

2nd

cropping

Season

Count

% within

responses

26

20.0

0

0

1

20

2

2.5

0

0

27

30

All year

round

Count

% within

responses

10

8.1

9

69.2

3

60

4

5.1

0

0

28

30

No time

for credit

Count

% within

responses

2

1.6

4

30.7

0

0

64

82

5

100

0

0

The amount of credit received and needed was also investigated. The credit amounts

received by those who access credit and finance from financial institutions were found

to differ significantly as shown in Table 16.

56

Table 16: Amount of credit received and amount demanded

Type of

Respondent

Minimum

amount of

loan

received

Maximu

m

amount

of loan

received

Minimum

amount of

micro-

credit

received

Maximum

amount of

micro-

credit

received

Minimum

amount of

grant

received

Maximum

amount of

grant

received

Minimum

amount of

money

required to

expand Agric

activity in

leones

Maximum

amount of

money

required to

expand

agric

activity in

leones

High input

processors N 5 5

Sum 9800000.0 18000000.0

Mean 1960000.0 3600000.0

Livestock N 13.0 9.0

Sum 58000000.0 185600000.0

Mean 4461538.5 20622222.2

Low in put

processors N 3 1 1 1

77.0 44.0

Sum 5230000 500000 300000 1000000 142130000.0 115400000.0

Mean 1743333 500000 300000 1000000 1845844.2 2622727.3

Ornamentals N 4.0

Sum 7000000.0

Mean 1750000.0

Sellers N 2 2 68.0 45.0

Sum 600000 1200000 92100000.0 171050000.0

Mean 300000 600000 1354411.8 3801111.1

Vegetable

producers N 1 1 3

1 1 97.0 74.0

Sum 300000 50000 3900000 1000000 3000000 160220000.0 331450000.0

Mean 300000 50000 1300000 1000000 3000000 1651752.6 4479054.1

Total N 4 2 6 3 1 1 264.0 177.0

Sum 5530000 550000 4800000 2200000 1000000 3000000 469250000.0 821500000.0

Mean 1382500 275000 800000 733333.3 1000000 3000000 1777462.1 4641242.9

The average maximum amount of credit received by the vegetable producers is three

million Leones (Le3, 000,000). The low input processors had received an average

maximum amount of one million Leones (Le1, 000,000), while the vegetable sellers

received an average maximum of six hundred thousand Leones.(Le600, 000). The

amount received by the vegetable producers in the form of grant is significantly higher

(about three times) than that received by the sellers and processors.

This may be attributed to the resource base of the institutions, which determines what

they can lend out to any individual borrower

In comparing the credit demand of all those who will require finance, the vegetable

producers, sellers and high input processors need more money than the small scale pig

producers, low input processors and ornamentals. This again can be attributed to the

57

level of inputs required for the different agricultural activities undertaken by them

(urban poor).

5.4 Challenges in accessing credit & finance from financial insitutions

The small number of respondents who had received credit from financial institutions

was faced with challenges. Despite the probability of loan requests been granted by the

institutions, yet limiting factors like high interest rate with short maturity period

guarantee, collateral and lack of bank account make credit not easy for accessing. This

is reflected when the different limiting factors are compared. In the multiple responses,

23 indicated high interest rate with short maturity period as a problem, while 18

indicated collateral, 20 guarantee and 21 lack of bank account. (Table: 17.)

Table: 17: Challenges in accessing credit from multiple responses

Limiting factor No. of Responses Percent

High Interest 23 28.1

Collateral 18 21.9

Guarantee 20 24.4

Bank Account 21 25.6

Total 82 100

Therefore, it is seen that these factors affect the decision of the urban poor farmer to

borrow from formal financial institutions.

What can be done to ameliorate these limitations? From the respondents‟ perception,

there is need to reduce interest rates, extend repayment period, no harassment from

institutions and group solidarity as a guarantee. However, in spite of these limitations,

the good aspects about the financial institution are that they make available cash for

undertaking agricultural activities at any time and make the borrowers pay less attention

to money lenders and traders.

58

CHAPTER 6

SUMMARY OF FINDINGS

CONCLUSION AND RECOMMENDATIONS

The study had the objectives of identifying and assessing the current practices of

institutions and programmes that finance urban agriculture or other informal productive

activities and the existing opportunities for financing urban and peri-urban agriculture.

It also identifies the needs and demand for finance for the urban poor engaged in

production, marketing and agro-processing in the Freetown city.

A Field survey was conducted in which primary data were collected using a structured

questionnaire and also focus group discussions A total of 269 respondents were

interviewed and 6 focus group discussions held with 4 fishing communities and 2

groups of long distance marketers of agricultural products.

The study used mainly descriptive statistics in the analysis. The result showed that 26

formal financial institutions exist that provide credit and finance; 13 commercial banks,

7 micro-finance institutions; 3 government and 3 non-governmental organisations: Out

of the 13 commercial banks only 5 provide credit for agriculture and 4 of the 7 micro-

finance institutions. The central government through Ministry of Agriculture, Forestry

and Food Security and Local Councils Freetown City Council and Western Area Rural

District Council also finance Urban Agriculture.

It is concluded that these institutions are possible financial sources for urban

agriculture, and provide finance opportunities for the urban poor engaged in agriculture.

The study revealed that the informal sources of finance for urban agriculture were used

mainly from self-savings, 54% remittances from relatives 19% and rotating saving

schemes (osusu) of 16% input providers and traders 4%, money lenders 7% out of 246

respondents. They had used these funds for (in order of priority) buying inputs,

working capital and hiring of labour.

This indicates that the finance sourced in the informal way though accessible but is

limited in size and therefore cannot meet the credit and financial needs for the

expansion and improvement of urban agriculture.

59

The results showed that most of the urban poor engaged in agriculture had not used

credit from the formal financial institutions before, but only a few mostly vegetable

producers, low input processors and fisher folks. The major reasons for not seeking

credit were lack of information about credit opportunities and lack of required security.

A number of conclusions can be drawn from the results of the study. A major one is

that of the large number of potential borrowers (urban poor in agriculture) who did not

seek credit although it does not mean that they do not need and demand credit. The

result has shown that out of the sample 269, 98.1% of the respondents, many of the

groups of marketers and fisher folks needed and demand credit and finance for

expansion and improvement of their business.

It is also concluded that credit from the formal financial institutions were not or many

times hard to obtain because of the lending terms and conditions reflected in high

interest rates, lack of bank accounts of potential borrowers, the short repayment period

and intimidation from harassment of micro-finance institutions during loan recovery.

The results also showed that group solidarity (a form of guarantee) facilitate access to

credit and finance for agriculture.

An important conclusion for making credit available that emerges from this study is that

the improvement of terms and conditions of the institutions will facilitate financing

small scale commercial agriculture.

Recommendations

On the basis of the result of the findings, discussions and conclusions made, the

following are recommendations to policy makers, the Central and Local Government,

Donor Agencies Commercial Banks, Micro-Finance Institutions and Non-governmental

Organisations including COOPI, Concern Worldwide Sierra Leone and Welt Hunger

Hilfe WHH. It is hoped that this will enable them to adopt and strengthen a credit and

finance system in accessing available finance.

Since a large percentage of the urban poor engaged in agriculture face financial

constraints, institutions providing credit and finance should make it a must to make

available small loans and micro-credits to them.

60

In order to generate a more enabling environment for financing urban agriculture it

is recommended that:

Institutional cooperation be promoted and strengthened. The different institutions and

projects (Commercial Banks, Micro-finance, NGOs, and Government) should partner

with and collaborate to improve credit services for urban and peri-urban agriculture.

The micro-finance, NGOs and Government Institutions be co- opted into the existing

Banking Institutions‟ Forum for information sharing on credit and finance

opportunities.

The Financial Institutions providing financial assistance for urban agriculture should

continue to do so and also cater for small scale commercial agriculture. Under such

circumstance, these institutions should improve their lending terms and conditions, as

follows.

Interest rate charge by the banks and MFIs should be reduced to 20%. Short term

loans will be for less than a year and should be provided for fertilizers, seeds,

pesticides, bags and labor. Medium term loans will be for the development of

agricultural activities like shed construction, transportation, processing machines

and equipments. The medium term loans should be one to five years in duration

and carry an interest rate of 20%. Repayment period of micro-credits requested

by the MFIs should be revisited. Repayment period should be such that time is

allowed for beneficiaries to accumulate adequate resources or profit before

repayment is made. Preferably, repayment of loans could be in two or three

installments as the case may be.

Collateral required by the banks should be active group savings account with the

banks and such deposits would be treated as collateral.

Guarantee required should be in the form of group solidarity that is loans should

only be provided to producers groups (vegetable, livestock, ornamentals) already

working with MAFFS, NGOs and also groups of marketers and agro processors

and registered with the National Farmers Federation Sierra Leone and the Sierra

Leone Traders Union. Implicit on this arrangement is an implied guarantee by the

group that they are jointly responsible for the loans. MAFFS and NGOs in

61

agriculture should also organize urban producers into functional groups and link

them with the banks. Also Government through the Ministry of Lands should put

proper mechanisms in place or law to improve on the land tenure system for

urban and peri-urban farmers to have easy access to suitable land. Arable lands

including wet lands should be zoned and allocated specifically for urban and

peri-urban Agriculture. Such lands should be made available either on lease or

rent to urban farmers groups. This will serve as a guarantee for farmers‟ access to

loans in the banks. Also the Local Councils, Freetown City Council (FCC) &

Western Area Rural District Council (WARDC) should include urban agriculture

in the local economic development policy

The financial institutions should encourage potential beneficiaries to open savings

accounts with them and allow a minimum deposit of fifty thousand Leones. .

The Local Councils (Freetown City Council) and Western Area Rural District Council

(WARDC) in close collaboration with Ministry of Agriculture, Forestry and Food

Security (MAFFS) should continue to finance urban and peri-urban agriculture using

the devolved funds for agriculture. The target beneficiaries would be urban producers of

vegetables, small-scale livestock and ornamentals. Ministry of Agriculture, Forestry

and Food Security (MAFFS) should take the responsibility of ensuring that the

producers are in functional groups and own bank savings accounts. With active

involvement of the urban producers viable programmes and micro-projects related to

production should be designed and financed from the agriculture devolved funds (tied

grants) to the Councils. Such programmes and projects must be in line with the

agricultural development policy.

NGOs in urban agriculture should provide seed capital and training to urban farmers.

Assist women groups to have savings account (Bank) and also organize functional

literacy programmes on simple numeracy and financial management skills for women.

The existing financial institutions should provide possible credit and financial assistance

to the various categories of urban poor engaged in agriculture as recommended. See

table 18.

62

To meet the short term financial needs of the urban producers the following is

proposed:

Short term financial system

Introduction

As revealed from the study, it is a well recognized fact that urban producers, a vast

majority of whom are small scale farmers engaged in subsistence agriculture, generally

do not have access to institutional finance. They use money to finance their activities

mainly from self savings, relatives, and osusu. In some cases they borrow from pre-

finance input providers and traders. Money sourced in this informal way though

accessible is limited in size and therefore cannot meet the credit and financial needs for

the expansion and improvement of urban agriculture. Credit sourced from the financial

institutions are not or many times hard to obtain because of the lending terms and

conditions reflected in high interest rates, lack of bank accounts of the potential

borrowers, the short repayment and intimidation from harassment of the micro finance

institutions during loan recovery.

Urban agriculture therefore continues to be a low input low output operations producing

commodities of low quality getting low prices in the local market.

Recognizing the need of finance for the urban poor engaged in agricultural activities the

lending institutions (banks and micro- finance) have been consulted to finance urban

agricultural activities. Some institutions have been considered to pilot a scheme to

provide credit and finance to the urban poor for production, agro-processing and

marketing of agricultural commodities within the Freetown Area.

Proposed Title of the scheme: Urban Small holder Agricultural Credit and Finance

Scheme

Participating Financial Institutions: First International Bank

Access Bank

Luma Micro Finance Trust Limited

Salone Micro Finance Trust

Financial Products to be offered:

Amount: Loan: Minimum-Le 5,000,000

Maximum-Le 10,000,000

63

Micro credit

Minimum-Le 500,000

Maximum-Le 2,000,000

Target groups: Direct beneficiaries would be the urban producers of vegetables,

livestock, ornamentals and fish, agro-processors and marketers of

agricultural products.

Objective of the scheme: Participatory process in creating credit and finance

opportunities for the urban poor engaged in production,

marketing and agro-processing for increased production and

productivity that will address urban food security and reduce

urban poverty.

Specific objective: To provide short and medium term loans and micro credit

through the banks and micro-finance institutions to producers,

marketers and agro-processors of agricultural products.

Expected Outcome: It is expected that the scheme will help the urban producers raise

their incomes by increasing production, processing more of what

is grown, marketing their products more effectively and

developing supporting infrastructure including irrigation,

processing plant, storage and preservation facilities.

Conditions and Terms of financial assistance:

Interest rate: 2% per month and 24% per annum.

Repayment period: Loan 1-2 years

Microcredit 6 months to 1 year

Collateral/guarantee: Active group account

Group solidarity

Group registration with- MAFFS/NGOs

NAFFSL

S/L traders union

Local councils FCC &

WARDC

Secured land and farm

Proof of active business.

Process to access finance:

- Application for credit & finance

- Minutes of Last meeting.

- Attestation from all institutions registered with.

64

Role of Actors:

Beneficiaries:- Use the loans for the intended purpose.

Repay loans on time.

Financial institutions: - Disbursement loans on time.

- Recover loans on time and effectively.

- Monitor the loans.

- sensitize beneficiaries in the process to access credit.

NGOs - Provide technical support through sensitization,

training and supervision of beneficiary groups.

- Organize potential beneficiaries into functional

groups.

MAFFS - Provide technical support through sensitization,

training and supervision of beneficiary groups.

- Organize potential beneficiaries into functional

groups.

Local Council - Help to secure land for UPA.

Issues to be addressed:

Production - cash for production inputs

Irrigation equipments/machines

Labour cost for land development

Preservation facilities (oven)

Agro-processing - Processing machines

- Cash for expansion of business

- Shed construction

Marketing - Cash for expansion of business

- Storage and transport facilities

Eligibility Criteria: - Beneficiaries apply for financial assistance must be in a groups or

farmer/trader based organization.

- The group must be working or registered with Ministry of

Agriculture, Forestry & Food security, National Farmers

Federation Sierra Leone, Sierra Leone Traders Union, and

65

Local Councils, Freetown City Council, and Western Area

Rural District Council

- The group must operate an active Bank account

- Has a membership of at least 15 people of which at least 75%

are small holders

- Has a constitution or bye laws

- Has an elected executive including a chairperson or

madam/master farmers, secretary and treasurer.

- Hold regular meetings and keeps minutes of such meetings

which are confirmed at its next meeting and signed by its

authorized signatories

- Has a book of finance disbursed to and recovered from groups

members.

Sustainability: The main feature of the scheme is the involvement of different

actors in the loaning process. In this regard, sustainability is

guaranteed.

The short & medium term loans and micro credit given out will

be recovered. The recovered loans and micro credits will be

revolved to cater for more beneficiaries and expansion of the

business.

The scheme will be periodically reviewed to integrate emerging

issues & modify implementation plans

Monitoring & Evaluation - The involvement of different actors including institutions &

organization will enable a thorough M&E of the scheme at all

stages.

- Progress on implementation of the scheme will be

determined, constraints identified and appropriate actions

taken to keep the implementation of the scheme on track

- The Freetown Urban and Peri-urban Agriculture Platform

(FUPAP) will have the overall responsibility of tracking

process & assessing the scheme.

66

RECOMMENDED LINKAGES OF URBAN POOR IN AGRICULTURE

WITH POSSIBLE FINANCIAL INSTITUTIONS

FOR ACCESSING CREDIT AND FINANCE

Table 18

No.

Financial Institution

Category of Urban Poor in

agriculture

Financial Products that can be

accessed

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14

First International Bank

Union Trust Bank

Access Bank

Standard Chartered Bank

Sierra Leone Commercial

Bank

LUMA Micro-finance

Trust

Salone Micro-finance Trust

Finance Salone

Hope Micro-finance

Institution

MAFFS/MTI-Rural and

Private Sector

Development Project

Freetown City Council

Western Area Rural

District Council

Concern World Wide,

Sierra Leone

COOPI

Producers High Input Agro-processors

Long distance marketers

High Input Agro-processors, Long

distance marketers

High Input processors, Long distance

marketers, producers

Marketers

Large Scale livestock producers

Producers High Input agro-processors

& Long distance marketers

Short Distance Marketers, Fisherfolks

Ornamental Producers

Producers, Short & Long distance

Marketers, Low Input Processors,

fisherfolks, Ornamental Producers

Marketers, Fisher folks.

Producers, Low input processors,

Short distance marketers, fisherfolks,

Ornamental Producers

Producers involved in processing, Low

& High Input Agro-processors, long

distance marketers

Producers

Producers

Producers, agro-processors

Producers, agro-processors

Loan

Loan

Loan

Loan

Loan

Micro-credit

Micro credit

Micro-credit

Micro-credit

Grant

Tied grant for agricultural

development

Tied grant for agricultural

development

Grant in the form of production

input & processing equipments

Grant in the form of production

input & processing equipments

67

REFERENCES

Aryeetey E. and F. Gockel 1991. Mobilising domestic resources for capital formation

in Ghana. “The role of the informal financial sectors” AERC Research Paper No.3.

Davinder Lamba (1993) Urban Agriculture Research in East Africa I, Mazingira

Institute. Nairobi Kenya.

Edet. J. Udoh Demand and Control of Credit from Informal sources by rice producing

women of Akwa/bom State, Nigeria.

Joe Remeny; Prof. Poverty Reduction and Urban Renewal through Urban Agriculture

and micro finance. A case study of Dhaka Bangladesh

Malik et al 1991. The role of Institutional Credit in the Agricultural Development

Meagan of Pakistan Andrews MEDA (July 2006), Micro-credit and Agriculture and

how to make it.

Rose Ngara-Muraya (2002) Technical Progress Reports. Survey of City experiences

with credit and investment for Urban Agriculture Interventions.

Udry, C. 1990 Credit Markets in Northern Nigeria.

Yves cabbanes (2006) Chapter 4 Credit and Financing for Urban Agriculture.

Zibrilla, I and A.A. Salifu, 2004, Information gathering form urban and peri-urban

communities with potential land areas for Vegetable Production Report submitted to

Urban Agriculture Network, Northern Ghana 30th

June 2006.

68

ANNEX 1

INFORMATION GATHERING FORM ON FINANCIAL INSTITUTIONS IN THE

URBAN AND PERI-URBAN AREAS – WESTERN AREA

1. Name of Financial Institution:…………………………………………………………

2. Address:……………………………………………………………………………………..

3. Year of Creation:…………………………………………………………………………..

4. Operational Areas (branch) in and around Freetown:……………………………

………………………………………………………………………………………………..

………………………………………………………………………………………………

5. Type of Financial Institution:

Cooperative…………………………………………….

Bank……………………………………………………..

Microfinance……………………………………………

Local

Authority…………………….(Specify)……………….

6. Type of Financial assistance offer:

Credit……………………………………………………

Micro-credit……………………………………………

Grant……………………………………………………

7. For what do you offer financial assistance stated in 6 above:

Agriculture……………………………………………………………………

Trading…………………………………………………………………………

Others………………………………………Specify…………………………

8a. Do you offer financial assistance for agriculture in and around Freetown (Urban

Agriculture)

Yes No

8b. For what aspect of urban Agriculture do you offer financial assistance?

Production……………………………………………………………………………..

Marketing………………………………………………………………………………

Agro-processing……………………………………………………………………….

69

9. Who are the beneficiaries of the Financial Assistance you offer?

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

10. What are the conditions for the Financial Assistance you offer?

Indicate

Collateral…………………………………… Terms……………………………………

Guarantee………………………………….. Required/Not required………………

Cash…………………………………………. Amount: Min….Max…

Interest……………………………………… Rate…………………………………….

Down Payment…………………………….. Amount………………………………..

Repayment period………………………… Duration……………………………….

Grace period……………………………….. Duration…………………………….…

Process to access finance……………….. State process…………………….....

11. What are the challenges faced in offering financial assistance for urban

Agriculture?

No mechanism in the city to get secure land tenure …………………………

Formal deed required for a credit………………………………………………….

Loans cannot be given……………………………………………………………….

Lack of legislation for cooperative/farmers org……………………………………

Lack of saving Account of beneficiaries………………………………………

Others specify…………………………………………………………………………

12. What do you think could be done to help the situation stated in 11 above?

…………………………………………………………………………………………………

…………………………………………………………………………………………………

13a Do you intend to finance agriculture (production, agro-processing or marketing) in and

around Freetown?

Yes No

13b. If Yes, what aspect of agriculture do you support?

i) Production

ii) Agro-processing

iii) Marketing

70

13c. Under what conditions (requirements) do you intend to open up/or finance urban

agriculture?

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

14. How do you intend to expand financial assistance for urban Agriculture?

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

……………………………………………………………………………………………………

71

Additional Information on Financial Institutions

1. Name of Institution……………………………………………………………

2. Legal Status……………………………………………………………………

3. Origin of Resources…………………………………………………………….

4. Value of financial product offered by institution for Agriculture

a. Production Le……………………

b. Marketing Le……………………

c. Processing Le……………………

5. Value of outstanding financial products offered

a. Production Le…………………….

b. Marketing Le…………………….

c. Processing Le…………………….

6. Do you give financial assistance to (poor) urban and peri-urban farmers? Yes……..

No……..

7. If No why?..................................................................................................

……………………………………………………………………………

8. State obstacles in giving out financial assistance

……………………………………………………………………………

……………………………………………………………………………

9. State possible actions to ameliorate obstacles

……………………………………………………………………………

…………………………………………………………………………..

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ANNEX 2

QUESTIONNAIRE

APPLIED STUDY OF CREDIT AND FINANCING OPPORTUNITIES FOR FARMERS

IN URBAN & PERI-URBAN FREETOWN - COOPI

This questionnaire is designed to generate information on “The needs and demands for finance

from urban poor engaged in urban agriculture, agro-processing or marketing”.

Any information provided from all responses will be strictly treated with the utmost

confidentiality.

Instructions: Below is a list of questions on general information of respondents, occupation,

access to and need for credit/finance, and also challenges in accessing credit/finance.

Please indicate by ticking and listing down the appropriate response to each question.

I. General Information

1. Name of Respondent…………………………… Sex: Female…………Male………

2.Address/Location/Village……………………… Ward: ……………………………...

3.Ethnic group………………………………………Religion……………………………

4.Position in the Household……………………………………………………………….

5. Are you member of a Farmers/Traders Association?

6.Name of Farmers Association…………………………………………………………..

7.Is your group/FBO functioning Yes…………………….. No………………………….

B. If yes how? Has an executive……………………………..

Has constitution/bye laws……………………

Meet regularly……………………………….. (Specify)

Pay subscription………………………………. Amount ……….

How Often? ………………………………….

Have a bank account…………………………..

C. If No why? ………………………………………………………………………

..……………………………………………………………………..

II. Occupation

1. What type of agricultural activity are you engage in?

Vegetable production……………… Local……………….. Exotic………………….

Livestock √ ………………… Specify……………………………………………

Raising/selling of ornamentals………………………………………………………

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Marketing of vegetables………………… Local……………… Exotic……………

Processing of Urban agriculture products……………………………………………

III. Access to Credit/Finance

1. How do you get money (credit/finance) to undertake your agricultural activity?

Self savings……………………………………………………………………………

Remittance from relatives…………………………………………………………….

Rotating saving/credit schemes………………………………………………………

(Thrift & Credit)

Pre-financing by input providers/traders……………………………………………..

Moneylenders…………………………………………………………………………

Any other (specify)……………………………………………………………………

2. Do you receive credit/finance from any financial Institution?

Yes……………………………………….. No………………………………………..

(If yes go to question 3) (If No go to question 5)

3. If yes which Institution………………………………………………………………….

Bank……………………………………………………..................................................

Micro finance……………………………………………………………………………..

NGO………………………………………………… ……………………………………

Government Institutions… (Specify)…...........................................................................

What type of credit/finance

Loan……………………………………………………………………………………..

Micro credit……………………………………………………………………………..

Grant…………………………………………………………………………………….

What Amount

Minimum Amount

(Per/season/year)

Maximum Amount

(Per season/year)

Loan ……………………...

Micro credit ……………………..

Grant ……………………...

……………………………...

………………………………

………………………………

4 .What time of the year do you receive credit/finance from the financial institutions?

1st

cropping season: …………………………………………………………………..

2nd

cropping season: ………………………………………………………………….

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All year round…………………………………………………………………………

Other (Specify)………………………………………………………………………..

5. If No, Why……………………………………………………………………………………

IV. Need for Credit/Finance

1. Do you need credit/ finance? Yes………………. No …………..………

2. If Yes. What aspect of your agricultural activity do you require credit/finance?

Working capital………………………………………..

Buying inputs…………………………………………..

Hiring labour……………………………………………

Others (specify)…………………………………………

3 .What time of the year do you actually require credit/finance for your agricultural

activity?

1st cropping season…………………………………..

2nd

cropping season …………………………………

All year round ………………………………………

4. If No, Why?……………………………………………………………………….

V. Demand for credit/ finance

1. Do you intend to expand/ improve your agricultural activity?

Yes………………………….. No………………………………

2 .If yes, what additional resources do you need?

More Input: …………………………………………………………………………….

More Land space:……………………………………………………………………….

More Labour:…………………………………………………………………………...

Others (Specify):………………………………………………………………………..

3. If No Why....................................................................................................................

……………………………………………………………………………….

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4. Do you require additional credit/finance to expand/ improve your agricultural activity?

Yes………………………… No………………………

5. .If yes, for what aspect of your agricultural activity do you require additional

credit/finance

Shed……………………………………………………………………………………..

Irrigation machine/equipment…………………………………………………………..

Processing equipment…………………………………………………………………..

Others (specify) ………………………………………………………………………..

6. .What amount would you need Min:……………...……. Max:. …………………………

7. What challenges do you face in accessing credit and finance from the financial institution

High Interest rate………………………………………………………………………..

Collateral………………………………………………………….

Guarantee……………………………………………………………………………….

Bank Account…………………………………………………………………………...

Others (Specify)………………………………………………………………………...

8. What are the good aspects of accessing credit /finance from financial institutions?

……………………………………………………………………………………………

……………………………………………………………………………………………

……

9. What do you think could be done to solve the problems that you face in accessing

credit/finance from financial institutions?

………………………………………………………………………………………….

………………………………………………………………….........................................

……………………………………………………………………………………………

……………………………………………………………………………………………

……………………………………………………………………………………………

Thank You.

76

ANNEX 3

A. Information on informal sources of Finance and Credit

Type of Osusu

Size of group ………………………………………………………………………………

Amount per person …………………………………………………………………………

Duration of the cycle ………………………………………………………………………

Role of man ………………………………………………………………………

Role of women ………………………………………………………………………

Value of Savings ………………………………………………………………………

B. Remittances (money from relatives)

Relative…………………………………………………………………………………….

Estimated amount received ………………………………………………………………..

How money is received? Through ……………………………………………………….

Any condition for money received…………………………………………………………

How many is used………………………………………………………………………….