The Down-side of Too Many Loans

In the Northwest of Burkina Faso, following the 1988-99 drought, an NGO called Sahel Action experimented with and then launched a loan system with the CIRAD (Centre de Coopération internationale en recherche agronomique pour le développement - Centre for International Co-operation for Agronomic Research for Development)and the Caisse Nationale de crédit agricole (National Fund for Agricultural Loans).

Since women were generally better at repaying loans, they were given a priority and made-to-measure loan programmes were offered to them - loans with weekly repayments which are suited to small businesses, "cereal stock loan" to buy cereal at harvest-time to be sold later, and the "hand-to-mouth loan" to buy a sheep, to fatten it and sell it six months later.

The system worked well as long as the number of women taking out loans remained limited. However, in 1997 there were 30,000 over the whole zone. In a small, isolated village, Kourra Bagre, 400 women have taken out loans and the population can no longer absorb all the products available for sale. "The 400 women of the village are in debt and so nobody is buying what anyone else is selling at the market," says a loan collection officer. "Everyone has become a merchant," one woman states quite simply, wondering how she can sell the ram that she is fattening now that everyone is operating on "hand-to-mouth".

"All the women have the same activities. In order to sell, the women have to lower their profit margins. Their finances suffer and there is a natural tendency to ask for more loans. It’s a vicious circle in which people overburden themselves with debts, with less and less profitable activities. Everyone is heavily strained by the loans and the social pressure which obliges people to honour their commitments is losing its hold. The system is frozen", says Jacques Marzin, technical adviser with Sahel Action, making a diagnosis.

Late payments have been accumulating and the very poor 1997 harvest has compounded the problem. Entire villages are collapsing under the weight of their debts - 4 million Fcfa for the village of Kourra Bagre alone, to the great shame of the villagers who are traumatised by the extent to which they are in debt.

This phenomenon is found elsewhere in Burkina, since rural loans are fashionable and there are numerous operators. There were five institutions in the whole of the country in 1988, today there are 60. Each organisation or provider of funds has its own way of working. Some make no-interest loans to the poor, others want the population to take responsibility and turn loans into a tool for development. In the end, confusion reigns and the villagers go into debt with several organisations at the same time without any controls to regulate the situation.

Loans do no suffice for development. Profitable activities need to be developed with the loans, in particular producing goods that can be sold outside the village in order to increase the village’s money supply.