Module 8 - Madagascar: Microleasing for Agricultural Production

The Caisses d’Epargne et de Crédit Agricole Mutuels (CECAM)—an agricultural savings and credit union—was created in 1991 by a farmer organization with the technical assistance of a French NGO. The objective was to provide loan and savings services to agricultural households and farmer organizations. CECAM is a network of more than 170 local banks and regional credit unions, mainly based in less-favored rural regions, with more than 52,000 members (largely farm households). By the end of 2002, CECAM had become the largest financial institution in rural Madagascar. It provides a range of financial services, including working capital loans, grain storage loans, and term loans. In addition to these loan products, CECAM provides innovative microleases for agricultural equipment.¹¹

Project Objectives and Description

Recognizing the need for farmers in Madagascar to obtain capital assets, CECAM developed a microleasing product together with a French NGO in 1993. CECAM microleases are offered on capital equipment required for agriculture, for rural crafts, and for domestic use (for example, sewing machines and solar lighting units). The CECAM leasing product is unique because it is targeted specifically at rural people. Leaseholders are required to be network members and to put down 20 percent of equipment value at lease initiation, with the remaining 80 percent to be paid at 30 percent interest over 10 to 36 months. The down payment must increase to 40 percent in the case of secondhand goods. Farmer groups at the village level are involved in screening potential borrowers. Because there are few secondary income sources in the area, these are not used to qualify for a lease. Instead, the microlease is secured by the equipment rental and through a verbal commitment of the member’s solidarity group. During the payment term, CECAM retains ownership of the equipment. After the final payment, ownership is legally transferred to the client.

The payment schedule for microlease loans is largely adapted to fit the client’s production cycle. For example, for certain agricultural businesses, payments have been structured to meet the business cash flow, with as little as four payments due over the course of a year. By 2002 CECAM’s outstanding portfolio in leasing was US$1 million, or about 27 percent of the credit portfolio. The number of “leasing borrowers” was 2,564, corresponding to 8.9 percent of all borrowers and 5.5 percent of members. The average leasing amount was US$390 per leaseholder. Since 1993, CECAM has signed 23,000 lease contracts with 11,500 members. Repayment rate on all leases disbursed has been 95.8 percent. Key factors in the project’s success are its project-specific product design, a large capital base, and farmers’ involvement in managing the institution.