Input Voucher Sales System (IVS)
The Input Voucher System (IVS) was formulated in response to the difficulties that smallholder farmers face in accessing credit for agricultural inputs such as fertilizer, improved seeds, and labor-saving tools, all of which are essential to increasing production and productivity in a sustainable manner. The system engages local microfinance institutions (MFIs) or Rural Saving and Credit Cooperatives (RuSACCos) to qualify farmers for loans and issue cash or credit vouchers that can be used to redeem inputs at nearby cooperative stores. By doing so, it minimizes the risk that farmers will be prevented from using inputs because of their high initial costs. While other factors certainly play a role in influencing the adoption of new inputs, facilitating credit access is a proven means to encourage farmers to experiment with and use improved technologies.
Ethiopia has not had formal credit facilities for agricultural inputs since regional governments discontinued a previously existing lending scheme. This scheme had been established with the Commercial Bank of Ethiopia (CBE), who provided loans to finance the import of inputs. These were then distributed to cooperatives for onward sale to farmers, either on credit or for cash. Regional governments would offer a 100% credit guarantee, causing them to bear the burden of repaying loans to CBE whenever farmers defaulted. The accumulation of sizeable unpaid loans to CBE strained the budgets of regional governments, leading them to discontinue credit facilities and make input sales possible on a cash-only basis. Among the many reasons for these defaults was the inability of multipurpose cooperatives to systematically handle major financial transactions, including the collection of input loan repayments.
The IVS is part of the overall Rural Financial Services (RFS) program that aims to address these and other limitations of financial institutions in meeting the needs of rural communities. Initiated in 2014, the fundamental objectives of the IVS are to increase access to demand-driven rural credit and contribute toward building strong, client-centered rural financial institutions. In distributing vouchers, the IVS has designated MFIs and RuSACCOs as the agents for cash and credit sales, and in doing so, minimized the cash risk exposure for participating farmers, cooperatives, and regional governments.
The MFIs play the additional role of collecting loan repayments from farmers, allowing for effective audit and control processes by all institutional participants, and supporting effective financial flows between and among all stakeholders.
The ATA piloted the initiative in 2014 in five woredas of the Amhara region, in collaboration with the Amhara Credit and Saving Institution (ACSI), which opened 55 new branches for this purpose. During the pilot period, 243 million ETB worth of vouchers were issued to 168,000 farmers who either paid cash or accessed the vouchers on credit. Before the end of the 12 month loan period, the 35,000 farmers who had accessed their vouchers on credit (worth over 52 million ETB) had repaid their debts in full. The newly established ACSI branches mobilized more than 35 million ETB in savings from over 24,000 farmers in the pilot woredas within the same time frame. Toward this end, 219 ACSI and primary cooperative staff were trained on IVS implementation. Following these remarkable results, the IVS was rapidly scaled up in Amhara, SNNP, and Tigray.
Since its inception, the project has been promoted widely through a financial awareness campaign using radio in all four regions, as well as trainings given to experts in Amhara (4,200), Tigray (645), and SNNP (1,000) to ensure successful rollout. In the 2016 planting season the IVS was piloted in six woredas in Oromia.
To support implementation, a training of trainers (ToTs) was provided to zonal and woreda experts in the four regions that reached 350 people in Amhara, 194 in SNNP, 290 in Tigray, and 105 in Oromia. Additional training on IVS operations was given to over 10,000 agents at kebele level across the four regions.
Earlier in 2016, the IVS was automated and upgraded from paper to electronic format in the form of e-vouchers, in order to save costs, reduce errors, and streamline the process. Piloting of the e-voucher was underway mid-2016 in two woredas in Amhara and three woredas in Tigray.
Transaction recording will begin before the end of the calendar year in two woredas in SNNP. A combined total of 150 officials, and 450 MFI and primary cooperative agents were trained in the three regions; 170 mobile devices and 85,000 NFC tags were also distributed.
In its two years of operation, the voucher system has streamlined the process of input purchases, improved access to credit, and encouraged savings in rural communities. Farmers have begun planning their input purchases and related expenses in advance of planting seasons. Since farmers are given 12 months to repay loans given through the IVS, they have the flexibility to store and sell grain when prices are attractive, rather than being forced to sell at harvest time.
On the other side of the equation, the system has enabled financial institutions to facilitate the collection of credit and cash sales, easing the burden on the budgets of regional governments. In Amhara alone – where the IVS has been rolled out across all woredas – 1,200 ACSI satellite offices have mobilized close to 800 million ETB in savings. Furthermore, the system reports reliable information regarding the use of inputs by smallholder farmers in each woreda, assisting officials at all levels to make better informed decisions.