LOWER TRANSACTION COSTS

The transaction costs associated with the operation of an input credit scheme include the costs of screening smallholders, distributing inputs, monitoring the use of inputs, and collecting the produce. These costs are ultimately passed down to smallholders via lower prices for their output; if they can be reduced then theoretically smallholders stand to increase their incomes (though this will depend on their bargaining power), and therefore their incentive for participating in such a scheme. Activities such as screening and monitoring obviously require less manpower and present fewer logistical problems the smaller the number of smallholders.

Farmer groups and associations have an important role in this respect, as they can take on responsibilities for screening, distribution, monitoring and bulking, and provide a contact point for group extension activities. Group activities also have a role in training exercises or for spreading information and facilitating the distribution of inputs.

UVAN Ltd Uganda Vanilla Growers Association has realized the full potential of groups in operating its credit scheme, with the group taking responsibility for screening and monitoring borrowers, using local information which would be costly for UVAN to obtain independently.