This is the third in a series on how the Aga Khan Development Network is building on local capacity to foster economic growth and governance in Tajikistan. With the U.S. Agency for International Development (USAID), AKDN launched a Global Development Alliance (GDA) entitled Economic and Social Connections: A Multi-Input Area Development Financing Facility for Tajikistan (ESCoMIAD). The Alliance aims to improve the quality of life for communities along the Tajik border with Afghanistan.
Growing from the Ground Up
A model of village development has grown naturally from local mahalla committees organic to Tajikistan and other Central Asian countries – essentially village organizations – with support from the Mountain Societies Development Support Programme of the Aga Khan Foundation. Members contributed to village development funds through regular fees and with remittances from relatives outside the country. In the lean years after Tajikistan’s civil war, the village development funds formed a vital basis for local action.
In this installment we see how that local platform fostered the growth of others for shared interests and enterprises.
Creating Formal Structures
In recent years the village development funds grew and civic leaders gained confidence for making local initiatives happen. In 2004, a new law spurred further innovation by requiring that all informal lending be formalized for greater accountability. The law established a new type of entity for this purpose: micro-loan organizations (MLOs). MLOs are required to have a threshold base of capital to be viable, and capacity for record-keeping and financial management.
In the five years after the law took effect, AKF and MSDSP created five MLOs in the Gorno-Badakhshan Autonomous Oblast (GBAO), Khatlon and Rasht Valley regions. These MLOs grew out of the local savings groups and governance structures of the mahalla committees. MLOs provided access to financial services in remote rural areas as entities that were effectively owned by the communities. It increased the economic connections among local farmers and producers. MSDSP provided income-generating opportunities that created further linkages.
Locally Grown Financing
The focus was on improving the access to these remote clients. From the start, community members with farming enterprises were key clients – horticulture, dairy farming, and cow-fattening initiatives. MLOs, having grown from the community, are financial institutions with a local face.
“Mahalla members were more likely to take loans from MLOs because they were community institutions,” says Rukhshod Ashurbekova, Director, MLO Rushdi Kuhiston.
MLOs took on progressively more responsibility for financing local initiatives, with less financial onus on the mahalla committees. This shift benefited both types of groups. MLOs received more loan applications and became more mature financial institutions. Some mahalla committees benefited from having arm’s-length distance from decisions that otherwise might be swayed by local relationships rather than financial merit.
At this point, MSDSP has helped the MLOs to build out six banking service centers, creating a bridge from the most remote communities to the hubs. The MLO in Khorog has service centers in adjacent districts; similarly the MLOs in Shamsiddin Shohin, Fayzabad and Ishkashim have service centers in nearby districts, with plans for MLO Darvoz to also expand its footprint. The unprecedented consolidation of these MLOs in mid-2016 further strengthened their roots in communities and set the stage for them to offer even more deposit and saving options. Together these financial services have the potential to reach nearly 1 million people who live in these districts who didn’t have that access and reliability before.
More than brick-and-mortar, the real changes are in greater human capacity. Cash management, loan processing and accounting are skills that the MLOs and service centers have gained through rotating trainings. And their affiliation with professional groups such as the Association of Microfinance Organizations in Tajikistan is proving a valuable resource for questions that come up.
New Groups for Shared Interests
Another entity that has helped Tajikistan grow economic capacity is the Common Interest Group. Based on shared enterprise goals, Common Interests Groups (CIGs) aim to scale-up the financial capacity of community-based savings groups, so that like-minded enterprises can pool production, marketing and distribution to reach and satisfy larger markets.
Across Tajikistan, over 200 CIGs have grown up, each having an average between 4 and 14 members (a size somewhat smaller than community-based savings groups, which have 20 to 30 members each). Each CIG aims to form a business. More than 70 percent of CIGs are composed primarily of women.
Business is catching on. One successful example is a small dairy company that aimed high. It set its sights on not only reaching the Rasht Valley dairy market, but also looked to grow into larger markets in Dushanbe.
MSDSP introduced a CIG model for collecting fresh milk, establishing two groups linked to a dairy workshop in Faizabad district. The dairy company found it an effective mechanism for collecting milk and replicated the model. They established around 30 more groups, now involving more than 500 farmers. The dairy supply of milk totals around 5,000 liters per day during the summer.
Another CIG for dairy producers identified a key bottleneck to reaching other markets: the lack of refrigerated transport. The market demand in Khorog for fresh dairy products has grown significantly. Yet without a refrigerated truck, the CIG members’ products would spoil on the 90-kilometer (3.5-hour) drive to town. Together, the members pooled their resources and contributed to the purchase of a mini-refrigerator truck, which removed their dependence on unreliable taxi trips. Besides reducing spoilage losses, this investment also reduced transport costs. It made financial sense.
This is the type of lesson that came up in an August 2016 gathering, organized by the ESCoMIAD team. They agreed a sharper focus on economic connections between groups and other smallholders and small-scale producers can help increase the volume and quality of products. Further connections with buyers in local, regional, national and even international markets can create a consistent demand for their work and make their businesses and incomes healthier. The program has awarded 20 CIGs grants of up to US$5,000 each for support to address such challenges that new and mature business groups face. After one year for getting established, the recipient groups then need to contribute toward the solutions, ranging from a greenhouse for vegetable growing business to bakery equipment, to fruit-drying and garment-making operations.
CIG Ganji Badakhshan, one of the groups, is composed entirely of women. They have acquired processing equipment for preparing mulberry and apricot products, and have grown to over 50 members. They are selling their products in Khorog as well as markets across the border, and to export firms that produce for international markets in Russia and Latvia.
In this process of scaling up local dreams to national and regional businesses, institutions like MSDSP have a significant role. “MSDSP aims to do more facilitation to get products to these larger markets,” says Najmiddin Gulomiddinov, Technical Expert for Economic Development with MSDSP. “It’s an important challenge.”
Photo: These dairy producers joined a Common Interest Group to pool their resources and solve a key bottleneck to reaching customers in Khorog. Here the members of CIG Ganji Badakhshan gather around the mini-refrigerator truck they purchased. Credit: Khudoberdi Zuurbekov/AKDN