PB-224 026 A.I.D. SPRING REVIEW OF SMALL FARMER CREDIT. VOLUME II. SMALL FARMER CREDIT IN COSTA RICA Agency for International Development February 1973 DISTRIBUTED BY: National Technical Information Service U.S. DEPARTMENT OF COMMERCE 5285 Port Royal Road, Springfield Va. 22151 PB 224 026 A.I.D. SPRING REVIEW OF SMALL FARMER CREDIT Volume II, February 1973 No SR 102 COUNTRY PAPERS SMALL FARMER CREDIT IN COSTA R AGENCY FOR INTERNATIONAL DEVELOPMENT DEPARTMENT OF STATE Repod-- by NATIONAL WASHINGTON, TECHNICAL D.C. 20523 INFORMATION SERVICE . VA 22151 TABLE OF CONTENTS FOR VOLUME II The Aqricultural Credit Project of the Agricultural Sector Program of Costa Rica by Albert L. Brown American Technical Assistance Corporation Small Farmer Credit in Costa Rica: The Juntas Rurales by Claudio Gonzalez-Vega Stanford University and University of Costa Rica IBLIOGRAPHIC DATA 1. ,eport No. 2. ,3. Recipient's Accesson No. SHEET 332.71 -A265a 4 ­ 4. Title and Subt itle 5. Report I)al ,, A.I.D. Spring Review of Small Farmer Crcdit. Volume Il. Fob 73 Small F;armer CI-edit in Costa Rica" 6. 7. Author(s) 8. Performing Organization Rept. No. 9. Performing Organiza'ion Name and Address 10. Project/Task/Work Unit No. Agency for International Development. 11. Contract/Grant No. AID/W 12. Sponsoring Organization Name and Addres," 13. Type of Report & Period Covered Department of State Agency for International Development Washington, D.C. 20523 15. Supplementary Notes 16. Abstracts "The Agricultural Credit Project of the Agricultural Sector Phogram of ftlH Costa Rica" by Albert L. Brown describes a search for- changes in credit policy and tractive which will assur-e availability of' credit to small farmers. A joint fund provides money which is lent to four commercial banks of the National $ Banking System which re-loani to small farmers. "Small Farmer Credit in Costa Rica: The Juntao Rur ales" by Claudio Gonzalez-Vega suim.arizes agzoicu!Ltuval patterns and potentials, and zxDiU± services, including credit, provided fair':ei-o. Then it describes the position of the Juntas Rur-ales (rural credit. boards) witniin tLe total matrix of bank credit for agriculture. Their relations::ips with other banks are studied. Finally, the report presents a sc:.enatic iiistory of the Juntas Rurales, the evolution, of tiieir output, sources of 17. Key Words and Document Analysis. 17a. Descriptors funds, ob.ectives, x organization and procedures, arid an evaluation of their performance. 17b. Identifiers/Open-Ended Terms 17c. COSATI Field/Group 3 ?, 2. 18. Availability Statement 19. Security Class (This 21. No. of Pages Report)UINCILASSIFIED t _ 20. Security Class (This 22. Price Pagedi- IINCILA SSIF IEI) FORM NTIS-35 (REV. 3-72) USCOMM-DC 14952-P72 COUNTRY PROGRAM THE AGRICULTURAL CREDIT PROJECT OF THE AGRItu±.i11RAL SECTOR PROGRAM OF COSTA RICA by: Albert L. Brown American Technical Assistance Corporation for USAID/Costa Rica San Jose, Costa Rica October, 1972 Li PREFACE The Agricultural Credit Project described in this Country Program Paper is an integral part of the Agricultural Sector Program in Costa Rica. The context and objectives of the Agricultural Credit Project are therefore somewhat dif­ ferent from most AID credit projects, including earlier AID loans for agricultural credit in Costa Rica. To the extent possible, I have adhered to the annotated outline provided for the Spring Review. However, I have added additional material to provide context and purpose, and have ignored those items which appear irrelevant to this particular activity. Albert L. Brown TABLE OF CONTENTS Page PREFACE ABBREVIATIONS AND ACRONYMS I. INTRODUCTION 1 A. Small Farm Credit in the Banking Systein 1 B. The Small Farm in the Agricultural Sector 3 C. The Agricultural Credit Program 4 II. PROGRAM CHARACTERISTICS 6 A. Background 6 1. Prior USAID Agricultural Credit 6 2. The Agricultural Sector Loan 6 3. Implementation 12 B. Objectives 12 I. Announced Objectives 12 2. Terms of Loan 14 C. Credit Allocation 14 1. Banking Organization 14 2. Credit Control and Allocation Mechanism 17 3. Intrabank Allocation of Small Farm Credit 18 D. Beneficiaries 19 1. Selection Criteria 19 2. Graduation Policy 20 3. Number and Types 20 4. Other Sources of Credit 22 E. Lending Policies and Procedures 24 1. Portfolio 24 2. Interest Rates 24 iV Page 3. Operations 25 F. Collection 27 G. Costs and Finance 28 I. Portfolio Profits and Losses 28 2. Administrative Costs 29 3. Beneficiary Savings 30 4. External Finance 30 5. Institutional Solvency 30 6. Foreign Exchange Balance 30 H. Complementary Factors 31 1. Technology 31 2. Supplies and Sales 33 III. EVALUATION 35 A. Performance 35 1. Agricultural Credit Availability and Distribution j5 2. Numbe rs of Small Farm Clients 41 3. Improved Coordination 42 4. Other Credit Effects 43 B. Evaluation Procedures and Feedback 44 1. Program Evaluation Procedures 44 2. Feedback and Changes in Program 47 C. Problems 47 D. Conclusions about Small Farm Credit 47 BIBLIOGRAPH 50 V5 ABBREVIATIONS AND ACRONYMS Acronym Name Acronym (Sainish) (Spanish) (English) (Eglish) AID/SBN Programa de Credito Agropecuario AID/SBN Agricultural Credit Project AID/SBN SBN Systema Bancario Nacional National Banking System BCCR Banco Central de Costa Rica Central Bank of Costa Rica BNCR Banco Nacional de Costa Rica National Bank of Costa Rica BCR Banco de Costa Rica Bank of Costa Rica BAC Banco Anglo Costarricense Anglo Costa Rican Bank BCAC Banco de Credito Agricola de Cartago Agricultural Credit Bank of Cartago CAN Consejo Agropecuario Nacional National Agricu".tural Council CANcito Consejo Agropecuario Regional Regional Agricultural Council CNP Consejo Nacional de Produccion National Production Council MAG Ministerio de Agricultura y Ganaderia Ministry of Agriculture vi I. INTRODUCTION AID has financed small farm agricultural credit operations in Costa Rica through three project loans dating from 1961, and has provided technical assistance to the borrower, the Banco Nacional de Costa Rica. These earlier activities were typical project loans to an established intermediate credit institution. The activity described in this Country Project Paper is the Agricultural Credit Project of the AgriciLltural Sector Program which was funded as a sector loan. A. SMALL FARM CREDIT IN THE BANKING SYSTEM The National Banking System (NBS) of Costa Rica is a nationalized system consisting of four commercial banks and a central bank. The central bank controls the growth and distribution of credit through the maximum and minimum levels which it sets for various classes of credit and to which the commercial banks must adhere. The commercial banks receive leposits and lend money at rates established by the cen­ tral oank. The relative importance of the commercial banks in providing agricultural credit may be judged from the following 1971 data: Agricultural Credit Operations No. of No. of Amount Lent Small Offices Operations ($millions) Farm Banco Nacional de Costa Rica 56 22,797 65.0 30 Banco de Costa Rca 11 6,226 31.9 5 Banco Anglo Costarricense 9 2,562 8.8 15 Banco de Credito Agricola de Cartago 2 1,594 7.0 11 Source: MAG Boiitin Estadistico. Note: This total of $112.7 million is $22.6 million below the total agricultural credit reported for this period by BCCR. 1 In 1971, credit in the National Banking System was distributed as follows: $millions Percent Livestock 61.9 24.7 Coffee Harvest 27.9 11.2 Other Agricultural 45.5 18.1 Total Agricultural 135.3 54.o Non-Agricultural 115.2 46.o Total Credit 250.5 100.0 Non-banking system agricultural credit amounts to another $30 or $40 million from agricultural suppliers, moneylenders, rural stores, cooperatives, fiduciary warehouses and friends and relatives. From 1965 to 1970, credit growth was restrained to annual incre­ ments of 3 to 7 percent. In 1970, this restraint was eased and credit allowed to advance almost 17 percent. In 1971, the central bank intro­ duced a more flexible system of control, and credit i-ushroomed by 28 percent. In the first six months of 1972, credit growth has been held to an annual rate of 10 percent. The growth in agricultural credit paralleled that of total credit until the rapid rises of 1970 and 1971. However, in the twenty-four months between June 1970 and June 1972, total credit increased by 53 percent, non-agricultural credit increased by 67 percent, and livestock credit increased by 62 percent, but crop credit (after excluding credit for the coffee harvest) increased by only 22 percent. In Costa Rica, four crops-coffee, bananas, sugar cane and rice­ account for 96 percent of all crop credit; coffee alone (including credit for the coffee harvest) absorbs 83 percent. Similarly, credit for beef cattle absorbs 88 percent of all livestock credit. With the exception of rice, these crops tend to be grown by larger farmers and tend to be exported. 2 Small farm credit balances from the national banking system totaled $28.9 million in December 1970, equivalent to 20 percent of all agricultural credit and 11.5 percent of all credit. Non-bank sources of small farm credit probably do not exceed an additional $lO million. About 85% of small farm credit is dispensed by the Banco Nacional de Costa Rica (BNCR) through 56 field offices. BNCR has been the direct beneficiary of three earlier AID loans totaling $15 million-about half its total small farm portfolio. From 1960 to 1969, this portfolio (ex­ clusive of AID loans) grew by only 34 percent, from $7.8 mill on to $10.6 million. Well over half the BNCR small farm portfolio is in live­ stock, reflecting both the term requirements of the AID loans and the suitability of livestock as a loan guarantee. For several years, the number of BNCR small farm debtors has remained constant at 28,000, ab­ sorbing all portfolio growth in larger average loan size.