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“MEJORAMIENTO DE GANADO OVINO EN ARAPA - CHUPA”

Project PU492

Ana Beatriz Urbano Andari Marcelo Neri

Project Coordinator: Marcelo Neri Centro de Políticas Sociais/IBRE/FGV

Rio de Janeiro, September 2007. This Version

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1 9 6 9 -

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Index

I. Introduction

II. Project Outputs

III. Credit

IV. Governance

V. Impacts

VI. Conclusions

full video

http://www3.fgv.br/ibrecps/VIDEOS/iaf_pu/EMUCOSA_TUDO_V.4.wmv

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I. Introduction

After a drought in 1983, the Puno bishop organized tiendas comunales to help alleviate the

extreme poverty in the region. In 1992, the tiendas in Arapa and Chupa got independent

from the Puno-CASOP organization and established a “caja intercomunal” with an input of

1,000 soles from each tienda in order to attract savings and concede credit to the tiendas

members – in the void left by the demise of Banco Agrario de Peru.

The tiendas would buy supply from wholesalers and sell it at low costs to the local

consumers. Padre Marcos, one of the local leaderships, helped to organize the communities

at this time when local farmers would live from subsistence production that included

potatoes, maize, oat and quinoa.

These small tiendas already had a vocation for independence as in 1995 they formed the

Empresas Comunales (hereafter, Ecosas). Apart from marketing produce (as in the tiendas)

they also engaged in trout fishing and organized credit provision and savings. Eighteen

Ecosas have formed the Empresa Comunal de Servicios Agropecuarios Arapa Chupa Ltda.

– which is dedicated to the rural development in Arapa and Chupa. The 18 Ecosas were

coordinated and would elect a representative (delegado) to participate in the meetings for

the Emucosa. Following the incorporation of this Emucosa, an agreement was established

with the IAF in January 2001, to be carried out for two years. The original agreement had it

that the project would last from January 2001 to 2003, with a total budget of US$ 138,950.

The main objective of the project was to:

“Elevar la capacidad adquisitiva de la población beneficiaria mediante el mejoramiento

genético del hato de ovinos de los pequeños productores, transfiriendo conocimientos

técnicos sobre su cuidado y proveyendo créditos para la producción de avena forrajera.”

EMUCOSA would partner with 18 local community enterprises in the Municipalities of

Arapa and Chupa, and the local governments of both municipalities to improve the incomes

and standard of living among local farm families by undertaking a variety of pasture and

flock improvement activities and constructing a salt-dried mutton processing plant over the

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next two years. The project would directly benefit 540 small-scale farmers and shepherds

and their 2,700 dependents living in the Municipalities of Arapa and Chupa.

The principal focus at the local farm level would be the improvement of the pasture and

forage that would provide the nutrients for the sheep and to improve the animal stock in the

flocks by introducing more robust breeds and improving the health of the animals. Artificial

insemination would be carried out in order to improve the genetic quality of the sheep

making it more resistant to diseases as well as stronger and with better quality wool. This

would in turn help increase the small famer income. Local pastures would be improved

through the introduction of hardy varieties of grasses and oats, the enrichment of pasture

soils through the better application of manure and other organic materials, and the control

of insects and weeds. Loans would be provided to purchase inputs for pasture

improvements.

The principal infrastructure component of the project was the construction of a processing

plant for the preparation of "chalona", a salt-dried mutton. The training component of the

project consists of instruction in the areas of animal health, flock management, pasture

improvement, credit administration, and business administration. Training in each theme

would consist of two-day events with 40 participants each representing approximately two

members from each community enterprise. Anticipated project results would include an

increased availability of "chalona", an important protein source within the indigenous

community, and local farmers receiving as much as 50 percent more income per animal

marketed.

IAF funds would be used to cover salaries, to purchase equipment and supplies,

construction of the processing plant, for pasture improvement loans, and start-up capital.

EMUCOSA would provide resources to cover the remaining salary expenses, office

facilities, and utilities. The Municipalities of Arapa and Chupa would provide trainers and

training materials, technical support, land, and transport. Local farmers would provide

labor, land, and organic fertilizer.

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At the end of 2003, an extension was agreed upon for the project to last until January 2004

with an additional budget of US$ 37,000. This additional budget would be used to

implement activities of cattle health, Chalona’s plant and to improve the logistics through

the purchase of a pick-up truck.

II. Project Outputs

By September 2004, the project had produced the following outputs:

a) Artificial Insemination: Through a process of artificial insemination where better

quality ewes were used to provide fresh semen and to be used in rams in heat.

Insemination rooms were installed in Arapa and Chupa initially, and then in Queska

and ewes were purchased for reproduction.

Two centers had been built within 7 months. By the end of the project timeframe,

only one center was still operating.

- 900 sheep had been artificially inseminated

b) Improvement of breed: Purchase of pure breed sheep - two Hampshire down and 4

Correidale sheep were bought. By September 2004, 14 animals had been bought as

good genetic breeders.

- 3315 criollo sheep had been vasectomized.

c) Animal Health: the two centers for animal health would be build with (matching)

funds from the municipalities. Only temporarily these centers operated (second

semester). Once the IAF had prolonged its support to the project, these sanitary

activities were resumed.

d) Credit fund for Forage Production: each Ecosa would respond to the total credit

amount before the Emucosa. The total amount was enough to revolve 2 and half

times. Part of the credit fund budget (6,35%) was assigned to a different activity

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(the final report mentions that “el informe financiero final del donatario no ofrece

información al respecto los ultimos seis meses de ejecucion del proyecto”).

As the report at the end of the project mentions, a total of US$ 29,412.00 were

distributed among the Ecosas, or 5,796 nuevos soles to each of them.

Table 1. Ecosa’s share capital

Capital Social de EMUCOSA al 31 de Diciembre del 2003

Nº Empresa Comunal Distrito Socios Capital Social1 Llacharapi chico Arapa 37 10 0002 Miraflores Arapa 23 15 0003 Chapani Arapa 17 12 0004 Kuskallankay Arapa 20 10 5005 Curayllo Central Arapa 38 12 0006 Ccalla Central Arapa 20 5 0007 Huayrapata Arapa 26 11 0008 Santa María Arapa 26 5 0009 San José de Quesca Arapa 59 8 000

Sub total Arapa 266 88 5001 Rucus Chupa 23 4 0002 Alto Trapiche Chupa 45 7 0003 Calachaca Chupa 37 7 0004 Chimpapata Chupa 33 3 0005 Agua Milagro Chupa 37 4 0006 Rinconada Chupa 26 3 0007 Caminacoya Chupa 28 5 0008 Alto Chucahuacas Chupa 31 4 0009 San José de Chocco Chupa 16 4 000

Sub total Chupa 276 41 000Total 542 129 500

Fuente: EMUCOSA, Febrero 2004.

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III. Credit

Exact information about the figures relating to the credit funds is seriously blurred by the

lack of records, but we managed to compile some data during our trip to Peru, in an effort

to draw a clearer picture of the overall situation of the credit fund.

Let us begin by the overall format project activities. As the sheep quality was improved,

they also needed a better diet – which would be achieved by implementing more hectares of

forage. Firstly, the Ecosas decided to hand out 100 soles for each member for this end.

High default rates hindered this scheme after the first year and there are no reliable records

about the total capital that has been recovered. After the second cycle of the project, given

this episode, the money was given to each Ecosa that would decide how to assess and

provide loans. Each Ecosa guaranteed the loans with its own capital (Table 1). By the end

of the project, credit-related figures were as follows:

Table 2. Outputs of the project – Credit

Forrajes: Resultados alcanzados con el proyecto

Campaña Beneficiarios

Monto

Soles PrestatarioI Octubre 2001 - Mayo 2002 18 200 Persona ND 111II Octubre 2002 - Mayo 2003 18 5 590 Empresa 100 620 144III Octubre 2003 - Mayo 2004 457 18 5 796 Empresa 104 328 149

Total 18 11 586 204 948 404

Fuente: EMUCOSA, Febrero 2004.

ND: No disponible. Información en manos de la antigua directiva.

Siembra(hectáreas)

N"

Monto total

EmpresasPersonasPeríodo

By January 2003, 23% of the loans had been recovered (of the 46,000 soles from the

previous cycle). The report also mentions that in many instances, only the interests had

been paid back and that the main capital amount had been granted over again. In 2003, new

loans were given by the Emucosa to the 18 Ecosas “en forma communal y equitativa por el

valor de 5,590 soles to each Ecosa” which in turn would provide loans to its members. The

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Ecosa would be responsible for the overall amount of the loan and would also oversee the

forage production. In total, 127 hectares of oat had been planted in 2002/03.

The IAF would initially provide US$ 39,660 (c. 134,844 soles) for forage production

activities. As mentioned above, however, a total of US$ 29,412.00 was distributed among

the Ecosas, or 5,796 nuevos soles to each of them. At the end of the project, the fund had

104,328 soles. This reduction of the initial amount was due to the low recovery rates of the

first periods of the project, as the final report mentions: “La disminución del fondo se debió

a que en la primera rotación del crédito, no se tiene información exacta de los créditos que

fueron entregados por lo que la recuperación fue bastante difícil y con lo que se consiguió

recuperar se decidió mantener la actividad aunque ya no se entregaron los créditos a

personas sino a las empresas comunales para que ellas garanticen la devolución de los

fondos con sus aportes en el capital social de EMUCOSA”.

We had access to only one financial statement, kindly made available by CEDEH, which

comprises the budget items and its allocation by the grantee by September 2001 and shows

that some of the credit fund had been re-allocated to cover expenses of a different nature:

According to the records to which we had access, the 18 Ecosas still owed to the Emucosa a

total of 107878,51 nuevos soles by December 2006 – without considering the interest rates.

Some of the Ecosas have already formed their own funds, called Cajas Chicas, where they

capture their members’ capital and form petty cash funds for internal loans. CEDEH

officers explained that Ecosas’ members have paid some of their loans back to the Ecosas,

but in view of the Emucosa’s break of trust, the Ecosas did not pay their group loans back –

retaining the resources and thus forming these funds, which they prefer to manage. We had

only access to anecdotal data on the amount of these petty cash funds, which in some cases

range between 7,000 and 12,000 soles.

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IV. Governance

In the years that preceded the IAF-funded project, the Emucosa had a mixed track record.

The governance structure was weak and easily dominated by the character of the manager

in the period 1996-02.

According to some findings in the self-evaluation process promoted by CEDEH, “la junta

directive percibia sus sueldos sin consulta a los delegados de las Ecosas, incumplian con los

estatuos de la empresa y proponian a sus trabajadores de confianza”. Afterwards, in

subsequent years, the perception was also that the president and managers would seek

personal advantages through the organization.

The problems referring to the fund management almost compromised the whole project.

Shortcomings concerning technical assistance also constitute one the greatest limitations of

the project, as the beneficiaries tell about the “falta de equipo tecnico para operacion del

centro de inseminación artificial”.

Governance problems refer not only to possible mismanagement but include also structural

rules, such as the short term for each Emucosa and Ecosa manager to remain ahead of the

organization, which weakened the communication between them and their respective

communities. What´s more, there have been accusations also that the so-called special loans

were given without the prior authorization of the general assembly. These various factors

influenced the low levels of loan repayment that also de-capitalized the Emucosa.

The project was affected by personal problems between the manager and the project

engineer, who left the project. His departure was a major loss to the project given the

importance of technical aspects to the success of the intervention. An audit also found out

that there was mismanagement of project resources. In view of this, the Ecosas decided for

the substitution of the manager – in order to avoid the total interrup tion of the report.

As the new manager came from Arapa – as opposed to the previous, who was from Chupa

– Chupa inhabitants did not lend him the necessary support. In a report at the time, it was

mentioned that “hubo la necesidad de centrar las actividades en el distrito de Arapa y,

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principalmente, en la comunidad de Quesca, comunidad ganadera”. Given this geographical

shift, Quesca and surrounding villages received greater benefits from the project compared

to other project communities instating a sense of ill being among them.

The Final Report (Juan Carlos Rheineck) had already pointed out that “otro de los factores

motivadores de la crisis inicial fue la poca transparencia y claridad en el manejo financiero

de los recuros por parte del entonces presidente de la Emucosa”. The reason for this high

default rate is, according to the analysis of Cedeh, due not only to this lack of mutual trust,

but also to the inexperience of Emucosa in charging the debt.

If by one side, the managers did not operate carefully, by another side the members of the

various Ecosas would not inspect or verify the financial statements or management by the

Emucosa management board – in other words, there was little project ownership and much

of a passive stance by the beneficiaries. This lessons has been effectively learned by the

Ecosas, at a high cost (break of trust), and is being addressed in conjunction with Cedeh, by

rendering the management more decentralized – with the decision-making assigned to the

Ecosas as well – and increased accountability. The model should be that the Emucosa will

help the Ecosas obtain loans and refine their strategic planning, whereas the Ecosas

themselves should manage their own resources directly.

Nabal Mamani, who was the Emucosa president in 1998-99, reckons that the biggest

mistake in the management of the project budget was that the boards did not observe the

Emucosa statute and re-assigned credit funds to other activities (such as operational costs).

After 8 years of operations, and many experiences and lessons, the Emucosa started a duly

self-evaluation process in partnership with CEDEH. Through this process, they have

reviewed their mission:

“Somos una organización de 18 empresas comunales de los distritos de Arapa y Chupa.

Identificada con la producción agropecuaria para el desarrollo regional, que asumiendo la

opcion por los probres, promueve y apoya por medio de la formación humana y

capacitacion tecnico administrativa, gestion gerencial a la organización. Empresarial y

desarrollar actividades productivas en las diferentes líneas, y potenciar la capacidad de

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las personas organizadas para mejorar la calidad de vida a través del cuidado de su

capital social”

CEDEH is now working to rebuild their confidence in collective action. During our visit,

the current Emucosa president also accompanied us in the interviews in the various

communities, re-establishing the ties with the Ecosas. Healing the finances is also part of

the joint effort by CEDEH and Emucosa called Fortalecimiento y Gestion del cambio para

la consoidación de Emucosa – whose report states that:

“En la actuallidad se espera un acuerdo de delegados de las Ecosas en la que se defina la

tasa de interes uniformizado para Arapa y Chupa; esto a pedido de los socios y delegados

de las Ecosas, asi como el lugar donde se hara efectivo el pago de sus deudas, porque

existe desconfianza en las Juntas adminsitradoras de Emucosa, asimismo existe

desconfianza en sus tesoreros”.

V. Impacts

In July and September 2007, a team of the CPS/FGV visited communities that participated

in the project 491 located in Arapa and Chupa, which are situated near a (most beautiful)

high-altitude lake (for a map, see:

http://www.produce.gob.pe/descarga/produce/dna/catastro/puno/puno.png).

Through this visit, we aimed to assess the current situation of the project beneficiaries.

Since the drop in Emucosa’s activities, the Ecosas have played a greater role in leading

their respective communities and struggling to organize their productive activities.

In the next pages, we will transcribe the testimonies given by some beneficiaries whom we

met in our visit (please see the attached photos). Our main concern when approaching them

was to let them describe – if and - how their lives have changed since the project started.

Please observe that the “memory of the project”, that is, what people remember about the

intervention can be very mixed. For instance, the IAF credit fund was established to afford

the improvement of pastures. Many respondents, however, claimed that they used the loans

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to buy animals for sale. We have analyzed the project impacts within realms of these

findings.

According to a CEDEH report, 12 Ecosas were still active in December 2006: kuskallancay

llacharapi chico, chapani, iscayapi, caminacoya, rucus, huairapata, santa maria, quesca, alto

trapiche, chimpapata, san jose de choco. And other 4 were inactive: agua Milagros,

rinconada, calaj chaca, alto chucachuas, central ccalla. Moreover, the chalona processing

plant was not operating at that moment.

We met with Inez Delgado, who is the current President of Ecosa Kuscallancay and the

Porvenir, an association of 4 Ecosas. Cuscallanca has 20 members – most of them received

credit when Emucosa was still active. Their path was like other Ecosa’s: they started as

tiendas comunales and their main objective was to dedicate their time to fishing trout in the

lake in Arapa. For this purpose they would have to raise fund and bearing this objective in

mind, they gained their legal status in 1996.

Inez, for instance, received 15,000 soles – the so-called special credit – from the Ecosa in

order to buy animals. As a guarantee, she provided her house title in Arapa. According to

her, the 2% interest rate and the 2-year payment schedule were not tough conditions. She

used the loan mainly to buy and sell sheep. As the quality of the livestock was improved

through insemination, she was able to have a profit and managed to increase her income.

The credit amount was also invested in the whole grain mill of her family, where they also

produce bread. Inez used to have 10 sheep before the project activities. She currently has

around 25 better sheep as a result of the project intervention. She also invested in cattle to

obtain milk, around 20 litres a day, which she processes into yogurt.

Inez and other 4 members of the Ecosa have gathered to invest in trout fishing. They started

with 2 fishing cages. Eight years later they have now 30 cages, whose produc tion is sold in

Cuzco at 6,5 soles the kilogram. Not everyone will have access to the benefits of trout

fishing. The total costs of its production can reach as much as 50,000 soles, including:

labor, food and infrastructure. Nor will they have access to commercial lending, which is

“expensive and with high interest rates”.

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The criteria for the concession of a Special Credit included the ownership of a property

(house, land, etc) and the good assessment of the borrower’s financial capacity.

Comparatively, an ordinary loan would range from 500 to 2,500 soles, whereas the special

credit could go as high as 30,000 soles. The Special Credit was thus not given to many

people. Jesus Arpe, for instance, borrowed 1,000 soles at 2% interest rates per month. His

sheep had died of a disease, so he used the loan to buy more animals and invest in their

treatment. He had two years to pay off his debt, but still owes interest rates – that is, he paid

off the principal amount only. Despite this difference in the amount, Jesus was able to see

an improvement in his life due to the project: he used to own around 40 native sheep, which

would not provide good meat for sale (6 kilograms at most). After the project, he owns 28

sheep that can give 13 kilograms of meat each – for sale in the Arapa market for 6 soles the

kilogram.

The current Arapa trout production reaches 120 tons, which is all sold in Cuzco. Other

markets, such as Juliaca, Arequipa and Cuzco can be reached, but local farmers still lack

the capital.

This particular Ecosa would concede credit to solidarity groups, which would have their

approval registered in the assembly meeting.

Simon Mamani also borrowed a small amount of 500 soles, which he managed to repay

entirely. He invested this capital in the production of forage and oat for the cattle. The

improvement to his cattle was marked as - before the project - he would only feed them

with ordinary grass pasture. As he has had access to better pasture, the cattle receives more

nutrients, which in turn improves the quantity of milk and meat. Nowadays, it has been

expensive for Simon to afford the seeds for forage as he now needs to buy it. In order to

afford this now, he has to sell animals. Just to have an idea of the involved costs – which he

claims too high - here is an estimate:

- The forage kilogram is priced at 60 soles.

- A farmer will need 4 kilograms per year to cover ¼ hectare area.

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- Apart from this, the costs of tendering the land may reach 45 soles per hour

(workforce).

- Fertilizers may cost up to 70 soles each.

Some credits were more special than others. After providing a real estate guarantee, Vitor

Leonidas Capio borrowed 50,000 soles to buy a minibus to operate commercially in the

Arapa-Juliaca route. At the end of his payment schedule, this debt had accumulated to

80,000 soles given the interest rates – which he managed to pay with some of his land.

Aside from the minibus company, he also produces maize and oats, which help increase his

income.

After the “demise” of Emucosa, the Ecosa Cuscallanca has formed a “Caja Chica”, where

each member has deposited from 500 to 1,600 soles each – their current capital is 12,500

soles. They are now able to lend petty cash to their members at a monthly 1,5% interest

rate. The payment schedule ranges from 2 to 6 months, depending on the amount of the

loan. Despite the mixed record of the beneficiaries, the Ecosa is still a viable organization

that attracts other members from the region like Euzebio Ticona, who has only recently

joined the Ecosa because the “associacion tiene un fin progresista”, as it gathers producers

with a competitive edge.

In our visit to Ecosa San Jose Quesca, we also found the establishment of a Caja Chica after

the project finished. As the Ecosa managed to recover some of the loans of its members, it

would deposit it in this small fund, which started up with 7,370.00 soles and has increased

to 14,243.53 soles (of which 11,251.00 have been lent to its members).

Fortunato Canichino borrowed several times, between 500 and 1000 soles to buy seeds for

forage and oat, and to cover the costs of the “roturación” at the time of the IAF project. The

changes brought about by the project were important to him. Beforehand, he could only

cultivate potatoes and had only a few (unreliable) livestock. With the introduction of

improved sheep, he has managed to experience some profit: he would take the loan and buy

a small animal for fattening to sell it a few months later at a profit. Another strategy would

also be to buy a pregnant cow to sell it after the offspring is born, keeping the latter. He did

not have access to larger loans because of the lack of guarantees to back them up. Since the

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establishment of the Caja Chica he has also been able to borrow from his peers. They

arrange meetings to decide who will be able to borrow from the petty cash fund.

The best result of the project has actually come from insemination activities, which clearly

improved the quality of the livestock raising the possible gains from their meat and wool

sale. Farmers have reported that, with increased income from better animals, they have

been able to invest in other animals (thus increasing the flock) and also to buy groceries for

the household. As the cattle produces more milk, this product consumption has also

increased in the home.

Adrian Quispe remembers having received one small loan of 500 soles to be repaid within

6 months. He bought cattle for fattening and re-sale – a business whose profit was around

50 soles. His livestock has increased from 4 cattle to 30 sheep, through the project’s credit

and insemination activities. This profit has helped him to buy household goods. Since the

end of the project, he has not had access to loans – despite needing it to continue investing

in his small farm.

Gregorio Mamani managed to repay his 500-sole loan by selling the animals bought with

the credit amount. He recalled facing difficulties in paying his loan, given the interest rates

(1.5%). After selling the animals, there would be some profit left, which he would then

invest in cattle improvement (buying other varieties of cattle and sheep). He observed that

it was cheaper to buy animals (for fattening) in 2003. His income is enhanced by the

cultivation of potatoes, quinoa and oat – part of which he sells in the local markets. As he

assesses his own situation “no esta tan mal ahora”: he has better cattle, which helps to

increase his income. He has been able to save money, which he deposited in the caja chica

for lending to other Ecosa members. His family has also experienced some gains, as he is

able to buy rice and other foodstuff for the household.

Felix Apaca Pilco was also limited in the loan amount he could borrow by the type of

collateral he could provide: only a few cattle entitled him to a maximum 500-sole loan.

This loan was used to buy better quality cattle and he did not have much difficulty in

paying it off. He managed to buy good cattle that ensured his gains at the end of 6 months.

From one good animal, he explain, he was able to obtain a good offspring, which continued

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procreating. The improvement in his economic situation came as a result of the increased

quantity of milk produced by his cows, whose cheese he and his wife sell in Azangaro. He

is now better able to meet his family needs, by buying food and cultivating healthy grains.

In his opinion, credit is the basis for improving one’s situation. He has also had access to

Caja Chica loans.

Ladis Pinto told a similar credit story, albeit with a difference: her 500-sole loan was

difficult to repay, as the repayment schedule (6 months) was too short. Within this period,

they would have to find a suitable animal to buy, fatten and sell at a reasonable price that

would cover the costs of the loan and leave a profit. The efforts were worth it, as the

animals were better and produce more milk. Ladis would also appreciate having access to

more loans in order to buy seed and produce forage and she has not yet had access to Caja

Chica loans, as it rotates around all members. From a small number of livestock at the

beginning of the project, Ladis now owns 6 cattle and 27 sheep. Her husband works on

other people’s land for jornales (day’s wages) and together they have been able to meet

their 6 children’s needs. The biggest difference in their consumption patterns has been the

introduction of rice, sugar and vegetable in their diet, as well as more milk and dairy

products.

In the Ecosa Caminacoia, we met with Gregoio Mamani, Herminia Mamani, Victor

Mamani, Timoteo Mamani, Cecilio Predes, Jacinta Mamani, Jeronimo Ito, Arquelino

Quispe Mamani and Indalecio Basilio. This Ecosa obtained support for the production of

herbs in the form of 4,000-sole loan. They had 6 months to repay it, at 2,5% interest rate

per month. As they recall, it was difficult to repay it “al golpe” at the end of 6 months, but

their income from herbs, sheep, pigs and quinoa was useful. Belonging to the Ecosa made

access to credit easier, as the solidarity group provided the guarantee for the loan. This

resource was used to pay a technician that would help them improve the herbs plantation

(The Correo Cuzco-Puno also provided technical help). Additionally, they also received

support for genetic improvement of sheep, whose weight increased from 7 to c. 15

kilograms.

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This Ecosa has been known for its self-organization and sense of drive. They are

completely aware that “no hay que solamente esperar por la Emucosa”. Moreover, they

repute credit as good, because it generates “movimiento de dinero”.

Nowadays, each member receives around 70 soles per week as income from the sale of

herbs in local markets. They would be willing to enlarge the plantation, but they have little

resources in the way of irrigation. What’s more, they are also satisfied with the increase in

the flock of sheep, but their limitation is the size of their land for pasture (their maximum

land size is 3 ha.).

Their situation since the end of the project has been feeble, as they do not have access to

credit from commercial banks. Farmers have formed a caja chica, with an input of 200

soles each. Despite this, they still need technical assistance (agronomy and veterinary),

which is costly, and they can’t afford.

Caminocoia members all agreed that the first years of the IAF-funded project were good,

but later on the Emucosa management worsened. What’s more, each new management

board would institute new rules, breaking up with past ones and causing great instability in

the Ecosas about the functioning of the project. Caminocoia is also one of the furthest

communities from Arapa, which makes their participation in the Emucosa meetings even

more challenging.

The Rukus Ecosa also stemmed from a “tienda communal”. We met with a few of its

members (Guillermo Quispe, Angelica Torres, Cerilo Mamani, Augusto Mamani and

Ismael Pari) who share the opinion that belonging to a community organization has

facilitated their access to credit. With individual loans ranging from 600 to 1000 soles

(2,5% interest rate, 1 year) they were able to buy cattle. Loans were given to solidarity

groups “a la palabra”, that is, no guarantee was demanded, only their mutual knowledge.

They also used credit to buy forage at 2% interest rates. Their caja chica now amounts to c.

7,000 soles – a savings which was made possible by the project’s gains, namely:

insemination, better quality livestock, increased sales. Aside from the gains for the

organization, the interviewees also mentioned the gains to their families, which include

better diet and access to household improvements.

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Andres Paredes, another Rukus member, remembers that it is part of the Andean culture to

help each other – which is why the solidarity group system has worked among this group,

where each member was aware of other’s needs, limitations and obligations.

The group has an important asset, which is a bakery that was built at the time of the

“tiendas comunales” and is under-supplied nowadays. In the view of the group, they could

benefit from further capacity building to deal with livestock and production of local grains,

such as quinoa. More credit would also allow them to equip their bakery, which is the only

one in the region of Chupa. They are caught in a vicious circle where they produce very

little, hence have little access to markets. Señor Paredes announces: “nos falta vision, no

productos” in an acknowledgement that they still lack management skills to take better

advantage of their situation – where they would have access to grains produced locally, that

could supply the bakery that, in turn, could supply the local markets. Presently, the bread

consumed in Chupa comes from Puno and Arequipa.

From the Curallo Ecosa, Pedro Roque Hernandez borrowed 500 soles in 2005 to buy a

young bull. During the 6 months repayment period, he fattened the animal for sale at a

profit. He considered his profit satisfactory and borrowed another 500 soles again. As a

guarantee for his loan, he gave his animals. As insemination improved the quality of the

livestock, his income from animal sales has also improved. With this increased income, he

has been able to afford his children’s school uniform as well as the “cotas del padre de

familia”.

Julian Condor, is the current Curayllo Ecosa president. His experience with credit is similar

to that of Pedro: 500 sole loan to be repaid in 6 months at 2 interest rates. As he argues, this

credit scheme was beneficial (indeed) because since the end of the project, it has become

clear that commercial banks have no interest whatsoever in the provision of loans to the

region. Another benefit from the loan was the timing of the purchase, that is, beforehand

they would have to wait for the cattle to grow in order to sell it (around 3 years). With

access to credit, they could buy it already grown. Julian has been able to save some money

and to buy groceries for his family.

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Hortensia also has an almost identical story of profit-making by buying and selling

livestock in order to repay the loan. She details though that in order to achieve this profit

and pay off her debt, some sacrifices were inevitable such as increasing her workload (by

taking up work in other people’s land) and decreasing her consumption of food. Despite

these sacrifices, her life is better in her opinion because she has 10 sheep, sells more meat

from the sheep and buys things for the household.

Figure 1. Project Timeline

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Línea de Vida del Proyecto: Hechos principales

2001

17 de febrero Pedido del primer desembolso por 82,885 dólares.

2002

23 de eneroSe terminó el dinero de la FIA pero no podían recibir másdinero debido a que tenían observaciones hechas porauditoria por 16 mil dólares.

9 de marzo Cambio de directiva en busca de solucionar losproblemas que se habían dado por malos manejos.

16 de abril Wilbur visita el proyecto y autoriza su reinicio.

de agosto Recepción del segundo desembolso por 56,065 dólares.

2003

23 de eneroSe termina el dinero del segundo desembolso y todo loque la FIA había comprometido en el convenio original.Tramitan nueva addenda de dinero.

30 de eneroAprobación de Enmienda I con extensión de tiempo delproyecto de un año (al 23 de enero del 2004). No incluyeenmienda de dinero.

14 de marzoVisita de Wilbur para decidir sobre la aprobación de unaenmienda de dinero.

de mayoInformación a EMUCOSA sobre la aprobación de laEnmienda II con fondos adicionales por 37 mil dólares yla extensión de tiempo hasta el 23 de julio del 2004.

16 de octubre Tercer desembolso por 37 mil dólares.

2004

de mayo Edgar Mamani entrega la dirección de EMUCOSA aNestor Paredes

23 de julio 2004 Termina el proyecto

Fuente: EMUCOSA, Agosto 2004.

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VI. Conclusions

Project PU492 was designed to achieve an improvement in the income of farmers in the

regions of Arapa and Chupa, Puno, Peru. The improvement in the quality of the livestock

allied with the higher quality of pastures formed the strategy to raise living standards for

these farmers. The financial support of the IAF is identified as one of the factors that gave a

boost to the grantee in its first – and more important - stages. As the intervention by the

IAF coincided with these initial phases of the organization, when the learning curve is

steeper, an almost intuitive assumption is that the project could face difficulties given its

unprecedented character for the stakeholders – leaving important lessons to be learned.

The project was implemented with some difficulty, particularly with regard to the grantee’s

management - based on the reports, observations and direct accounts of the beneficiaries

and of CEDEH officers. More specifically, these problems concern the poor governance

structure of Emucosa that found a risky match in the passiveness of most Ecosa members.

There have been suggestions that the Emucosa managers have mismanaged resources, thus

weakening the organization’s financial stance. This led to a break of trust by the various

Ecosas’ members, so that the Ecosas started defaulting the loan payments – which left the

Emucosa even more vulnerable financially speaking.

As each Ecosa would have the autonomy to manage its own loans, some peculiar

inequitable situations could also be observed there. We have noted that the ownership of

certain assets, such as houses and land, granted access to higher loans for some people;

while those with fewer resources could not provide the desired collateral, hence accessing

smaller loans. This may have perpetrated the inequality of many communities, as those

beneficiaries who accessed higher loans have progressed to activities such as trout fishing,

which require more capital. Other limitations faced the some beneficiaries concern their

geographical location that was distant from the insemination centers.

Despite these constraints, beneficiaries at large have widely accessed the projects’ inputs,

such as training, credit, animal health centres, etc. Even those who accessed smaller loans

still tell of the benefits experienced as a result of the project activities, which include:

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Box 1. Summarized Impacts of the Project

??Sustained livestock raising : from better breed enabled by the project the

beneficiaries still have good livestock.

??Increased income : from the sale of milk, meat and wool.

??Increased patterns of consumption

As a result of income increase: improving food intake (rice, sugar, etc)

And as a result of better quality animals: products for home consumption

??Increased savings, from better financial management of extra income.

The formation of tiendas comunales and, later on, of the Ecosas have re-affirmed the

Andean tradition of social capital. As a result, even after the break of trust between the

emucosa and the Ecosas, these have continued implementing activities in their own

communities capitalizing on the social capital that had been built. More interesting,

however, is the phenomenon that has spread across Arapa and Chupa whereby these small

organizations have re-enacted Cajas Chicas. It is almost as if they had gone back to their

roots after experiencing a larger credit system. The formation of the Cajas Chicas may

indicate some important points about the beneficiaries’ capacity:

Box 2. Indicators of Beneficiaries’ Capacities

??Loan repayment:

It helped to form these cajas: capacity to manage loan demands (interest rates,

deadlines). The only constraint to a more successful repayment rate was the lack of

trust in the Emucosa’s management board.

??A vocation for saving:

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After the repayment of loans, which indicates sound management of their resources.

??Sound internal organization:

As they decide in a general assembly who shall receive the loans, whose range is

not discrepant as the “special credit” by the previous Ecosa arrangements.

??Equitable participation:

Loans shall be given to all members before someone can borrow for a consecutive

time.

Albeit there were good impacts for the beneficiaries, it seems that the project’s governance

shortcomings have compromised the sustainability of the project. Once beneficiaries lost

access to the larger loans, they had to start selling their own assets to buy forage, for

instance. This can weaken their situation in the longer term, unless they are able to re-

organize themselves and reclaim their right to the Emucosa’s funds.

Risking extreme optimism, we may say that an improvement in the checks and balances

system of the Emucosa could help to revive the project (with the support from CEDEH). A

paper on microfinance institutions governance advances some suggestions, as follows:

“A closer examination of governance includes an outline of the roles of the board

members, board composition and an explanation of important issues of trust and

conflicts of interests”. And proceeds by saying that “governance is a system of

checks and balances whereby a board is established to manage the managers” –

which invariably brings us to the question of managers. The board, in its turn,

should have four specific roles (fiduciary, strategic, supervisory and management

development) and should be formed by members “who have a diversity of skills,

including financial, legal and managerial expertise, to give effective guidance to

senior management and to critically analyze management’s plans and reports.

There is no magic formula for board composition”. In terms of building trust, “it

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is important that board members do not have political agendas that could

influence the direction of the organization”.24

We could also borrow recent tips on the governance savings and credit cooperatives:

“Why not give seats on the board to community representatives delegated by their

organizations or associations? Information will be more fluid,; comments,

proposals, etc., will be enriched by people from outside the family and

governance will be imported. This concept is already implemented in other

community finance models. Some community organizations should be invited to

buy some shares”.25

Therefore, in the future, similar projects should pay increased attention not just to the

design of the strategy in what concerns the beneficiaries’ capacity to repay the debt, but

also look further to the ability of the grantee to properly manage the funds. The leadership

of each community should be enhanced to own the project, hence becoming more involved

in the decisions made by the general assembly at Emucosa. Likewise, managers’ skills

could also be enhanced. Beyond that, the long-term strategy of bridging the producers with

feasible markets should also be factored in the project long-term strategy.

24 CGAP Focus no. 07: Effective governance for Microfinance institutions - Mark Clarkson and Michael Deck Clarkson Centre for Business Ethics, Faculty of Management, University of Toronto, Canada. 1996. 25 Governance in Savings and credit cooperatives by Ghislain Paradis, Developpement international Desjardins, September 2001.