BUSINESS DEVELOPMENT SERVICES

While DEMOS has done well in establishing systems, controlling delinquency, and becoming relatively efficient, it must also seek alternative market channels. The key to sustainability for DEMOS lies in differentiating its services in rural and urban areas. In this way, DEMOS is becoming a sustainable, market-oriented provider of micro-credit, and staying true to its original mandate of assisting the working poor in war-affected areas. Initially DEMOS provided business training to clients who applied for the first time to help them generate business ideas and gauge viability. Animal health seminars were conducted in parallel, with the help of a veterinarian. However, these services were provided free of charge, and on an ad-hoc basis. Further BDS project ideas stemmed from clients’ needs and loan officer input regarding market gaps.

Given that BDS services are expensive and require expertise, DEMOS decided early on that its comparative advantage lies in the provision of credit, and that the organization would outsource most BDS services and stay away from direct provision as much as possible in view of the available supply. In doing so, DEMOS develops critical partnerships with other BDS organizations and the private sector. DEMOS’ goal in entering BDS was not only to satisfy clients’ needs, but also to increase demand for loans and improve retention. Services are currently either offered for free, or factored into the loan size. This form of pricing structure may be modified at a later stage depending on the market and on the success of the current pilots. However, an added challenge for DEMOS is that in Croatia, while there is strong demand for market linkages, there has also been a tradition of donor-driven BDS provision with no cost-recovery goal.

PIG FARMING AND PRŠUT PROCESSING

DEMOS partnered with FLAG International to disburse loans for piglets to thirty farmers. FLAG will help farmers raise a certain breed to a specific weight and feeding requirements to obtain high quality pigs. The pigs will be sold to prsut processors in the South of Croatia, therefore not only sustaining farmers and processors, but also revitalizing the market linkages. The project was designed in November 2002 and implementation began March 2003.

While the South of Croatia offers great potential for smoked ham given its specific climatic requirements (strong wind in the Spring), raw materials supply is one of the largest obstacles facing Drnis pršut manufacturers. Prior to the conflict, a Drniš-based producer supplied the area with the overwhelming majority of pigs. That facility was destroyed, and producers have been forced to procure pigs primarily by importing them from Hungary, Belgium or the Netherlands. This BDS project enables Drniš processors to procure high quality raw materials domestically, and simultaneously develops a long-term partnership with domestic pig farmers that will pave the way toward attainment of a geographical origin trademark for their pršut.

The achievement of such status will require the procurement of domestic pigs, so loans have been disbursed to 30 pig farmers in the municipalities of Dvor, Hrvatska Kostajnica and Pakrac. Accompanying feed, veterinary and slaughter services are being provided, as well as transport to the pršut processors in Drnis. The pršut processors have signed forward (tripartite) contracts and bank guarantees have been put in place to minimize risk to the farmers and the organizations in terms of their participation in the program. The BDS organization has employed a local staff member, as well as consultants from the Agricultural Faculty of Zagreb, to ensure that quality control standards of procurement are met. This will also minimize risks that typically exist at the beginning of such business relationships. Pig producers will gain significant benefits from the program, and will have firm market linkages with Drniš pršut producers who will provide forward contracts and guarantees on purchasing their entire pig production for the next year. The increased quality of production will help prsut producers create a brand name for their product.

The role of the organizations participating in the project is to facilitate the supply of the pigs to clients, to monitor the quality of pig raising process and to monitor the loan repayment. DEMOS loan officers have worked along side FLAG staff to select loan recipients, and tailor their business plans to this specific business activity. Loans were approved in joint loan committees and DEMOS’ loan officer is visiting clients with the FLAG expert. Pigs are being delivered to clients, and monitoring will also take place in pairs to verify the state of the business and to give advice to the farmer in raising the piglets, thereby preventing loan delinquency. This project is innovative in that it intends to create market linkages among the rural, less developed areas in the North-West and in the South and to improve brand name for Croatian processors. If the pilot project is successful, a new cycle will be initiated with a larger number of clients.

FACILITATION OF TRANSPORTATION

DEMOS is designing a project that brings buyers and sellers of cows together. The cost of this service is incorporated into the loan product by initiating the facilitation of the transportation of high quality cows to war-affected areas of the country, where there is a shortage of such cows for DEMOS’ clients.

During the war, many cows were killed. After the war, NGOs imported significant numbers of cows to Croatia, but the recent import ban on cows from Germany and Austria caused by mad cow disease has created a new shortage of cows. Cows are available in other parts of the country, but these rural areas typically are far from DEMOS’ clients. In order to determine the potential level of demand for transport of higher quality cows, DEMOS conducted a series of 9 focus groups between December 2002 and end of January 2003 with clients and non-clients in areas where there is a shortage of cows, disaggregated by business size. Findings were conclusive and in March 2003, DEMOS signed a partnership agreement with a Croatian private company to identify and transport cows to clients.

DEMOS organizes a preliminary visit of clients to the cows that have been identified for them so that they can make a final selection. The supplier of cows has agreed to incorporate the cost of transport into its pricing structure, so clients pay a lump sum corresponding to the value of the cow, transport, and connected services. DEMOS has increased its maximum loan size to enable clients to purchase these higher quality cows, and to pay for the cost of transportation. DEMOS limits this service to clients with sufficient capacity to repay the loan without any additional grace period, the monthly payment on these cows being US$ 30 higher for these cows. In April 2003, DEMOS selected 2 areas for the pilot test and started organizing clients so that they can select their cows.

AGRICULTURE EQUIPMENT

The recent changes in the agricultural law in Croatia have led to a modification of the pricing structure of the milk produced. While the price used to be based only on the percentage of fat per liter, now it will also depend on the percentage of microorganisms (bacteria) so as to encourage the production of higher quality milk. Given that higher quality milk can only be produced with milking machines, demand for such machines (and subsequent loans for them) has significantly increased. In order to meet demand and help clients obtain higher sales prices for their milk, DEMOS will pool together all clients interested in purchasing milking machines. DEMOS will then negotiate with milking machine producers a discount on the purchase of these machines ranging from 5 to 15% of the total price per machine. Currently DEMOS is reviewing the conditions offered by suppliers (prices, services, spare parts available, repair requirements) and also the amount of discount they will offer based on the quantity delivered. DEMOS will approve loans for the purchase of the machine, enabling them to get a discount on the purchase while selling milk at a higher price thanks to the newly acquired milking machines.