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The Role of Opium as a Source of Informal Credit
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STRATEGIC STUDY #3
Preliminary Report January 1999
The Strategic Studies SeriesOne of UNDCP?s principal objectives is to strengthen international action against illicit drug production. In Afghanistan, its principal objective is to reduce and eventually eliminate existing and potential sources of opium cultivation. It is recognised that in order to achieve this there is a need to further the understanding of the diversity of conditions and priorities that different socio-economic and spatial groups take into account when making decisions about their involvement in opium poppy cultivation.
The Strategic Study Series is one of the tools by which UNDCP intends to document the process of lesson learning within the ongoing Afghanistan Programme. Studies in this series will focus on issues that are considered to be of strategic importance to improving the design of current and future alternative development initiatives in Afghanistan. Information collection for these studies is undertaken by the UNDCP Drug Control Monitoring System (AFG/C27) in close coordination with the ongoing presence and project activities of UNDCP?s Poppy Crop Reduction project (AFG/C28). Recognising the inherent problems associated with undertaking research into the drugs issue in Afghanistan, emphasis is given to verifying findings through systematic information-gathering techniques and methodological pluralism. As such, the Studies will be undertaken in an iterative manner, seeking to consolidate preliminary findings with further fieldwork. It is envisaged that this approach will allow panel or longitudinal studies to be undertaken which assess both the changes in opium poppy cultivation and lives and livelihoods amongst different socio-economic, gender and spatial groups over the lifetime of the Afghanistan programme.
These Strategic Studies will be an integral part of the regional study, ?The Dynamics of the Illicit Opiate Industry in South West Asia? due to be published and disseminated in early 2001. The purpose of this regional study will be to: (i) contextualise the illicit drugs situation in South West Asia for the donor community, addressing issues of interest to their development agendas, including poverty, health, gender and the environment (ii) and for UNDCP to identify ?best practice? in the design and implementation of alternative development, law enforcement and demand reduction initiatives.
Strategic Studies will include:
- An Analysis of the Process of Expansion of Opium Poppy Cultivation to New Districts in Afghanistan.
- The Dynamics of Farmgate Opium Trade and the Coping Strategies of Opium Traders.
- The Role of Opium as a Source of Informal Credit.
- The Role of Opium as a Livelihood Strategy for Returnees.
- Access to Labour: The Dynamics of the Labour Market for Opium Poppy in Afghanistan.
- The Role of Women in Opium Poppy Cultivation in Afghanistan and the Consequences Arising from its Replacement for Women?s Economic and Social Standing.
- ?The Balloon Effect?: An Analysis of the Process of Relocation of Opium Poppy Cultivation in Afghanistan.
Executive Summary
Initial fieldwork in Qandahar in late 1997 revealed that a significant number of households obtained advance payments, known as salaam, on their future opium production. Those households with little or no land, indicated that this credit was essential to meeting their basic needs during the winter months, a time of food shortage for many Afghan households. Indeed, it was a common claim that a ban on opium cultivation in the target districts would prompt many of those households without land to relocate to neighbouring areas where they could cultivate opium and thereby continue to obtain salaam.
Further fieldwork suggested that other commodities, including agricultural inputs, could be purchased on credit. Respondents indicated that lenders had a preference for those who cultivated opium poppy.
Recognising that the existing informal credit systems in Afghanistan possibly gave preferential access to those households that cultivate opium poppy, and coopted more vulnerable households into opium poppy cultivation, UNDCP sought to verify these initial findings with more in-depth research in the target districts of Ghorak, Khakrez, Maiwand and Shinwar. To verify findings and distinguish between generic patterns and localised issues, in-depth interviews were conducted over a wide geographical area with respondents from the different socio-economic groups within each district.
In total 108 interviews were conducted, of which eighty-one were in Qandahar between 14 and 28 June 1998, and 27 in Shinwar between 2 and 5 July 1998. Considerable effort was made to interview a number of respondents who had previously been interviewed during the fieldwork for the Baseline Survey in order to verify findings and to provide more quantitive data to support to the qualitative information collected.1/ This Study was also undertaken in close consultation with ?Strategic Study 2: The Dynamics of Farmgate Opium Trade and the Coping Strategies of Opium Traders?.
Although this document represents an initial phase of a study that will be consolidated with further fieldwork, preliminary findings would suggest that:
- Credit is an integral part of livelihood strategies amongst all the socio-economic groups in the target districts.
Whilst the vast majority of those interviewed for the purpose of both this Study and the Baseline Survey had obtained credit during the previous twelve months, the highest incidence of credit was amongst the landless, where almost all were found to have both obtained credit during the previous twelve months and cultivated opium poppy.
- The landless were found to have a relatively higher level of household debt than those who owned land.
Moreover, amongst the landless, credit was generally obtained to satisfy basic needs. As such, the landless tended to borrow to purchase food, clothes and medicine, whilst the wealthier members of the community primarily obtained credit for productive investment in agriculture. In the longer term this trend may lead to a growing inequality of wealth and income within the target districts, reinforcing the socio-economic and political structures that create and sustain poverty.
- Within the target districts credit can be obtained from a variety of different sources through a range of different mechanisms.
These diverse types of financial and material assistance allow households to spread their liabilities across a range of lenders, including family, landlords and commercial traders.
- Obtaining an advance on a fixed amount of agricultural production is the most common means for obtaining credit in the four target districts.
This system, known as salaam, provides advance payments on opium, wheat and black cumin. Opium was the crop on which the majority of borrowers had obtained an advance payment.
facilitates the ?distress sale? of agricultural crops, allowing traders to acquire opium, wheat and black cumin at prices significantly less than their harvest price. The terms of salaam typically improve with the proximity of the harvest of the crop on which it is being obtained. Consequently, households were found to delay the sale of their future produce until it was absolutely essential, obtaining a number of advances throughout the winter cropping season.
- Although none of the informal credit systems operating in the target district are ?interest bearing?, the cost of borrowing far exceeds the amount of the initial loan.
This high cost of borrowing in the target districts reduces the resources available for consumption and productive investment in agricultural, particularly for the most vulnerable.
- The major source of credit in the target districts would appear to be shopkeepers and traders.
These traders and shopkeepers tend to be located in the village or district bazaar. They typically trade in a variety of commodities, including fertiliser, foodstuff and medicine. Whilst the majority of respondents reported that they generally obtained loans from these shopkeepers through purchasing commodities on credit, they also suggested shopkeepers were a major source of salaam, particularly those in Shinwar and Maiwand who specialised in the opium trade.
- Opium is an important source of credit, savings and investment within all four target districts.
Salaam was obtained on opium by the majority of those interviewed and as such is integral to obtaining seasonal credit. Opium is also one of the commodities that can be purchased and resold as a means of obtaining cash loans under a system known as anawat. The fact that opium is non- perishable with a relatively stable value in comparison with the local currency, the Afghani, means that it is typically used as a means of household saving. Moreover, further fieldwork has revealed that the centralised nature for the trade in opium in the east and subsequent price differentials between districts make it an important commodity for short term speculation for those with sufficient disposable income in Shinwar.2/
- Opium is currently the preferred crop for those providing advances in Maiwand, Ghorak and Shinwar.
Indeed, in Maiwand and Shinwar opium was the only agricultural product on which an advance could be obtained.
- Indigenous systems of informal credit have evolved with the diversification of agricultural production.
For instance, the advance system seems to adapt to other high value crops. Indeed, the high incidence of salaam payments on black cumin in Khakrez illustrates that lenders adjust to new market opportunities and are not committed solely to the provision of advances on opium.
- The dramatic fall in the yield of opium in 1998, has led to many households, particularly the most vulnerable, facing considerable problems repaying their seasonal debts and servicing their longer term debts.
Given the substantial increase in the post harvest price of opium in the south in 1998, those who purchased opium on the open market to repay their salaam debt, were found to be paying as much as four times the value of the original advance given. Those without disposable income obtained further loans to purchase the opium required to repay their salaam. The high cost of borrowing under these informal systems means that the real cost of repaying the salaam initially received, could be as much as six times the original loan, a significant loss particularly to the most vulnerable
- Strategies for the repayment of debts differ between socio-economic groups.
Typically households initially sought to reschedule their repayments. However, this was at the sole discretion of the lender and was found to be far easier to obtain for those who owned land. Amongst the landless, wage labour was a popular strategy for repaying their existing debts, although it was recognised that opportunities were limited. Those with land cited the sale or rental of household assets as a strategy for the repayment of household debts. Whilst the sale of land was considered a last resort by those respondents that owned land, offering the use of land or water rights to a neighbouring villager on a temporary basis, was viewed as a more acceptable way of repaying existing debts. Increasing opium poppy cultivation was cited by all socio-economic groups as a means of repaying their loans.
- Few households were found to consider defaulting on their payments as a viable strategy under the existing informal credit systems.
Whilst the landless would appear to have the greatest opportunity to abscond, this strategy was not cited by any of the respondents despite their obvious distress. Failing to repay existing debts was viewed with disdain by both the present authorities and the general population.�
Recommendations
- It would appear that opium poppy cultivation is not purely a function of profitability but is an important means of obtaining credit during times of increasing vulnerability. It is essential that interventions aimed at reducing opium poppy cultivation adopt a strategy that seeks to secure livelihoods rather than simply increase incomes.
- Credit initiatives would appear to represent a strategic niche for influencing the level of household opium cultivation amongst the most vulnerable, and, as such, should be integrated into development interventions in the target districts of C28 and possibly in other source areas.
- Credit initiatives need to be integrated into an overall strategy for integrated rural development and should not be considered in isolation.
- There is a need to establish the appropriate mechanisms by which credit can be targeted on the most vulnerable, who currently have few alternatives for obtaining credit other than through the cultivation of opium. These mechanisms will need to be context specific and should be identified through the active participation of the community, particularly the most vulnerable.
- Given the limited market opportunities currently available to the most vulnerable, consideration should be given to the provision of credit in- kind.
- Ideally, the community should have responsibility for the management of any credit fund established. To achieve this the design, implementation and monitoring of such a scheme has to be undertaken with the active participation of the community, particularly the most vulnerable.
- UNDCP should conduct a workshop in partnership with those agencies currently implementing credit schemes in Afghanistan in order to define ?best practice and lessons learnt? and how these might best be applied in UNDCP?s target districts.
1/ See Socio-Economic Baseline Survey for UNDCP Target Districts in Afghanistan (forthcoming).
2/ For a more detailed discussion see Strategic Study 2: The Dynamics of the Farmgate Opium Trade and the Coping Strategies of Opium Traders.
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