Financial systems must be sensitive to local contexts and local knowledge

Financial systems must be sensitive to local contexts and local knowledge

There are several reasons why development-oriented financial systems should adapt to local contexts and local knowledge systems especially in African countries. When used in a sensitive manner, financial systems have power to redistribute, recognize and represent power in ways that enhance human dignity. They can also develop pathways for directing resources to relevant actors like farmers and local rural service providers who are more relevant in generating local solutions.  

Responding to emerging issues

Most budgetary and financial systems by government and development organizations are not designed to respond to different contexts and emerging issues. For instance, when implementing nutrition gardens and it happens that the community runs out of water to a point where reserving water for human consumption and livestock can be the only sensible choice, the flexibility to re-purpose resources in line with such emerging issues is often missing. The same applies to government budgeting where, when there is a drought, the ministry of agriculture is expected to request for a supplementary budget from the fiscus instead of government simply re-purposing resources from the ministry of ICTs whose activities may no longer be a priority.

Rigid procurement systems and processes in a fluid economy

In most fast-moving African economies driven by Micro, Small and Medium Enterprises (MSMEs), formal procurement systems that are guided by financial systems have been found wanting. For instance, these systems insist on three quotations from service providers in a long process which involves placing an order followed by an invoice from the service provider against which a payment will be done accompanied by receipts. This whole process often forces development organizations to hire formal companies in urban areas for delivering services in rural areas where local service providers would do a better job. For example, when an organization wants to conduct a look and learn visit with a group of farmers, it is compelled to hire a touring company for transport services merely because that company is able to comply with formal systems like invoices and receipts.  That way, this system automatically excludes informal or MSME transport providers who might be convenient and knowledgeable about the terrain, merely because they cannot provide quotations, orders and invoices.

Local transporters that are already plying the same routes and are part of the local transport system used by farmers in transporting their commodities to the market daily are excluded from providing services yet using local services can enable participants to better appreciate challenges faced by farming communities. Why should organizations that are promoting agriculture and rural develop turn to service providers that are not involved in any agricultural service provision like touring companies and hotels at the expense of local transporters who carry farmers’ commodities to the market and community halls or schools in which local meetings are often conducted? Hotels are not a market for smallholder farmers. Why should they benefit from workshops for smallholder farmers?

A related question is why three quotations when what happens in most projects does not justify the need for three quotations?  For instance, when a project is budgeting for a conference ahead of time, estimates like USD30/participant/day are used as a guide. During project implementation, why do funders ask for three quotations when the quotations will not change the budget already set? That creates another unnecessary approval process because the budget already provides a guide within which resources should be used.

Where funders instruct implementing organizations to provide three quotations for an amount above US500, the impression created is that the implementing organization is not able to make good decisions in using amounts more than USD500. Again, why should USD500 attract three quotations and not USD200? Is the funder saying any amount less than USD500 is not very important? This invites manipulation because the implementing organization may decide to spread costs by implementing activities below USD500. All these are examples showing how financial systems imposed by funders on implementing organizations express a big brother decision making mindset, implying an implementing organization or community is not able to make ideal decisions that show authority. Given that both the funding organization and the implementing organization have finance departments, it is also an unfortunate duplication of roles when one institution monitors and decides how another institution makes a decision on how to use funds above a certain figure.

Under what circumstances are receipts relevant?

Regarding receipts, if there is enough proof that an activity was effectively done – people attended an event and a report was generated, why do financial systems need receipts? This is a critical question because receipts are not part of local financial accountability systems in most rural African communities. For instance, local general dealer shops, tuckshops, transporters and community transactions like selling chickens, goats or cattle at community level do not use receipts. When it comes to the participation of people in community meetings, an organization can budget for 20 participants but in most cases 25 to 30 people may show up. The budget should not be used to exclude participants because knowledge is a public good.

It is better to rationalize the budget to accommodate extra participants than to turn away participants because of the budget. For instance, when working with a budget of USD5/participant for refreshments, instead of making each participant sign for cash intended for refreshments, its more ideal to get the community leader to sign for USD100 on behalf of all the participants. Community structures know how to rationalize such resources including meeting the needs of those not present at the meeting that day but are powerful knowledge holders who make the community tick. The community might even decide to give each community member USD1 as long as many people are accommodated in ways that enhance solidarity and the social fabric.

These are some of the circumstances under which formal financial systems have to be flexible rather than insisting on receipts at all costs. Community structures should be considered credible institutions the same as a research institution that, when contracted to conduct a survey, not every employee who participates in the survey signs for cash but the head of the institution is the one who signs as the team leader for the survey. In workshops conducted at public spaces like markets, getting everyone to sign for cash often contravenes social norms and raises a lot of eyebrows. Where a receipt is a must for the meeting organizers, the market committee chairperson can simply sign for everyone. Formal financial systems should respect and recognize existing relationships and informal systems, the same way when a workshop is conducted at a hotel not every participant can sign for the meal but the meeting organizer signs for everyone. When you ask every community member to sign yet the leadership like a market chairperson is available, it shows lack of confidence in the committee or leadership in running the show in accountable ways.

Headaches around transport receipts

In cases where organizations or individuals use vehicles in executing some project activities, formal financial systems insist on getting fuel receipts. Unfortunately, fuel is not a bigger component of costs incurred when using a vehicle but wear and tear is the biggest cost component. It appears when the financial system asks for a fuel receipt, that receipt incorporates other costs including wear and tear. The Automobile Association (AA) rating system used in many countries has proved to be very unrealistic due to different types and state of roads especially in African countries. Setting the cost at USD1/km will not generate the same results. The underlying assumption in AA rating is that   the same fuel is used for a given distance and the same wear and tear is incurred for that particular distance. While receipts may be prioritized as proof of someone travelling a given distance, what   proof can be given for wear and tear? And how is wear and tear calculated in cases where three types of roads are used – tarred road, dusty road and footpaths road used in rural areas to get to project sites?

Where farmers travel to workshops in the city from rural areas using public transport, expecting such farmers to produce transport receipts or tickets may be unrealistic in some cases. A key consideration when using public transport is time spent on the road. That is why some travellers may prefer hitch-hiking which can be more convenient but from which one cannot get a receipt/ticket. Another key characteristic of fast and smaller vehicles is that they embark on too many trips such that issuing receipts can be a cost to them. In some African countries, long distance buses that used to issue receipts/tickets have stopped due to the cost and laborious process of issuing receipts. For instance, when a long-distance bus is full, it carries at least 100 passengers – some standing. Issuing a receipt worth 50c to each of the 100 passengers is a painstaking process for the conductor and some of the passengers may reach their destination before the conductor finishes issuing tickets.

The choice of issuing receipts is not for the one boarding a bus but for the owner if s/he thinks the system adds accountability. But for a farmer boarding a bus to go to a workshop in the city, a receipt cannot be a part of accountability. It is better to use other means of verification that show indeed the farmer travelled to the city for the workshop and the workshop was conducted. Even if farmers are asked to use conventional buses that issue receipts, for the sake of accountability, trips on conventional buses end up connecting with other forms of transport which do not issue receipts, for example local transporters to the home area such as boats, motor cycles and scotch-carts. The more a rural farmer wants to cover a certain part of the distance with a form of transport that issues a receipt, the more s/he is likely to use alternative forms of transport to avoid wasting time on the bus which forces the farmer to look for other forms of transport due to delays on the road. The fares might be the same but what differs is time to cover the distance between buses that issue receipts and fast-moving small vehicles that do not issue receipts.

To large extent, financial systems that insist on receipts as proof of travel to certain workshop venues often inconvenience rural farmers. For instance, the farmers end up losing some of their personal money to transport services which does not issue receipt. In most cases where receipts are not issued, the transport cost may be comparatively higher than where receipts are issued. For instance, a 50km rural road can cost USD7-8 which is the same fare for a distance of 300km from Harare to Masvingo on a tarred road.  If a farmer travels 300km on tarred road plus another 50km to his rural home on a dust road where receipts are not issued, that farmer loses another $7-8 which the workshop organizers may not reimburse due to absence of a receipt.

Buying food from the city due to lack of receipts in rural communities

Due to insistence on receipts financial systems and budgets meant to support rural communities lack critical components that could directly contribute to those communities’ economic activities. Since   local retail stores and farmers do not issue receipts, projects end up buying food like bread, broilers, beef, vegetables and other commodities from supermarkets in cities for workshops in rural areas merely because they want to acquit receipts. Absence of receipts prevent them from buying local goats or grain from rural communities for local use. This is how African governments and development organizations blindly apply documentation in financial systems that are meant for decision-making in foreign contexts.

Insisting on quotations and receipts shows the level of exclusion being perpetuated by formal financial systems that are supposed to uplift rural communities through inclusion.  How best can financial systems recognize institutions like African mass markets that have their own governance systems which can stand as part of the accountability system? How far should financial accountability systems go in seeking accountability when organizations are implementing community projects in rural areas where formal financial systems are totally absent? There is a danger of prioritizing financial systems ahead of programming systems which should guide how funds are used.  Formal financial systems have remained very exclusive from the informal systems that are more grounded in the reality of African economies. Most technologies manufactured by the SMEs sector, for example peanut butter machines, are more relevant for rural communities because they can be easily tailor-made for different contexts. But many NGOs do not buy machines from this sector due to need for tax clearance, invoices and quotations. This is how formal financial systems make it difficult for development organizations procurement systems to support local entrepreneurs.

Limitations of time sheets in expressing knowledge services

Time sheets represent another strange requirement by formal financial systems. This requirement   assumes that one can quantity knowledge and measure it through time converted into money.  Yet practically, when supporting institutions with knowledge services, it is a continuous and demand-driven process in line with specific needs which are not really standardized. To a large extent, when supporting an ecosystem with a knowledge brokering role, the knowledge workers is not working from 5am to 6pm but rationalizes effort in line with required support without considering time.

A framework for providing knowledge should be enough evidence of work done not a time sheet. The use of time sheets is a colonial relic which was applied to contract workers during colonial times where contract workers were expected to be at particular points at a given time and log in time to show arrival and departure. These details were then converted to wages based on agreed hourly rates as per the contract. Time-sheets are difficult to apply in knowledge work like building the capacity of a community to make sense of its knowledge for at least 10 months. Instead of breaking such work into hours and days, a knowledge product like a knowledge sharing platform or a fluid policy paper should be enough to show what has been achieved than using time sheets. Quantifying service provision and converting it into money is one of the major shortfalls of financial systems where they ask for a time sheet for services.  Besides, time sheets are prone to manipulation because it is about a dollar against time and one can continue working on one thing. People end up fulfilling requirements that are meaningless and not related to the actual work done.

Where is the analytical role of financial systems?

Financial systems are failing to play one of their key roles, which is the analytical role showing the value for money. They should answer questions like, as we implement an activity, what value are we getting per dollar? For instance, if we are investing USD$10 000 in hosting seed fairs and USD$2000 in creating awareness, education, engaging key stakeholders to advocate for recognition, support and protection of agroecology, what is the cost benefit analysis of each in terms of dollars? These questions should inform allocation and reallocation of resources.  As project officers make usual field trips and spend $2000 to see nutrition gardens with products worth less than $500, where is the value? Answering such questions can call for reviewing monitoring and re-purposing of resources to areas with higher return per dollar.

It is also unfortunate that financial people like auditors and bankers have remained fond of bank statements as ideal financial records. Insisting that one should have a three months bank statement in order to get a loan has become a barrier to new innovative ideas from youths who have never worked anywhere or banked money. How relevant are bank statements in fast-moving MSMEs economies that have lost confidence in the banking system?  In situations where the banking system has collapsed, financial and audit systems should recognize internal systems in formal and informal institutions or enterprises that have become key drivers of local indigenous commerce. In many African countries financial systems are failing to contextualize audits within MSME-driven economies.  

Strong case for contextualizing development-oriented financial systems

Structures of funding in the development sector should be more conducive to sustained community engagement, trust and relationship building. There is a strong case for contextualizing development-oriented financial systems, for instance, by ensuring that everyone is fairly compensated for participating in an intervention through including appropriate compensation in the project budgets. What is often not taken into account by many development interventions and government programs is that people in many communities shoulder several costs of participating in a project. For instance, farmers incur expenses and opportunity costs, such as time not spent working in their fields as they attend workshops and should be reimbursed for those expenses. Transport reimbursements do not cover all costs. Formal financial systems get into systems that have their own pathways of getting results, for example through continuous information flows.  You cannot use one financial system for all projects like training and platforms. How do you come up with a time-sheet for a platform where farmers call and receive information indiscriminately? As development organizations implement diverse projects, to what extent do their financial systems recognize local indigenous knowledge? / /

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