Supporting rural Zambian's livelihoods: the Development Bank of Zambia and its development partners such as IFAD are underpinning the country's agricultural sector.
One of the five components of the RFP is a Credit Facility for Small-Scale Production, which aims to promote improved access to credit for smallholder farmers by supporting linkages between financial institutions and rural producers.
The Development Bank of Zambia (DBZ) is the managing agent of this facility, which started operating a pilot phase in 2010. The challenges in implementing the facility during the pilot phase included identifying appropriate Partner Financial Institutions (PFIs) that were able to serve small-scale farmers.
The DBZ and its partners were required to apply innovative and flexible thinking to find solutions, and ultimately adopting approaches suitable to the changing market conditions in Zambia and sensitive to what is required by participants.
During the pilot phase, the range of eligible PFIs under the RFP Credit Fund was expanded to include microfinance institutions (MFIs) that were duly licensed by the Bank of Zambia, the country's central bank.
By September 2012, a total of $4m had been disbursed through four PFIs, namely: CETZAM Financial Services plc, Micro Bankers Trust (MBT), VisionFund Zambia Ltd (formerly Harmos Micro-Enterprise Development Ltd) and Entrepreneurship Financial Centre (EFC) (formerly Pulse Financial Services Ltd), resulting in the cumulative number of loans issued under the facility reaching 8,675 beneficiaries. Portfolio At Risk levels remained well below 5% for the next 30 days.
The MFI partners are well positioned to provide financial services to small-scale farmers. Their ability to access and intermediate wholesale funding is critical for business growth and for expanding the frontiers of financial access to previously under-served market segments. In a country where access to finance is very low, the need to intermediate financial services to rural areas is critical.
Some of these MFIs work with village associations and solidarity groups; while others provide services through off-takers with contract-farming arrangements. Unlike commercial banks, MFIs in Zambia are relatively young. DBZ recognises that many of them would benefit from capacity building support, especially as they scale up their operations or begin to operate in areas that are largely unbanked.
Early lessons learned
The emergence of new types of financial institutions--such as deposit-taking MFIs--brings with it the improved access to financial services, especially in the under-served rural areas of the country. These MFIs are not only interested in expanding into rural financial services; many of them are already well positioned to service clients in rural areas and have been providing services to groups of smallholder farmers in recent years.
Unlike more established commercial banks, however, these MFIs still require (and indeed welcome) capacity building support that enable them to effectively expand their reach and provide the kinds of services needed by clients in the agricultural sector. In line with its mandate as a development finance institution and its role in facilitating improved access to financial services, DBZ works with PFIs in facilitating these institutions' access to capacity building support, alongside the implementation of the Credit Fund facility. Together with other partner institutions (such as PROFIT and Musika), the DBZ team initiated capacity building needs assessments of PFIs with the view to creating a comprehensive capacity building programme for the MFIs. DBZ has assisted its partner-MFIs in this respect by linking these institutions with sources of funding and relevant programmes to support staff training and other capacity building activities.
DBZ's early experience in the implementation of the RFP Credit Fund facility underscores the importance of collaborating with many partner-organisations. Not only are strong PFIs needed to successfully reach out to small-scale producers, access to credit alone will not be enough to create any meaningful change in the lives of small-scale farmers. Organisations providing technical support to farmers are also crucial.
The services provided by these organisations encompass technical advice and training to farmers and facilitating linkages with markets. DBZ has, for example, forged strong links with both CETZAM and ASNAPP (Agribusiness in Sustainable Natural African Plant Products) in Livingstone. ASNAPP provides invaluable extension services, agricultural technical expertise to groups of farmers and market access to complement, and add to the value of the financing provided by DBZ.
Making finance work for small-scale agriculture
Members of the Mapepe Dairy Cooperative are among the beneficiaries of the RFP Credit Fund. The cooperative was formed in 2005 and now has 54 active members, almost half of whom are women. Most of the cooperative's members are retired civil servants, who rely on agricultural activities to supplement their very modest pensions. Many of them combine dairying with raising livestock and small-scale crop-growing, but these farmers consider milk production as their main activity.
The cooperative operates a milk collection centre, which allows it to aggregate production and deliver milk to a local processor (Dairy King) on a weekly basis. In 2007, the cooperative established a relationship with MicroBankers Trust (MBT). Some members were able to access loans, which helped to finance the acquisition of cross-breed heifers and lately, pure breed heifers (that produce more milk than traditional heifers) as well as feeds and medicines. The cooperative guarantees the loans extended to their members and all requests for loans are first reviewed by the cooperative before they are submitted to MBT.
Under the RFP Credit Fund, 14 members of the cooperative have been additionally provided loans. The loans allowed some of the borrowers to finance the construction of sheds, fencing and the procurement of equipment related to their dairy operations (milking cans, bicycles for transporting milk) and acquire irrigation equipment.
The members of the Mapepe Dairy Cooperative recognise how these investments help them address some of the risks they face. In the past, dry spells meant that some farmers could not produce enough grass to feed their animals, which affected their productivity and increased costs of production. In future years, the members of the Mapepe Dairy Cooperative hope to add value to the milk they produce and slowly engage in simple processing activities. This would also enable the cooperative to expand their membership to include other farmers in the area--including small-scale farmers who do not presently have the capacity to invest in milk production, but could participate in the milk processing activities of the cooperative.
The Chilanga Financial Association has its roots in village or community banking. It currently has a total of 50 members (almost all of whom are women) and organises these members into two smaller savings and credit associations. The association's members include women who derive their livelihoods from small-scale trading and crop-growing activities. Many of the members are widows who are the sole income-earners of their households. Under the RFP Credit Fund, 29 members of the association were provided with loans through MBT, which the members used to invest in income-generating activities like raising poultry, rabbits, small-scale crop-production, and the processing of peanut butter.
Members of the Katuba Cooperative in Katuba, a village about 30km from Lusaka, are among those who have accessed loans under the RFP Credit Fund via VisionFund Zambia. The members received technical support from ZATAC Ltd (Zambia Agribusiness Technical Assistance Centre) and grow a variety of crops including African eggplant (Impwa), spinach, sweet potato, tomato, and Chinese cabbage. Some of the farmers were able to access loans amounting to $200 each in local currency, and used the loans to purchase inputs for new crops. Many of the members of the cooperative used to grow crops on a very small scale. Their access to small loans has, however, allowed many of them to increase production and diversify into other crops that sell at higher prices in the market.
Other members of the cooperative who were able to access larger loans used them to purchase irrigation equipment. For many, this has not only made increased production possible, but has also freed up time to engage in other activities including the marketing of their products. Many farmers note how it used to be extremely difficult for them to tend to their crops, given that water sources are often far from the gardens. The irrigation equipment has not only made it much more manageable for these farmers to carry out their farming activities and tend to their children; it has also allowed them to stay economically active throughout the year and produce other crops that are sold regularly in nearby markets.
CETZAM is one of the PFIs under the RFP Credit Fund. Based in Livingstone, CETZAM has partnered with ASNAPP and has provided loans to four of the 24 groups of farmers working with ASNAPP who engage in joint farming activities. The groups vary in membership size, but typically have between 10-20 members.
The groups are provided with technical advice by ASNAPP on climatic issues, crop varieties and farming techniques, all based on scientific research. Moreover, ASNAPP has also facilitated linkages between local small-scale producers and markets for the produce, such as the Sun International group of hotels. Sun International previously sourced its fruits and vegetables from suppliers in Johannesburg; today its requirements and that of other hotels operating in Livingstone are being fully met by local production. The loans extended by CETZAM under the RFP Credit Fund are used by groups of farmers to purchase inputs, equipment and for fencing off their plots.
The Nsongwe Association are among those groups that have accessed loans. The association has 14 members, all of whom are women. Matilda, the group's secretary, notes that in the beginning, many people doubted whether their group would ever manage to successfully grow the crops that could actually be sold to and used in hotels. Crops that include baby corn and high-quality varieties of tomatoes and onions were not familiar to them or anyone in their village. But they have since managed to increase their production and consistently deliver products of the quality required by the buyer. The women of Nsongwe Association hope to continue increasing production in the coming years.
For MFIs like CETZAM, small loans can indeed help farmers like those members of Nsongwe Association. However, CETZAM notes that working in partnership with other organisations like ASNAPP is important and necessary. Many small-scale farmers need technical advice and support at various stages of the production cycle. Successful lending to small-scale agriculture also requires financial institutions that are committed to understanding small-scale producers--the nature of the environments in which they operate and the risks that confront them and their households. CETZAM hopes to continue building its capacity in agricultural finance to better respond to the demand for financial services among small-scale producers in Livingstone and in other parts of the country.
The Development Bank of Zambia
The Development Bank of Zambia (DBZ) is a development finance institution that provides wholesale and direct medium-and long-term development finance to the financial, agriculture, industrial and commercial sectors in order to promote Zambia's economic development.
The DBZ has, since its establishment in the 1970s, invested extensively in the following sectors: agro-and agriculture; timber and mineral processing; manufacturing; tourism; transport and haulage; fisheries and infrastructure.
Its support to the agriculture sector is two-fold: to those producing high-value exportable crops in order to enhance foreign currency for the benefit of Zambia's economy; and to locally develop agricultural processing which creates employment opportunities.
DBZ has been supported by Oxford Policy Management Ltd. (OPM), which has provided technical assistance as the Credit Fund Facilitator for DBZ's Rural Finance Programme (RFP), aimed at increasing access to credit for smallholder farmers in the agricultural value chain.
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|Title Annotation:||The Deve1opment Bank of Zambia|
|Date:||Jan 1, 2013|
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