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Thursday, 18 October 2007

Boosting rural finance....

Regular readers of the blog will know that we have discussed many times the deplorable state of financial access in Zambia and ways to deal with the problem. It appears Zambia is about to get a helping hand from IFAD, to set up a NABARD style programme. The Daily Mail reports that Government has launched the Rural Finance Programme (RFP) with a concessional loan of $13.8million. A different Daily Mail article has further detail on how this $13.8 breaksdown:

The RFP has five components that include development of community based financial institutions with an allocation of US$2.3 million, US$4.9 million for promotion of rural banking services and a credit facility for contracted small scale production to be allocated US$ 4.5 million. According to an appraisal report on the RFP, US$1.5 million would be allocated to innovation and outreach facility that would provide support to financial intermediaries to reduce the initial risk of offering services in rural areas and encourage innovative financial products.
Now I tried to track down exactly why this money has come now. It appears that IFAD's loan is based on the report they released in 2004 that recommended the inception of the programme. Not sure why it has taken IFAD 3 years to release the money. You can access the IFAD report here. The report has lots of information on how this money will be spent, the beneficiaries and also the conditions attached to it. Needless to say Government appears to have had very little say on where the money should be spent and the institutional arrangements to take it forward.


  1. I must say that I am extremely pleased at this development. I will try as always to play the devil's advocate and find fault where I may, but I have no choice but to admit that I honestly did not think that such a genuine effort towards the goals of rural financial empowerment and appropriate national reinvestment in agriculture was forthcoming in the near term. I therefore find myself rather cast back on my own heels, decidedly off-balance.

    It is unfortunate that the capital required to reinvigorate the Zambian development banking sector had to come from borrowed funds, but to IFAD's credit at an annual rate of 0.75% through the year 2044 I find it hard to find fault with the lender. My thanks to IFAD for their generosity and foresight.

    The overemphasis, to my mind, of short term production (farm input) credit and "contract" farming is cause for concern, however the provision for long term capital improvement of smallholder farms is encouraging, and such services may require short term operational cash flow from production loans to achieve viability. This is especially likely given the inaccessibility of land rights for use as collateral and the subsequent emphasis on crop futures as security.

    Overall the two most salient concerns over the programme as designed are: first the risk identified by IFAD that the GRZ will not follow through on their obligations to provide timely capital infusions to the DBZ over the coming years, and secondly that the scale of the programme is insufficient to produce appreciable results on the ground for a sufficient number of rural Zambians to actually get ahead of the game. Even if the project achieves the stated goal of extending banking services to some 30,000 families, is that a high enough bar to clear given the scale and scope of the rural financial services problem?

  2. "Even if the project achieves the stated goal of extending banking services to some 30,000 families, is that a high enough bar to clear given the scale and scope of the rural financial services problem?" -Yakima

    I assume the 30,000 is a direct estimate. Its not clear from the report. If so, then dynamic effects beyond this could lead to more credit to more households over time.

    On your other point about borrowed funds, I think the report hints at $3m or so of programme costs coming straight out of Government. So Government pays directly the costs of operation and the loan goes to the people. The many worries of these programmes is poor implementation and of course lack of evaluation of impacts down the line to see if its working. The advantage of IFAD's involvement is that this may not be the case.

    And who knows, may be if this is successful Government can plough more of its own money!

    Now the programme costs seem to have some expenditure of foreign expertise. I suppose that is a necessary cost we have to put up with. It would have been good though if those costs where not leakage from the economy. But may be we are scrutinising too much!

  3. Thanks for report and as usual I am always reading your blog. But I will definately check it out and comment if necessary.


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