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February 11th, 2019

Agriculture Finance in Zambia: How can smallholder inclusion be deepened?

Published by Indaba Agricultural Policy Research Institute (IAPRI),

This working paper (PDF) by the Indaba Agricultural Policy Research Institute (IAPRI) sought to identify ways in which smallholder agricultural finance inclusion in Zambia can be deepened. Agricultural financing remains one of the critical enablers to facilitate within sector growth
commensurate with achieving poverty reduction, food, and nutrition security, and employment creation through Small and Medium Enterprises (SME’s). Yet access to agricultural financing, let alone commercial cash loans to the sector, remains poor in most developing countries. Zambia also suffers from undersupply of agricultural financing, especially from commercial sources. However, the results indicate that Zambia has made considerable progress in addressing financial exclusion; a number of risk mitigation measures are in place to reduce the asymmetric information in the financial sector, to the extent that the getting credit ranking for Zambia is among the best in the world. The major finance sources include contract farming, private firms, friends/ relatives/informal moneylenders, and farmers’ unions/cooperatives. Lending from commercial loan sources remains very poor and is likely done in partnership with other firms such as those leasing equipment to own, or out growers. There are a number of notable gaps that could foster increased finance flows, like the absence of a credit registry that includes the unbanked and the failure to recognize movable assets as of good quality by bank supervision guidelines in relation to immovable assets. A large number of recommendation are given to deepen smallholder agricultural finance inclusion. For example, technology that will reduce cost of financial service delivery should be embraced,  legislation that bars agent exclusivity among mobile money operators should be enacted and cooperatives should strengthen and be used as a financial inclusion tool.

Curated from iapri.org.zm