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Making financial markets work for the poor
The Status of Agricultural and Rural
Financial Services in Southern Africa
Zambia Country Report
Lemmy Manje, Melanie Newman Wilkinson
Taj Pomodzi Hotel
Friday, 13th December 2013
Background to and objectives of the study
• Adopted a structured analysis of the market to better understand environment, support frameworks, market players, and opportunities for growth
• Understand the context, and progress to-date in financial sector development; highlight developments up until December 2012
• Explore the nature, extent and causes of problems and challenges that are hindering sector growth, and realization of sector development goals
• Identify enabling and disabling factors in both supply and demand
• Draw out the implications for growth, and provide practical recommendations for strengthening sector support
• A practical point of reference for understanding the financial sector landscape
Market analysis
Financial
inclusion
analysis
Enablers and
disablers
analysis
Market
developments
Conclusions & recommendations
Presentation navigation
Market
analysis
Market
developments
Financial
inclusion
analysis
Enablers and
Disablers
analysis
Conclusions and
Recommendations
• Demand side
• Supply side
• Status
• Positive
developments
• Inclusion
status and
prospects
• Factors which
are hindering
inclusion, and
which can
influence
inclusion
• What can be
done?
Focus of the analysis
Enterprise/Household Needs, knowledge, access, consumption
Key sub sector representative institutions
Key players in the market: formal and informal
Financial sector development framework
Types and
status of policy
and regulatory
reforms
Presentation navigation
Market
analysis
Market
developments
Financial
inclusion
analysis
Enablers and
disablers
analysis
Conclusions and
recommendations
Demand side analysis
NeedsNeeds
Access Access
KnowledgeKnowledge
Implications on policy and
market development
Implications on policy and
market development
• Household needs• Enterprise needs• Nature and source of
income • Seasonality of income• Household money
management practices
• Infrastructure• Products and services• Affordability• Appropriateness • Distance
• Benefits• Value proposition • Costs • Perceptions
What we found on the demand side
Income analysis
• Farming is the main source of income
• 52 percent of households rely entirely on farming only
• 6.9 percent earn wages from public service or private
companies
• Income is erratic and prone to agricultural risks
such as pests, drought and floods
• For majority of households, cash
flow follows a typical seasonality
map
• Highest around the middle of year
(July-Sept)
• Lowest during the farming season
Jan Dec
Occasionally
(18%)
Only specific
months
(seasonally
(72%)
What we found on the demand side
Needs analysis
EmergencyEmergencyConsumptionConsumption ProductionProduction
Credit
Insurance
CreditInsuranceSavings
Savings
Credit
• Household investment
• Asset accumulation
• Smoothing cash flow
• Risk management
• Farming investments &
up-scaling
• Risk management
• Smoothing cash flow
TRANSACTIONS (Money Transfers, Remittances, Payments)
fun
cti
on
What we found on the demand side
Knowledge analysis
� Basic understanding of how credit and savings work
� Poor understanding of how insurance worksConcepts
Products
Perceptions
Practices
� Community financing : ‘ merry-go-round savings’, VSLAs
� Contract farming and outgrower schemes
� No or poor exposure to insurance
� Negative perceptions on formal savings: cost and access
factors
� Negative perceptions on formal credit: product
appropriateness (costs and requirements)
� Misconceptions of formal insurance: no exposure
� In-kind savings more common
� Poor credit culture
� Informal risk management mechanisms
What we found on the demand side
Access analysis
Financial access strands for Zambian adults, Finscope 2009
What we found on the demand side
Access analysis
Breakdown of the Zambian access strand, different income-generating activities,
Finscope 2009
What we found on the supply-side
Credit analysis
• Compared with GDP, credit levels are low compared to neighbouring
countries (Zambia - 12.3%, Tanzania - 17.8%, Botswana - 24.3%, and
Malawi - 19.8%)
• Only a handful of financial service suppliers are actively engaged in
rural and agricultural finance
• Credit flows are highly unevenly distributed across the sector, with the
bulk of finance going to commercial level agriculture
• There is a lack of appropriate products and services, particularly at the
lower end of the market
• Lack of information on overall market potential in most agricultural
sub-sectors
• Despite growth in market-led finance models – very few are working at
scale
What we found on the supply-side
Savings analysis
• Only a handful are deposit-taking developmental credit providers; and less again
are actively reaching out to low-income rural communities
• MFIs have been very slow to initiate deposit-taking services in rural areas
• Savings for low income individuals, including Youth, are reaching urban
populations only and are not being marketed in rural areas
• Little or no support to develop retail capacity across the industry, and to expand
reach to rural communities
• Traditionally, MFIs have required savings as a precondition for accessing credit, a
mandatory condition for urban and rural borrowers, including smallholder farmers
• Mobilization of cash has to provide tangible benefits and helps drive growth and
improve household economic security
What we found on the supply-side
Insurance analysis
• There are no insurance schemes developed specifically for rural households
• The only recent initiative is a ZSIC Life pilot in Southern province for a family life
plan with funeral cover
• Knowledge, exposure and experience is consequently very low in rural areas
• Opportunities to deliver insurance to rural areas lie in leveraging farmer groups,
agribusinesses, and outgrower schemes as distribution channels
• Unsurprisingly, the insurance culture in Zambia is very weak and therefore
requires consumer education tied to marketing and product availability
What we found on the supply-side
Transactions analysis
• Remittances to and from rural areas are mainly done through ‘city-city’ buses
and transfer services such as the POST Office’s money transfer service, Swift
Cash
• Mobile transactions are increasingly being used for transfer services. However,
liquidity problems particularly for rural based agents seems to be one of the
major challenges
Presentation navigation
Market
analysisMarket
developments
Financial
inclusion
analysis
Enablers and
disablers
analysis
Conclusions and
recommendations
Positive developments
• Extension of the Financial Sector
Development Plan through 2014
• Decision to establish a rural
finance unit within the MoFNP
• Commencement of DFID’s Access
to Finance programme in early
2013
• Design of a new Government /
IFAD rural finance programme
(starting 2014)
• Roll out of national strategy on
financial education
• Roll out of the microinsurance
development strategy
• Plans to develop a Unified
Collateral Agency
Policy and
regulationSupport Supply
• Development of Rural Finance Policy and Strategy – NOW APPROVED
• BOZ practice note on ‘KYC’requirements for rural banking
• Amendments to the Banking and Financial Services Act (branchless banking, e-money, payment systems)
• Amendments to the Agricultural Act (warehouse receipting, commodity trading)
• Amendments to the Insurance Act, with specific provision for microinsurance
• Development of legislation for the finance leasing sector
• Emerging group of commercial banks assuming a role as rural enterprise development bankers and financers
• Success in developing products and delivery channels directly targeted at agri-processors, emergent and smallholder farmers
• Four out of five lead MFIs licensed for deposit-taking
• Networking and deepening of community-based savings and credit providers
Presentation navigation
Market
analysis
Market
developments
Financial
inclusion
analysis
Enablers and
disablers
analysis
Conclusions and
recommendations
Financial inclusion analysis
Financial EducationFinancial
Education
Financial Inclusion Initiatives
Financial Inclusion Initiatives
Consumer ProtectionConsumer Protection
Effective use
Sustainable inclusion
Effective use
Sustainable inclusion
• Knowledge• Skills• Confidence
Policy and RegulationPolicy and Regulation
Human Resource and
Systems Capacity
Human Resource and
Systems Capacity
SupplySupplyAppropriate
financial services
Appropriatefinancial services
• Parallel• Complementary
initiatives• Innovative• Market-driven
Technical Know-HowTechnical
Know-How
Production and Market
Linkages
Production and Market
Linkages
Infrastructure and Support
Infrastructure and Support Pro-poor
growthPro-poorgrowth
• Market linkages• Retail
infrastructure• Technology
solutions
Presentation navigation
Market
analysis
Market
developments
Financial
inclusion
analysis
Enablers and
disablers
analysis
Conclusions and
recommendations
Supply-side: credit delivery innovations
Growing proliferation of
market-led financing
models
Enabling factors
Emergent and smallholder
finance
Outgrower and contract
farming arrangements
See uptake in the
commercial farming, trading
and processing sectors
Players monitor and
manage exposure according
to sector performance and
risk appetite
• Transparent pricing
• Use of lead firms as aggregators
• Timely access to inputs
• Degree of control over the production process
• Finance combined with technical production
support and even farm operation support
• Business management capacities are a critical
contextual factor
• Product and delivery channels are developed and
launched in collaboration with multiple partners
• Collective approach to intervention modelling - test
first, then refine, increasingly demand-driven
• A ‘facilitator’ in the background to bring together
private sector players, propose approaches and
time-bound incentives
Supply-side: credit delivery innovations
Growing proliferation of
market-led financing
models
Enabling factors
Lease financing
supports business expansion
of the contractor / farmer,
income smoothing, business
know-how
Warehouse receipting
inventory and commodity
trade financing against
warehouse receipts and
certificates
• Several pilot initiatives involve leading machinery
supply firms, leasing firms, commercial banks,
emergent and smallholder farmers
• Emphasis is on farmers as contractors; Income
revenue streams from contracting out the farm
equipment pays off the lease
• Risk reduction mechanisms include: partial credit
guarantee, and a strong technical support
component for robust business modelling
• Lead commercial banks working with farmers,
traders and millers
Supply-side: savings innovations
Community-based
financeEnabling factors
Growing numbers of
community-led savings
and credit groups
Members as decision-
makers, using credit for
household and
enterprise needs
A strong focus on
women
• Nascent network of partners providing technical
know-how
• Consolidating learning across the network and
groups
• Organic ‘bottom-up’ growth of different models,
not ‘one size fits all’
Supply side: innovations in design and
distribution of insurance
Insurance for rural
households and farmersEnabling factors
Growing interest of
insurers in
microinsurance
• Network of farmer groups and contract farming
mechanisms
• New entrants in brokerage and product
development
• Willingness of agribusinesses to use insurance as
loyalty incentives
• Interests from mobile network operators in
insurance distribution
Supply enablers
Micro Meso Macro
Transition of lead MFIs
to deposit-taking
institutions
• Leveraging mobile
technology for payments and
transfers
• Leveraging farmers groups
for distributing insurance
• Improving frameworks for
contract farming and
outgrower schemes
• Application of innovation in
product design
Appropriate and
supportive
regulation for
payments
Improved
regulation and
supervision
Supporting
development of
payment
infrastructure
Policy and
regulation
Support
Supply
Supply disablers
Micro Meso Macro
• Poor condition of storage
facilities and lack of
availability of facilities
• Lack of collateral, including
land title
• Lack of human resource
expertise
• Limited market
information
• Low levels of public sector
expenditure on the
agricultural sector
• Government interference
and subsidies
• Current tax implications Weak client service
delivery model
Lack of proactive
sector support
Policy and
regulation
Support
Supply
Demand enablers
Micro Meso Macro
Policy and
regulation
Support
Demand
Policy framework
for financial
education
Participation of
rural
households in
productive
agricultural
sectors
Presence of
productive farmer
clusters and
groupings
High mobile phone
usage and
acceptability
Appropriate
financial education
programmes for
farmers and rural
households
Demand disablers
Micro Meso Macro
Policy and
regulation
Support
Demand
Absence of
coherent rural
finance policies
Insufficient
collateral and
lack of credit
history
High levels of
financial illiteracy
Nature and level
of income
Poor financial service
infrastructure
Lack of consumer
protection
mechanisms
Presentation navigation
Market
analysis
Market
developments
Financial
inclusion
analysis
Enablers and
disablers
analysis
Conclusions and
recommendations
Recommendations
• Support to the sector must be demand-driven and effectively packaged to promote and significantly contribute to industry strengthening
• Incorporation of a research and development component within one or more national level programmes
• Introduce and support a framework for sector-wide knowledge management
• Short-term strategies for strengthening the sector should involve industry representative institutions; Support should focus on building capacity to identify market needs, strengthening business models and capabilities for supporting their membership
• Representative organisations need to equip themselves with the tools, resources and management capacities to effectively respond to membership needs
• Build industry level capabilities, extending to leadership and management at branch level, and to relationship managers and credit officers who are on the frontline of portfolio growth and management
• Over the long term, there is a need to build the pool of available expertise for commercial banks, MFIs and community-based financing partners, and to integrate curricula and learning into primary, secondary, and tertiary educational institutions. It remains the role of policy makers to determine which institutions are best positioned to do this
Sector strengthening
Recommendations
• A need to sharpen focus and quantify market development opportunities
• Increase flow of market information and feasibility studies on growth opportunities in specific agricultural market segments
• Increased investment in research and development, piloting and testing, and support for scale-up of successful pilots
• Increased emphasis on tailored support, business and finance models that propel growth in rural agriculture and enhance financial management skills of rural households, leading to economic strengthening at different economic levels
• Increase focus and support to grow informal community-based financial services
• Leverage recent developments in the use of mobile phone and other technologies and further engaging technology service providers to develop cost effective solutions to financial access and inclusion challenges
• Encourage and support the design and roll-out of risk reduction mechanisms and time-bound smart subsidies that are market-led and incentivize private sector engagement and innovation
Expansion, growth and inclusion
Making financial markets work for the poor
Thank you
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