Improving access to credit for smallholder farmers in Mozambique : lessons from government efforts in developing countries of Africa and Asia

Abstract

Despite many decades of experimentation with supplier-led approaches to credit, limited success has been achieved in improving access to credit for smallholder farmers. In Mozambique, previous attempts by government to improve access to credit for smallholder farmers have not been successful; hence the government is looking for other effective strategies to improve access to credit for smallholder farmers. In the search for effective strategies, Mozambique can draw lessons from the experiences of other developing countries that have succeeded in improving access to credit for smallholder farmers. The purpose of this study is to examine the experiences in other developing countries in Africa and Asia. The results of the analysis are used to identify the most appropriate government intervention strategy to improve access to credit for smallholder farmers in Mozambique. The study addresses the following questions: What went wrong with government strategies implemented in Mozambique in an attempt to improve access to agricultural credit for smallholder farmers? What are the positive experiences with government intervention strategies implemented in other developing countries of Africa and Asia that have resulted in the successful improvement of access to agricultural credit for smallholder farmers? What can Mozambique learn from the countries with good government intervention strategies that have succeeded in resolving or ameliorating the lack of access to agricultural credit for smallholder farmers? What is the most appropriate intervention strategy for the Government of Mozambique that would effectively lead to improving access to credit for smallholder farmers? The study examined four case studies were selected from Botswana, Zimbabwe, Thailand and Indonesia. The data set collection method comprised a combination of primary data collected through in-depth interviews with key informants from smallholder farmers’ associations and government-funded agricultural financial institutions in Botswana, Mozambique and data from Zimbabwe and secondary data sources. The results of the study reveal that the first strategy to improve access to credit for smallholder farmers in Mozambique included the establishment of the People’s Development Bank (BPD), which was given a mandate to provide agricultural credit to smallholder farmers. However, the BPD did not succeed in fulfilling its mandate due to a variety of factors, including the following: poor macro-economic environment during the first decade of independence (1975–1985); lack of human expertise, poor rural infrastructure, market failure problems and the ongoing civil war. The lack of institutional capacity to enforce mechanisms for timely loan repayments, and political interference by government, and lack of credit culture and discipline on the side of the beneficiaries, also led to high loan default rates. The BPD eventually closed down and was privatised to form the new bank (the Austral Bank). The Austral Bank never concerned itself with lending to the smallholder agricultural sector. Other alternative strategies by government in Mozambique included the establishment of the fundos do foment (funds for jump-starting activities), particularly the funds for jump-starting agricultural, hydrological and agricultural development activities. However, both government funds also failed to improve access to credit for smallholder farmers. They are currently experiencing management problems and shortage of funds. The main reasons for their poor performance include lack of qualified managers, skilled field staff and specialists in rural financial markets. The private sector, particularly the concessionary input credit firms, is currently trying to rescue the smallholder farmers by contracting them to engage in cultivating some cash crops. However, many difficulties are experienced, including lack of access to farmer support services (e.g. extension services), due to a complete withdrawal of government support for the concessionary input credit schemes. Thus, smallholder farmers in Mozambique remain marginalised in terms of access to agricultural credit. The results of the study reveal that strategies to improve access to credit for smallholder farmers in Mozambique did not succeed, mainly due to the lack of institutional capacity to enforce mechanisms for timely loan repayments as well as political interference. Lessons drawn from these cases shed light on what the most appropriate intervention strategy for the Government of Mozambique could entail if it is to succeed in improving access to credit for smallholder farmers. The study concludes that lack of access to agricultural credit for smallholder farmers in Mozambique reflects not only market failures in rural financial markets but also inappropriate lending policies. The study concludes that the most appropriate strategy for the Government of Mozambique to succeed in improving access to credit for smallholder farmers should entail the re-establishment of a public rural bank. The study recommends that rural financial institutions should adopt a demand-driven approach, which enables them to design products that fit the needs of a variety of clients. At the same time, reforms at both the fund for jump-starting agricultural activities and the fund for jump-starting hydrological and agricultural development activities need to be undertaken in order for these agricultural development funds to start operating more professionally, with minimum government interference. Finally, the government needs to extend its role to complement efforts by the private sector, particularly the cash crop input schemes. Copyright