A recent report by the Centre for Inclusive Banking in Africa analyzed the state of rural and agricultural finance in Africa, by determining the opportunities that abound and understanding the factors that inhibit the improvement of the practice. Gaining access to rural and agricultural finance as a whole is a major inroad to developing a country’s rural sector. Governments of various countries recognize this and some have taken steps to fix the problem, but most of them have failed to achieve an effective system to achieve their rural development goals.
The study was undertaken in six SADC countries: Botswana, Malawi, Mozambique, South Africa, Zambia and Zimbabwe. To fully understand the state of rural and agricultural finance (RGF) in SSA, the authors looked at the demand and supply of RGF, as well as the enabling and disenabling factors. Below are some of the findings from the study:
- Credit/loans, savings and transmission services are the most demanded components of rural finance.
- The services and products offered by commercial banks in the six countries are biased towards urban areas and better-off members of the population. The commercial banks have relatively few branches in rural areas and they are not geared to responding to the needs of rural people such as the higher risks of agriculture.
- Competition among commercial banks in some of the countries (e.g. Botswana, Mozambique and Zimbabwe) is limited, resulting in high and/or unaffordable costs of obtaining formal rural finance.
- In the case of agriculture, the supply of long-term finance and insurance for smallholder farmers is either limited or non-existent in most of the six countries.
- All governments in the region have a commitment, in principle, to making access to agricultural/rural financial services easier for all farmers, particularly smaller producers, but have not found this easy in practice and, consequently, have made little progress.
- Access to loans (short, medium and long term) is constrained by numerous factors, including lack of collateral security and unwillingness to lend by formal institutions due what they regard as uncertain repayment ability of rural people.
- Credit from informal sources is less difficult to obtain. However, these loans tend to be short-term, more expensive than loans from formal sources, and inadequate for the needs of smallholder farmers aiming to produce for the market.
