In Zimbabwe, small and medium sized agribusinesses looking for investment support from banks and financial institutions face frequent and protracted delays and rejections. These limitations suffocate business growth and economic development. The Livelihoods and Food Security Programme recently held a financial speed dating event to bring together financial institutions and agribusinesses.
“There is a lack of confidence in the financial system amongst the private sector, and poor infrastructure in rural areas leading to a reluctance amongst the financial sector to establish branches. The financial system needs to come up with innovative financial products to reach out to smallholder farmers and business. Now the question is how do you bring financial services to the people?” Audrey Hove, Deputy Director of Regulatory Bank of Zimbabwe (RBZ) said.
The statistics are plain. According to the Regulatory Bank of Zimbabwe’s recent financial inclusion survey, only 14% of micro, small and medium sized enterprise owners are banked and 50% of business owners use informal mechanisms to manage their finances. This has a stifling effect on the growth of Zimbabwe’s agricultural sector and continues to threaten the food security of thousands of smallholder farmers across the country. Thed issue is not just about access to capital; political commitment to creating an enabling operating environment is also crucial.
So the context is complex. Food, nutrition and income security are major threats to development in Zimbabwe, and disproportionately affect the poorest and most vulnerable. Furthermore, without a vibrant agricultural market with which agribusinesses and smallholder farmers can engage, agricultural development is not sustainable.
Forum for frank discussion
“At LFSP we are trying to bridge the gap between banks and agricultural businesses – we want to demystify investment in agriculture and develop strong relationships. Today is the start of this journey,” Mathew Rupanga, Team Leader, LFSP said.
The financial speed dating event welcomed twelve financial and micro-finance institutions and twelve agribusinesses. This was a first. Investment in smallholder farmers is rare and has traditionally not been considered a viable prospect. Indeed, as a rule, banks just don’t have the products and processes in place to accommodate the needs of agribusinesses. In turn, there is a perception that development partners can be unrealistic in their expectations of flexibility from a financial sector required to pursue profit-driven investments. The primary goal of the event was to start a conversation; a forum to encourage dialogue and allow different points of view to be aired. It is clear that there are some fundamental challenges to face and solutions to be found.
Financial innovation, literacy and consumer protection
At the core of sustainable market development are financial innovation, literacy and consumer protection. These are pillars of a robust market. Innovative, tailored financial products have the potential to open the door to smallholder farmers and agribusinesses. Smallholder farmers generally lack the collateral needed to access finance from financial institutions. In Zimbabwe, these institutions are required to develop appropriate collateral substitutes in order to address the challenge of security among smallholders and agribusinesses. Unsurprisingly this has the effect of suffocating lending.
However, with financial innovation and flexibility, there are opportunities to unblock the flow of investment and stimulate the agricultural market. Some financial institutions are already lending at lower risk levels using the group or cluster lending model. Furthermore, the advent of mobile banking solutions and partnerships between financial institutions and network operators has the potential to offer mobile financial services such as payments, micro-insurance and micro-credit. The agent banking model is also seeking to increase the proximity of financial services to the 70% of the population who live in rural areas.
Financial literacy remains a major problem in Zimbabwe. According to The World Bank Consumer Protection and Financial Literacy diagnostic review in 2014, Zimbabwe has a highly literate population (92%) but with low financial literacy levels. This illiteracy is unsurprisingly matched by gaps in the financial consumer protection framework.
Encouragingly, the central bank (Regulatory Bank of Zimbabwe – RBZ) is taking an ambitious approach. The National Financial Literacy Framework will raise awareness of financial services and products among marginalised groups. The RBZ will conduct countrywide financial literacy programmes in conjunction with other stakeholders; including a number of LFSP partners. It will also be complemented by the establishment of information centres in the 59 districts of the country.
The private sector, development community and financial institutions have a responsibility to cooperate to help Zimbabwean agriculture reach its potential as a diverse and profitable commercial sector.
The road ahead
The business to business focus of this financial speed dating event has brokered the beginning of financial relationships. But more than that, it has provided the private sector, financial institutions and development partners the opportunity to question assumptions and misconceptions of each other. Developing an understanding of ‘the other side’ is step 1. Next, the broader agricultural, political and financial community have a responsibility to develop creative solutions for Zimbabwe.
Look to the future
Zimbabwe’s agricultural potential is huge and the challenges it faces unique. The vision and ambition is of LFSP is clear.
It is worth reflecting on what can be done when coordinated initiatives prioritise long term development over short term gain. Bangladesh – a country of some 156 million – is half the size of Zimbabwe, eleven times the population and prone to natural disasters. Through partnership between government, the private sector, agribusiness and the financial sector, Bangladesh’s poverty rate has dropped to 24.8% (from a high of 80%) since independence in 1971, and is now a net exporter of rice.
Different country, different context; but the message is no less profound. Zimbabwe’s stakeholders now have an opportunity to begin this journey together.