Rural Financing in Malawi

Agriculture remains, to Malawi, a silent dictator-a cruel and
demanding one at that.
It has been like this since the infamous ‘Scramble for Africa’ in the
late 1880s; a trend that continued after Malawi received independence
from Britain in 1964. Indeed, history has it that Malawi was meant to
be a farm-yard for the Federation of Nyasaland and Rhodesia.
While the other two members of the Federation (Northern Rhodesia, now
Zambia; and Southern Rhodesia, the new Zimbabwe) had vast reserves of
proven mineral resources, Nyasaland (Malawi) was thought to have none.
The only option, so the colonisers thought, was to turn this
land-rocked country into a garden of the three-tier union.
Both the Federation and colonialism later collapsed under the weight
of immense resistance and nationalism, but the mentality of Malawi as
an agricultural nation did not die with them. That is how Malawi has
continued to pay annual tributes to the silent ruler called
agriculture.
Indeed, our tribute to agriculture now runs at around K38 billion a
year. In the 2011/12 National Budget, the K38 billion allocation to
agriculture ranks forth on the list of priorities as education, as
usual, leads the pack with K54 billion, the health sector with K43
billion, K40 billion for development activities, and agriculture,
carting home K38 billion of the K303.7 billion financial blue-print.
“The role of agriculture in national development cannot be
over-emphasized. In fact, food security is the basis of good health,
and this is why government has invested in the Farm Inputs Subsidy
Programme (Fisp), apart from promoting agriculture through initiatives
such as the Green-belt Initiative,” says Agriculture, Food Security
and Water Development Principal Secretary, Erica Maganga.
So, the tribute to agriculture comes in many forms, and not only
through financial allocations approved by the National Assembly. As
Maganga says, there is the irrigation-inspired Greenbelt Initiative,
the Fisp, the metal silos’ construction programme, continuous research
at Bunda College of Agriculture, Makoka, Chitedze and other research
stations, plus a horde of agricultural extensive programmes.
It comes as no surprise, therefore, that the International Fund for
Agriculture Development (Ifad)- which has no country office in Malawi,
but has been contributing towards the country’s agriculture sector
since 1982, contributing a whopping US$122 million (about K20.7
billion) to date- indicates that the agriculture sector employs 85
percent of the population.
Ifad, which on November 3 this year signed an agreement to open a
Malawi office at a ceremony held in Italy, further indicates that the
sector contributes 45 percent of Gross Domestic Product- further
confirming the influence of the silent dictator.
Maganga notes that Malawi has one of the most successful agriculture
programmes in Africa, hence, Africa’s adoption of the Africa Food
Basket programme- an initiative inspired by, as it has come to be
known worldwide, the ‘Malawian Story’.
This is a story of bumper maize harvests for six consecutive years.
Not only on maize production, though. Cassava, sweet potatoes, rice
have registered increased production levels as well, concluding the
story of more tributes to the silent dictator, agriculture.
It is a good story, acknowledges Charles Henry Nyekanyeka, manager for
Bvumbwe Community Savings and Credit Cooperative (Sacco). Only that
something is amiss, he says, because agriculture officials seem to
have forgotten that mentality, too, has to move with the times.
Nyekanyeka says, while the goal posts have been shifting- in terms of
prioritization and resource mobilization- nothing seems to have
happened to mentality.
“Agriculture has the potential to change our fortunes. However, it is
often neglected by policymakers. This is because these policymakers
still have the mentality that the people who produce our food live in
the backwaters of society,” says Nyekanyeka.
He suggests, among others strategies, that budgetary allocations
should not be made to fulfill long-time traditions but, rather, to
change the platform and people’s lives.
But the situation on the ground shows no signs of these, adds Nyekanyeka.
For one, the Malawian farmer is long-used to selling such unfinished
agricultural products as cotton, tea, tobacco, sugarcane, soya beans,
pigeon peas, among other strategic crops, as the top farm-produce
buyers busy themselves with logistical plans on how to export more raw
materials abroad.
Secondly, Malawi’s best brains continue to regard agriculture as the
wasteland of human capital, preferring, instead, such disciplines as
financial accounting, statistics, marketing, economics, logistics,
among the high-paying jobs.
This, says Nyekanyeka, is bad for Malawi’s agriculture industry.
“But there is something worse than these, and this is the issue of
poor access to financial services, especially for the rural masses.
This has ensured that Malawi gets stuck in terms of agriculture
development. It is all because the rural farmer has been neglected, in
terms of financial empowerment,” says Nyekanyeka.
As a result, Malawi continues to underutilize her productive
agriculture land, and frustrate her dedicated and hardworking farmers-
farmers who know nothing but agriculture.
This has contributed to low investment in agriculture by small scale
farmers, unattractive prices at produce markets, poor extension
services, food insecurity at household level, and information gaps,
according to Nyekanyeka, who prefers Saccos to commercial banks.
“Experience shows that, commercial banks and other financial
institutions show less interest in, and are cautious of, financing
agriculture due to the impact of climate (change) and uncertainty, and
the cynical character of agricultural markets.
“In addition, some of the challenges to rural financial intermediation
include information asymmetry (irregularities and gaps), lack of
suitable collateral, high transaction costs, and other risks related
to agriculture. What this has done is to deepen the vicious circle of
capital formation for both sustenance and development,” says
Nyekanyeka.
But, as with all problems, there is a solution to such rural
challenges as low per capita income, small size of rural markets, low
agricultural productivity, low investment rate, and lack of incentives
to rural investors. The solution comes in the name of cooperative
societies!
The truth is out in the world that cooperatives have the ability to
ably carter for the financial needs of the rural poor – in this case,
the 6,885, 526 people Ifad classifies in its 2009 report as Malawi’s
rural poor- as part of their contribution to the two rural-financing
strategic goals of rural development, and rural poverty reduction.
These needs are met by increasing access to finance for rural small
scale farmers to improve crop productivity, promoting principles of
financial inclusion by promoting affordable payment mechanisms and
depository facilities to communities outside the banking ambit, as
well as reducing economic vulnerabilities.
“Savings and access to credit helps rural farmers and rural households
manage seasonal liquidity shortages, and meet planned and unplanned
life events. In addition, cooperatives have a special relevance to
rural areas because their model differs from that of other financial
institutions in so many ways,” he adds.
Some of these ways include the fact that the majority of cooperatives’
clients are largely outside the ambit of most formal banking services;
they are member-owned service organisations based on the principles of
mutual self-help, self-governance, proximity, and local knowledge;
their business model is driven by demand, as they are set up on the
realization that their members need financial services, and; are
lauded world over for their quest for financial self-reliance, as
characterized by a ‘savings first’ approach.
To achieve these goals, says Nyekanyeka, cooperatives use approaches
such as value-chain financing and study circle.
Value chain is premised on the realization that provision of the right
finance at the right time can mean greater efficiency, improved
product quality and increased incomes by expanding access to
affordable and convenient loans.
Study circle, on the other hand, is a method that allows people from
all spheres of life to express their opinions democratically and
without fear of intimidation- giving participants a platform to
broaden their knowledge of issues by appreciating experiences and
viewpoints of others in their community.
Studies have shown that these approaches reduce costs associated with
extension services as community members are able to identify and solve
their own problems. They also increase the level of farmers’
knowledge on current and probable produce prices, post-harvest
management (storage and pest control) skills, HIV and AIDS and
business management information.
“Loan processing costs are reduced, too. And, so, are monitoring and
debt collection costs. In short, chances of default are reduced, “says
Nyekanyeka, adding:
“It is so simple to start addressing challenges in Agriculture. But
the National Budget is not enough. That is why agriculture has, in
more ways than one, been neglected. We need to increase rural people’s
access to financing,” says Nyekanyeka.
Nyekanyeka ties his point on Bvumbwe Sacco statistics that 80 percent
of its members are farmers.
And it sounds sweet, really, heard through the prism of ordinary ears.
Not to Dr. David Mkwambisi, the Bunda College of Agriculture-based
Environment and Development expert. Mkwambisi argues that, “despite
the proliferation of farmer-owned organisations and farmer (dominated)
cooperatives, the poverty index among smallholder farmers is
alarming”.
Dr. Mkwambisi notes that “this clearly shows that designing,
implementing, monitoring of agricultural interventions is not
coordinated, thereby duplicating efforts, confusing the farmer,
disturbing ecosystems and landscapes, while increasing administrative
ecological footprints”.
In other words, Dr. Mkwambisi’s prescribes policy misfiring as the
weevil in our agricultural stem.
It is encouraging, however, to note that the Bankers Association of
Malawi (Bam) has stated that its members are trying hard to bring the
cash that changes lives to the rural areas.
Bam executive director, Fanuel Kumdana, notes, however that rural
banking goes with extra-costs in terms of security and operational
needs.
He says, for example, that automated machines require electricity and
security. In the absence of electricity, Diesel-run generators take
the place, making it more expensive to run rural operations.