Oiling Malawi’s backbone with rural finance

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.