Advancing Financial Inclusion for Smallholder Households in Mozambique - FSDMoc
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ADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
Advancing
Financial Inclusion
for Smallholder
Households
in Mozambique
ADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
TABLE OF CONTENTS
3 Tables
4 Figures
5 Boxes
6 Acronyms and initializations
9 Foreword
10 Executive summary
14 Introduction
15 Role of the smallholder in the mozambican economy
16 Key changes from 2012 to 2016
18 Enabling and inhibiting factors
18 Macro level
18 Enabling factors
18 Inhibiting factors
19 Meso and micro level
19 Enabling factors
20 Inhibiting factors
21 Client level
21 Enabling factors
21 Inhibiting factors
22 Smallholder profile and need for financial services
22 Profile of smallholder population
31 Smallholders’ need for financial services
36 Smallholders’ access to financial services
36 Smallholders levels of access
39 Smallholders product uptake
43 Summary
44 Key players in advancing financial inclusion for smallholder farmers
44 Overview of financial sector
46 Fao input subsidy scheme
47 Market linkage institutions: out-grower companies
49 Community-based institutions: accumulating savings and credit associations
52 Community-based institutions: rural finance associations
52 Community-based institutions: individual agents
53 Mobile money operators
56 Commercial banks
62 Agent banking
63 Microbanks
64 Credit cooperatives
65 Microcredit operators
67 Insurance
70 Regulatory framework
72 Government and development partner activities
72 Government funds
73 Agrifinance-focused programs
76 Agricultural development programs
79 Conclusions and recommendations
79 Conclusions
80 Recommendations
82 Annex 1. Country socioeconomic profile in 2016
82 Population
83 Economic overview
85 Infrastructure
87 Annex 2. Macro-level analysis for smallholder financial inclusion
87 Strategies and plans
90 Coordinating bodies
90 Key service providers to the banking sector
91 Annex 3. Summary of fsp loan characteristics
92 Annex 4. References
FSDMoç | 03INVESTING IN FINANCIAL INCLUSION
TABLES FIGURES
22 Table 1. Distribution of Agricultural farms, by 23 Figure 1. Size of agricultural holdings in Mozambique
province
23 Figure 2. Food and staple crops
24 Table 2. Which of the following income sources
is…? Figure 3. Cash crops
27 23
Table 3. Document possession by smallholders Figure 4. Poverty status of the household ($1.25/day)
35 Table 4. Methods of coping with hardship by 24 Figure 5. Poverty status of the household ($2.50/day)
smallholders
24 Figure 6. Sources of income
35 Table 5. Methods of dealing with anticipated events
by smallholders 25 Figure 7. Household income from agricultural and
51 nonagricultural production (June 2014–July 2015):
Table 6. ASCA’s national portfolio
26 Smallholder Diaries families in Mozambique
(2014)
54
Table 7. Mobile operators portfolio Figure 8. The vicious cycle of hunger season in
26
(February 2016) Mozambique
54
Table 8. Cost, limits of transactions, and eligibility 28 Figure 9. Smallholder’s education level
58 criteria
28 Figure 10. Smallholder’s age
Table 9. Commercial bank agricultural loan
59 characteristics
Figure 11. Mozambique smallholder household segments
28
Figure 12. Top 10 reasons for saving
61 Table 10. Credit lines and guarantee funds for 31
agriculture Figure 13. Barriers for using savings
63 Table 11. Commercial banks portfolio 32 Figure 14. Reasons for using loans
(December 2015)
64 Table 12. Microbank loan features 33 Figure 15. Barriers for using credit
Figure 16. Reasons for being part of a xitique and general
65 Table 13. Microbank portfolio 33
(December 2015) xitique group
65 Table 14. Credit cooperatives features 34 Figure 17. Access strand, by main source of income
Table 15. Credit cooperatives portfolio 36 Figure 18. Rural access strand, by main source of income
66 (December 2015)
Figure 19. Urban access strand, by main source of income
Table 16. Microcredit operator’s distribution, per 37
66 Figure 20. Distance to reach the nearest selected financial
province
37 service access points
67 Table 17. Portfolio statistics of selected microcredit
operators 37 Figure 21. Mr. Chipindu’s journey to a bank ATM
68 (February 2016)
Figure 22. Bank products used and top 10 reasons for
Table 18. Insurance companies’ locations 38
having or not having a bank account,
68
Table 19. Microinsurance coverage 39 (rural, urban)
75 Table 20. Microinsurance products Figure 23. Smallholder savings strand
Table 21. Ongoing finance-focused programs 39
Figure 24. Smallholder credit strand
76 (in millions US$)
40
Table 22. Ongoing agriculture focused programs Figure 25. Remittance use and channels
84 (in millions US$) 41 Figure 26. Insurance access strand
84 Table 23. Agriculture portion on GDP 41 Figure 27. Use of informal services
(in 10^6 Mt)
Figure 28. How xitique and xitique geral were used
91 Table 24. Employment and GDP, by sector 42
Table 25. Summary of FSP loan characteristics Figure 29. Categories of financial institutions and respective
42 supervisory authority
44 Figure 30. Formal financial service providers versus
BOXES distribution of smallholders, per province
45 Figure 31. Rural commercial bank branches and adult
22 Box 1. Customer journey population, by province
57
Box 2. ESOKO Figure 32. Urban commercial bank branches and adult
24 57 population, by province
Box 3. Mobiles 4 All: New users, new insights, better data
27 box 4. Key examples of digital finance services in 60 Figure 33. Banking credit, per sector, 2013, and 2015
Mozambique
Figure 34. Microbank branches, per province
35 Box 5. Agra guarantee fund 63
Box 6. An agricultural commodity warehouse receipt system Figure 35. Mozambique poverty incidence by urban and
35 83 rural areas
for Mozambique
Box 7. Agriculture and natural resources landscape 84 Figure 36. GNI per capita 2014 (2011 PPP $)
51 management project, 2016–2021
Figure 37. Contribution to GDP per sector
84
04 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
ACRONYMS AND INITIALIZATIONS
ADEL Sofala Local Economic Development Agency GIZ German Corporation for International Cooperation
(Agência de Desenvolvimento Económico Local de
GNI Gross National Investment
Sofala)
IAM Mozambique Cotton Institute (Instituto de Algodão
ADEM Manica Province Economic Development Agency
de Moçambique)
(Agência de Desenvolvimento Económico da
Província de Manica) ICC International Capital Corporation Moçambique
AEO African Economic Outlook ID Identification Document
AMB Mozambican Bank Association (Associação iDE International Development Enterprises
Moçambicana de Bancos)
IFAD International Fund for Agricultural Development
AMOMIF Mozambican Association of Microfinance
INE Instituto Nacional de Estatística (National Statistic
Operators (Associação Moçambicana de
Institute)
Operadores de Microfinanças)
ISSM Mozambique Insurance Supervision Institute
ASCA Accumulative Savings and Credit Associations
(Instituto de Supervisão de Seguros de
ATM Automatic Teller Machine Moçambique)
BCI Banco Comercial de Investimento iTC Community Land Initiative (Iniciativa de Terras
Comunitarias)
BIM Banco Internacional de Moçambique
JFS João Ferreira dos Santos
BM Bank of Mozambique (Banco de Moçambique)
KYC Know Your Customer
BMM Mozambique Commodity Exchange (Bolsa de
Mercadorias de Moçambique) LTR Land Tenure Rights
BOM Banco Oportunidade de Moçambique M4A Mobiles 4 All
BTM Banco Terra de Moçambique MFSDS Mozambique Financial Sector Development
Strategy
CCCP Caixa Comunitária de Crédito e Poupança
MLT Mozambique Leaf Tobacco
CCOM Caixa Comunitária de Microfinanças
MSMEs Micro, Small, and Medium Enterprises
CEPAGRI Center for Agriculture Promotion (Centro de
Promoção de Agricultura) MZM Mozambican Metical
CGAP Consultative Group to Assist the Poor NGOs Nongovernment Organizations
CPPM Caixa de Poupança Postal de Moçambique NUIT Unique Fiscal Identification Number (Número
Único de Identificação Tributaria)
CRC Central Credit Registry
PCG Partial Credit Guarantee scheme
DfID Department for International Development
PEDSA Strategic Plan for Agricultural Development
DFS Digital Finance Services
POS Point of Sales
DUAT Right of Use and Tenure Land (Direito do Uso e
Aproveitamento da Terra) PROIRRI Sustainable Irrigation Development Project
ECA Empresa de Comercialização Agrícola PROMER Rural Markets Promotion Programme
EMOSE Empresa Moçambicana de Seguros PRONEA National Agricultural Extension Programme
ETG Export Trading Group RFA Rural Finance Association
FAO Food and Agriculture Organization SDP Social Development Programme
FARE Fundo de Apoio Reabilitação Economica SECF Small Emerging Commercial Farmers’
FBAs Farm Business Advisors SIMO Interbank Society of Mozambique (Sociedade
Interbancária de Moçambique)
FDA Fundo de Desenvolvimento Agrário
SMEs Small and Medium Enterprises
FDD Fundo de Desenvolvimento Distrital
TA Technical Assistance
FDR Fundo de Desenvolvimento Rural
UNDP United Nations Development Programme
FECOP Fundo Empresarial da Cooperação Portuguesa
USAID United States Agency for International
FINS Financial Inclusion National Strategy Development
FNB First National Bank USD United States Dollar
FSDMoç Financial Sector Deepening Mozambique WR Warehouse Receipts
GDP Gross Domestic Product WRS Warehouse Receipt System
FSDMoç | 05INVESTING IN FINANCIAL INCLUSION
FOREWORD
Some 75 per cent of the population of Mozambique makes its
living primarily from agriculture and the vast majority of these
are smallholders.
Any serious effort to advance financial on financial inclusion as captured
inclusion in Mozambique must put this in the 2016 launch of the Banco de
segment of the population centre stage. Moçambique’s Financial Inclusion
FSDMoç has partnered with CGAP, the Strategy.
Consultative Group to Assist the Poorest, But it goes further to highlight that:
to shed light on the opportunities
to advance financial inclusion to > Rural farmers could play a central role
Mozambique’s rural poor. In 2016, in the development of agriculture but
FSDMoç and CGAP, launched the National investments are needed to improve
Survey and Segmentation of Smallholder their productions methods
Households in Mozambique, a study
> Improving small scale farmer access
undertaken by CGAP in collaboration
to financial could address these
with the Instituto Nacional de Estatística
constraints
(INE), as well as CGAP’s financial diaries
of smallholder households in a district of > Small scale farmers require not only
Nampula Province credit, but savings and ways to receive
The present report brings together key and make payments.
findings from those two studies with > Innovative solutions designed around
information from other sources, in the small scale farmers needs and
particular the 2014 Finscope study into behaviours, that address infrastructural
Access to Finance, as well as data from
challenges of distance, and leverage
INE and the Banco de Moçambique. It also
on partnerships between mobile
builds on the FinMark Trust’s 2012 report
operators, informal services, off-takers
on the Status of Agricultural and Rural
and formal financial institutions are
Finance in Mozambique.
required.
This report clearly demonstrates the
changing financial inclusion landscape of Through partnerships with
rural Mozambique illustrated by: organisations such as CGAP, FSDMoç
will support the financial sector
> The increase in informal savings groups, stakeholders by providing the insights
known as ASCAs, which are often the
that will assist in developing innovative
first important step towards financial
approaches to meet demand for
“FSDMoç welcomes
inclusion;
financial services. FSDMoç will partner the contribution that
> The spread of digital financial services with financial sector stakeholders CGAP has made to
and mobile-enabled information to address market weaknesses and
services; opportunities identified, providing
making available this
> The in-acting of legislation, under the both funding and technical expertise. rich source...”
aegis of the Banco de Moçambique’s, FSDMoç welcomes the contribution
enabling agent banking, that CGAP has made to making
microinsurance, and warehouse available this rich source of information
receipts; and
and is proud to be associated with the
> The emphasis placed by the authorities publication of this report.
06 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
EXECUTIVE SUMMARY
CGAP recognizes that advancing smallholders’ financial inclusion
is possible only through extensive research and evidence-based
demand- and supply-side solutions.
To understand the financial needs and behaviors of low- are seemingly intractable. Electricity continues to be
income smallholder families and build the evidence base problematic and transport is difficult. Key areas of
on this important client group, CGAP conducted financial agricultural production, particularly in Zambézia, Manica,
diaries with approximately 90 smallholder households and Sofala, are currently dangerous and not secure, and
in each of Pakistan, Tanzania, and Mozambique. hence very expensive.
Complementing the qualitative work of the diaries, These issues are
CGAP also conducted a nationally representative survey addressed in more
of smallholder households (“smallholder surveys”) in detail in Annex 1.
“The smallholders’
Mozambique. The objective of the smallholder survey is
The smallholders’ profile indicates that
to elucidate the heterogeneity of the sector, including
profile indicates that they account for more
households’ agricultural and nonagricultural activities
they account for more
and cash flows, financial behaviors, and perceptions than 75 percent of the
than 75 percent of the
of their agricultural and financial lives. The current
population, with the population, with the
CGAP Advancing Financial Inclusion for Smallholders in highest concentrations
highest concentrations
Mozambique study adds information on the supply and
in Zambézia and in Zambézia...”
enabling micro, meso, and macro environment, providing
Nampula provinces.
an update of the 2012 “Status of Rural and Agricultural
Smallholders farm very
Finance in Mozambique” report conducted by ICC.
small plots, and grow
This study combined an integrated analysis of a variety of products,
supply, demand, and factors that facilitate or inhibit mainly for consumption, though some grow cash crops
the provision of financial services to smallholders. such as sugar, sesame, tobacco, and cotton. In large part,
The demand analysis is based on recent data from they live below the poverty line of US$2.50 per day (84
Mozambique 2014 FinScope Consumer Survey, the 2015 percent of rural smallholders). There is very little use of
Financial Diaries, the 2015 CGAP National Survey of fertilizer or pesticides, and little animal husbandry, apart
Smallholder Households and other relevant demand data. from chickens. Income is not regular throughout the year
The supply and the enabling factors analysis is based and smallholders have few means to smooth income
on primary data collected through in-depth interviews to match expenditure. This results in “hungry months”
with the formal and informal financial institutions, where there may not be enough to eat, or more likely
government, development partners, and facilitators. there may not be enough variety to provide a balanced
This analysis updates the 2012 paper1; it will highlight the diet, resulting in illness at the very time the family is least
changes verified in agricultural and rural finance from 2012 able to afford health services.
to 2016 from a service provider and policy perspectives.
Smallholder farmers play a crucial role in the Mozambican
The country socioeconomic profile and the macro-level
economy as a major producer of food, yet their
information are presented in the Annexes because the
production potential is far from being met. Smallholder
main focus of the report is on the smallholder.
farmers largely practice rain-fed agriculture and use
The enabling and inhibiting factors impinging on traditional varieties of crops, low-intensity fertilizer, and
smallholders’ access to finance are presented. At a macro minimal pesticides. Farming is generally done without
level, many of the problems relating to infrastructure mechanization and productivity of the land is typically
1
The Status of Agricultural and Rural Financial Services in Mozambique, Finmark Trust, 2012
FSDMoç | 07INVESTING IN FINANCIAL INCLUSION
EXECUTIVE SUMMARY
low. Although these families’ main activity is growing services, the priority is saving for agricultural inputs and
food, they are the most susceptible to malnutrition. Long for both foreseeable and unforeseeable expenses (e.g.,
experience has shown that it is possible to increase yields school expenses and medical costs). The services need
two or threefold through relatively simple interventions, to be available in an accessible way, such as accumulative
but these mechanisms seem to have eluded the country. savings and credit associations (ASCAs), without the
Moreover, in Mozambique’s current dire economic complicated requirements of account opening procedures
situation, the need imposed by a bank. Digital financial services will be an
to produce more to important driver of financial inclusion in the future, but
reduce reliance on first steps include financial education; the availability of
imported food, is more the digital infrastructure, including mobile phones; and
acute than ever, and an effective agent network. For instance, the smallholder
“Although these the case for concerted survey found that most (54 percent) do not own a mobile
families’ main activity action to provide phone.
smallholders with the
is growing food, they are Physical distance has been the major impediment for
services they have so
the most susceptible to long required is more
smallholders’ increased access to financial services, and
ASCAs are playing a tremendous role in expanding the
malnutrition....” compelling than ever.
access frontier. Data from the 2014 Finscope Survey detail
Despite their central current levels of financial inclusion or, more accurately,
role in the economy, exclusion, as 80 percent of smallholders are excluded.
they are part of one of The main reason for this exclusion is the physical distance
the most marginalized between smallholders and access points for financial
sectors, particularly services. Despite the very high level of exclusion from
in terms of access to finance. Farmers do not make formal financial services, Finscope and National Survey
the necessary investments in their farms to boost their data show that smallholders do save when possible and
yields, for two primary reasons: (1) many lack the working that informal mechanisms, such as xitique and ASCAs,
capital needed to purchase better seeds and fertilizer, offer a viable mechanism for financial inclusion.
and (2) many farmers don’t have the risk appetite to try
Out-grower schemes and ASCAs are critical in providing
new crop and seed varieties or plant higher-value crops.
financial and technical assistance to smallholders.
This situation calls for financial solutions to set money
aside or borrow for seeds and fertilizer, savings solutions Several important companies in the agribusiness sector
that help farmers pay school fees or finance an off-farm work successfully with smallholder farmers, though
business, or insurance that enables farmers to take more many face logistical problems when it comes to payment
risks, coupled with access to technical agricultural training and actively seek solutions with financial institutions.
and information to enable them to make best use of these New technological developments play a crucial role in
services. opening up new possibilities. However, informal services,
principally ASCAs, are often the first and most important
Smallholders generally lack the key elements they need step. Informal services can also serve as a first step to
to access formal financial services, namely identification introducing digital services as shown by the digitalization
documents and mobile phones. Data from the National of ASCA operations.
Survey of smallholder farmers in Mozambique was
segmented to identify the drivers of financial inclusion and Commercial banks continue to look for ways to finance
identify their levels of attractiveness to financial service agriculture, and several credit lines and guarantee funds
providers. The segmentation indicates that although the have been set up. In addition to these mechanisms,
percentages of the more dynamic, financially included there are other ways in which banks can contribute to the
segments are small, they still represent a significant financial inclusion of smallholders, often in partnership
market in absolute terms. The 7 percent classified in the with other organizations that are better positioned to
three segments most likely to access formal financial operate in rural areas. However, the risk profile of this
services translate into some 1.5 million people, or nearly sector makes it unlikely that financing from banks directly
370,000 households. In terms of their need for financial to smallholders will ever become a reality. The impact
of traditional microfinance operators—microbanks,
08 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
EXECUTIVE SUMMARY
microcredit operators, and credit cooperatives—continues While smallholder farmers are still largely financially
to be limited. Microinsurance, in an incipient phase, is excluded, there have been remarkable changes on the
likely to develop first in urban areas, but could expand supply side and in the enabling environment since
in rural areas, if an affordable and effective agricultural the 2012. On the macro level, Banco de Moçambique
product can be marketed via mobile phones. launched its financial inclusion strategy and financial
Government and development partner activities actively education initiative. Furthermore, new legislation and
promote financial inclusion of smallholders through regulations have been enacted on banking agents,
various initiatives and programs. This is a good approach, microinsurance, and warehouse receipts. On the supply
given the strategic importance of agriculture and, within side, mobile money operators have made significant
the sector, the primordial role of the smallholder. There advances in their outreach and are partnering with banks,
are several government and development partner nongovernment organizations, and others to find real
programs designed to support this effort. Three relevant solutions that are appropriate for Mozambique. Banks
government funds are designed to support agriculture are making significant investments in extending their
and finance: services via digital channels, while ASCAs have been the
> Fundo de Desenvolvimento Agrário most effective informal financial services for rural areas,
continuously including the low-income segments in the
> Fundo de Desenvolvimento Distrital
financial sector. From an economic sector perspective,
> Fundo de Desenvolvimento Rural agriculture is getting more attention from donors, with
several large projects aimed at increasing productivity
Each of these faces limitations in effectiveness. Some
government and development partners’ activities, listed and promoting financial inclusion. In addition, in recent
here under agrifinance-focused programs, combine years large agricultural trading companies have been
activities both to support production and improve expanding their activities, investing in local communities,
access to finance; others are more generally focused on promoting better agricultural practices, and providing a
agriculture. The funds allocated to these programs are market for production. Farmers’ associations are playing a
approximately US$200 million over five years. bigger role as the counterpart for agricultural companies
by facilitating sales, financial education, and training.
Notwithstanding, there are many opportunities to
advance financial inclusion for smallholder farmers that This report presents a set of recommendations and best
have yet to be explored. Many players interact or could practices targeted to the private sector, donors, and
interact with smallholder farmers to improve agricultural policy makers that will enable them to overcome the
productivity and provide access to finance. Often these current barriers to financial inclusion for smallholder
roles can be effectively combined, particularly if this is households. Some of the recommendations focus on
done through partnerships such as an off-taker and a bank, the need to increase agricultural income through the
an agricultural marketer and a mobile money operator, promulgation of better farming techniques and access
and ASCAs and mobile money operators. There are
to improved seeds, fertilizer, and pesticides, ways to
many examples of well-organized farmers’ associations
reduce post-harvest losses, and better market linkages.
facilitating the interaction between agribusiness
In regard to financial services, ASCAs continue to play
companies and smallholders. Warehouse receipts are
an important role. Al though banks are not likely to deal
another effective way to link smallholder farmers with
directly with smallholder farmers, they can effectively
financial institutions and the wider market, while reducing
post-harvest losses and allowing the smallholder to partner with other organizations as a conduit, be they
sell when prices are more favorable. The possibility of farmers’ associations, agribusinesses, or mobile money
providing agricultural advice via mobile phones is still operators. This report highlights the need for partnerships
largely unexplored. Major advances have been made by and robust financial education. Development partners
the mobile money operators in extending their services to have a critical role to play as a catalyst for change and as
rural areas, and this will continue with the entry into the facilitators. Given the weakened state of the economy,
market of two new players, Movitel’s mobile money and donor community investment in large, well-coordinated
Zoona, an operator-neutral money transfer service. programs will be crucial.
FSDMoç | 09INVESTING IN FINANCIAL INCLUSION
INTRODUCTION
Access to financial services is increasingly recognized for its
multiplier effects in an individual’s self-development and in a
country’s economic growth and development.
Its importance is felt daily in its and best practices that enable players
capacity to meet an individual’s to overcome current barriers to financial
lifecycle, emergency, opportunity, inclusion for smallholder households, and
“Its importance is and money management needs. identify particular questions or constraints
Yet, more than half of working- to explore or untangle. With this analysis,
felt daily in its capacity
age adults do not have access to stakeholders can better align their
to meet an individual’s financial services, especially in efforts and identify areas for strategic
lifecycle, emergency, rural areas of developing countries. interventions.
opportunity, and money Smallholder families represent a
management...” large part of the financially excluded To interpret these results, it is important
population, leading to numerous to note that the research encountered
global efforts to bring access to limits in the availability of some data.
finance to this segment. First, because the financial sector in
Mozambique is undergoing a restructuring
Understanding the financial needs phase, certain banks were unwilling to
and behaviors of low-income smallholder openly disclose their orientation toward
families enables stakeholders to invest agriculture finance, particularly those
in evidence-based interventions to banks that had a significant agriculture
improve the economic and financial portfolio at the time of the 2012 report.
situation of smallholders. To develop this Second, although banks were open to
understanding and to build an evidence meeting with consultants conducting
base on smallholders, CGAP conducted the interviews, obtaining data from the
financial diaries with approximately 90 banks proved to be a challenge because
smallholder households in each of Pakistan, release of certain data required internal
Tanzania, and Mozambique. These were authorizations, which were not always
complemented by a series of nationally forthcoming. To fill in the data gaps,
representative surveys of smallholder the consultants requested aggregate
households (“smallholder surveys”) in data from the Bank of Mozambique
Mozambique, Uganda, Tanzania, Côte (BM). Finally, banks found it difficult to
d’Ivoire, Nigeria, and Bangladesh. The identify the total number of individual
objective of the smallholder surveys is to clients engaged in agriculture, because a
elucidate the heterogeneity of the sector, majority of bank clients are legal entities
including households’ agricultural and and some banks provide credit to groups
nonagricultural activities and cash flows, or associations, thereby registering only
financial behaviors, and perceptions of two or three members of the group.
their agricultural and financial lives. This situation inhibits monitoring of the
impacts of agriculture and smallholder
Building on these demand-side studies, finance.
this holistic analysis explores the
supply side of the market, the enabling
environment, and key stakeholders. It
also provides a set of recommendations
010 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
ROLE OF THE SMALLHOLDER IN
THE MOZAMBICAN ECONOMY
Agriculture is one of the largest sectors of the Mozambican
economy. It contributes 25 percent of the Gross National Product
and 20 percent of export revenues;
80 percent of the population is involved This calls for financial solutions that set
in agricultural activities. Agricultural aside money or borrow for seeds and
production is largely organized in small, fertilizer, savings solutions that help
hand-cultivated units of land. Ninety-nine farmers pay school fees or finance an off-
percent of production comes from 3.8 farm business, or insurance that enables
million subsistence farms; these farms are farmers to take more risks, coupled with
1.43 hectares on average. access to technical agricultural training
and information to enable them to make
Smallholder farmers play a crucial role in best use of these services.
the Mozambican economy. Smallholder Traditionally, banks have
agriculture is a major producer of food, had little interest in serving
and yet it is one of the most marginalized populations of farmers that
sectors, particularly in terms of access
live far from bank branches
to finance. Smallholder farmers largely
and require small transaction “Microfinance
practice rain-fed agriculture and use organizations of various
sizes, which yield limited
traditional varieties of crops, low-intensity
fertilizer, and minimal pesticides. Farming
revenue. Microfinance types have had some local
organizations of various
is generally done without mechanization, success but they do not
types have had some local
and the productivity of the land is typically
success but they do not seem seem to have a business
low. Although their main activity is growing
to have a business model that model...”
food, smallholders are highly susceptible
enables them to grow and
to malnutrition. Long experience has
increase their impact. They
shown that it is possible to increase
are also hampered by limited
yields two- or threefold with relatively
management capacity and
simple interventions, but the mechanisms
insufficient capital to invest in
for doing this seem to have eluded the
technology and in their loan fund.
country.
Government credit schemes have also
Moreover, in Mozambique’s current dire
failed to consistently and sustainably
economic situation, the need to produce
serve smallholders. The studies on
more locally so as to reduce reliance on
imported food is more acute than it has which this report is largely based—CGAP
ever been, and the case for concerted Smallholder Financial Diaries, CGAP’s
action to provide smallholders with National Survey and Segmentation of
services they have required for so long is Smallholder Households in Mozambique,
more compelling than ever. and Finscope’s Financial Inclusion Study—
do not identify any significant access to
Farmers do not make the necessary the financial services supposedly available
investments in their farms to boost their to this segment. However, there are
yields for two primary reasons. First, important changes in the financial services
many lack the working capital needed landscape, which, together with effective
to purchase better seeds and fertilizer. interventions to improve smallholder
Second, many farmers don’t have the risk productivity, can finally begin to bring
appetite to try new crop and seed varieties significant changes to smallholders’
or plant higher-value crops. financial inclusion.
FSDMoç | 011INVESTING IN FINANCIAL INCLUSION
KEY CHANGES FROM 2012 TO 2016
Since the 2012 publication of the Agricultural and Rural Finance
Report, there have been many changes in the smallholder finance
sector in Mozambique.
Many of these changes represent positive steps toward im- that permit remote client registration and loan origination.
proving productivity and financial inclusion. > Several banks have developed digital financial services,
which are critical components to expanding financial ser-
MACRO
vices to vulnerable segments and remote areas globally.
> Worsening economic and security situations have negative
> The banking sector, whose eventual benefits to smallhold-
effects on smallholder operations through increased input
ers are as yet unclear, has been restructured.
prices. Moreover, this situation may deter stakeholders
from helping smallholders, particularly those in the center > Some banks and the mobile money operators have devel-
of the country where the security issue is felt the most. oped partnerships to extend services to the nonbanked.
> Banco de Moçambique (BM) launched its Financial Inclu- > There has been a relative decline of microfinance in the
sion Strategy, which includes the strategy for financial ed- banking sector, with the purchase of TCHUMA and ProCre-
ucation and indicates a high-level commitment to financial dit, and the failure of rural microfinance institutions (MFIs)
inclusion, with emphasis on smallholders. to grow and make significant impacts.
> BM introduced a regulation on banking agents and some > The growth of accumulative savings and credit associa-
of the major banks rolled out banking agent networks, thus tions (ASCAs), has enabled smallholders to access savings
allowing banks to expand to rural areas at lower costs. and credit products in more convenient ways.
> BM introduced the regulation of Warehouse Receipts, Bol-
AGRICULTURE
sa de Mercadorias launched pilot projects, and the USAID
> Out-grower and agricultural trading companies have
Trade Hub, including certification of some 15 warehouses
grown.
and development of a software platform to manage the
business, was created. > Significant projects to promote agriculture and incorporate
access to financial services have been funded by the World
> Microinsurance legislation to provide special, more acces-
Bank, USAID, DfID, and others.
sible requirements for companies to enter into this market
and provide smallholders with solutions that respond to > FAO has launched its e-voucher scheme for providing sub-
their risks was discussed. sidized inputs to smallholders and emerging farmers.
> The Bolsa de Mercadorias/Warehouse Receipts Scheme
MESO AND MICRO is being developed; when completed, it will aim to allow
FINANCIAL SERVICES farmers to use their produce as collateral to access credit
> The national payments system switch, SIMO, launched. at formal financial institutions.
SIMO allows for a more interoperable payment system
thereby reducing the costs of transactions, particularly in CLIENTS
rural areas where banks are not abundant. > Increased extension services have been provided via do-
> Mobile money services grew significantly, with substantial nor-funded projects and out-growers. These services
investment by Vodacom and to a lesser extent by MCel in equip smallholders with the best practices in agriculture
expanding their coverage and promoting the use of their activity.
mobile money services. The imminent entry into the mar- > Market links have increased through out-grower compa-
ket of Movitel, the mobile network operator (MNO) with nies and farmers’ associations.
the widest network coverage in rural areas, will enhance > The growth of effective farmers’ associations is enabling
the potential for mobile money services, particularly if in- interventions to be more collective and risk sharing.
teroperability becomes a reality.
> Financial literacy has increased. This will enable smallhold-
> The launch of Zoona, a mobile money payments service ers to use financial services responsibly and in ways that
not linked to any mobile network, is pending. improve their economic and financial situation and not in-
> Several new lines of credit and guarantee schemes aimed crease their vulnerability.
at agriculture, thus reducing the risks facing financial insti- > Mobile phone ownership and awareness of mobile money
tutions in the agriculture sector, were introduced. has increased. This allows smallholders to opt for a more
> Several banks have developed tablet or smart phone apps convenient way of accessing and using financial services.
012 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
ENABLING AND INHIBITING FACTORS
Agriculture is one of the largest sectors of the Mozambican
economy. It contributes 25 percent of the Gross National Product
and 20 percent of export revenues;
MACRO LEVEL small solar systems, green mini-grids, and more efficient
cooking stoves. M-Kopa, a pay-as-you-go household solar
ENABLING FACTORS system that uses mobile money to allow frequent small
payments to facilitate acquisition of the systems, is very
Positive support from BM for financial inclusion. This is
interested in these efforts.
evidenced not only by the Mozambique Financial Sector
Development Strategy (MFSDS) 2011–2020 and the Fi- INHIBITING FACTORS
nancial Inclusion National Strategy (FINS) 2016–2022, but
Failure to implement national strategies to strengthen
by the concrete actions taken by BM in implementing use-
agriculture. Although the government has defined many
ful regulations on banking agents and warehouse receipts.
strategies to improve smallholders’ productivity and finan-
Other regulations, such as one on opening new branches,
cial inclusion, these do not have action plans that guaran-
may have inadvertently discouraged branch opening, and
tee the implementation of coordinated actions to achieve
instead promoted the development of branchless banking
the goals of the respective strategies.
technologies.
Political commitment for rural development. Plano Quin- Political instability and lack of security. The current
quenal do Governo 2015–2019 includes specific chapters low-level civil war is impacting some of the country’s most
on agriculture and on the need to integrate smallholders productive areas in Zambézia and Manica provinces. It is
into VCs. However, the capacity to implement these strate- making road transport dangerous and expensive and will
gies is weak and the plan’s main objective—to “consolidate inhibit the marketing of agricultural production.
national unity, peace and sovereignty”—is proving elusive. High interest rates. At the end of October 2016, BM raised
Weak currency makes imports more expensive and ex- the reference rate for credit to 23.25 percent. At this level,
ports more attractive. The dramatic fall in the value of the even the small amount of credit that goes to agricultural
metical has once again brought to the fore the need for becomes unviable. It is unclear when rates may start to fall,
Mozambique to produce more food and reduce the quan- or even whether they have reached their peak.
tities it imports. It also makes Mozambique’s exports more Pending banking crisis. The economic crisis has already
attractive. This should encourage a focus on increasing the led to one bank, Moza, being taken under BM control and
productivity of the sector. another, Nosso Ban-
Willingness of donors to continue implementing large- co, having its license
scale projects. Although the 2012 report on the Status of withdrawn. The Minis-
Agricultural and Rural Finance noted that dependence on try of Economics and
donor programs is unsustainable, recent experience is that Finance is forecasting
the large-scale programs being implemented with support further problems in “Given the size of the
from the World Bank, USAID, DfID, and others are crucial the banking sector. country and the limited
for bringing about real change in the agricultural sector. Inadequate infra- existing road network, it will
Increased use of renewable energy. Given the inability of structure leading to be many years before this
the national electricity company, EDM, to supply reliable high operating costs. will change....”
power to the nation, we are seeing more initiatives to pro- The 2012 report iden-
mote renewable energy, such as the line of credit for busi- tified deficiencies in
nesses involved in renewables, administered by BM and fi- the road and power
nanced by KfW, and a new DfID multimillion pound project networks as major in-
to be launched in 2017, to promote companies involved in hibiting factors. Given
FSDMoç | 013INVESTING IN FINANCIAL INCLUSION
ENABLING AND INHIBITING
FACTORS
the size of the country and the limited existing road net- a further boost. However, the scope for delivering financial
work, it will be many years before this will change. As for services through these channels should not be exaggerat-
electricity, there have been moves to increase the use of ed as there are several conditions that must be in place to
renewables, including construction of mini-grids. German be able to take maximum advantage.
Corporation for International Cooperation (GIZ) has been Development of partnerships between banks and mobile
promoting suitable technologies under its EnDev program, money operators—although it is possible to see banks and
and DfID is preparing a large program, BRILHO, to promote mobile money operators are rivals in the provision of finan-
the use of renewable energy. cial services, there are
Inappropriate reporting demands. Microbanks are sub- also opportunities for
ject to the same reporting requirements that apply to ful- fruitful collaboration,
ly fledged commercial banks. Mobile money operators, and mobile money “nongovernment
classified as financial institutions, also have inappropriate operators have always
organizations (NGOs)
reporting requirements. Rather than a “one-size-fits-all” ap- made clear their will-
have promoted farmers’
proach, reporting requirements should be tailored to the ingness to participate
associations, with mixed
needs for prudential supervision of each type of institution. in joint ventures and
success. The more successful
Restrictive regulations on location of data processing. BM integrate their infor-
ones are now playing a very
regulations require that financial service providers maintain mation systems. Con-
important role in the
their data processing within country. This regulation inhib- trary to some of the
interaction between the
its the use of cloud-based systems which could be of great rhetoric about mobile
smallholder...”
benefit for small MFIs that do not have the financial capac- money making cash
ity to maintain a costly local IT infrastructure. redundant, mobile
money needs banks
MESO AND MICRO LEVEL to be able to function
well.
ENABLING FACTORS
Banks embracing and actively developing digital services Stronger farmers’ associations — for many years, nongov-
— as detailed in the report, banks are actively investing in ernment organizations (NGOs) have promoted farmers’ as-
new technology to roll out digital services. While many, sociations, with mixed success. The more successful ones
such as mobile apps for smart phones, will initially target are now playing a very important role in the interaction
wealthier, urban clients, this lays the groundwork for the between the smallholder and other players, in the areas of
extension to poorer clients bulking product for marketing, accessing credit, facilitating
financial education and improving agricultural techniques.
Growing outreach of
Many still need support to be able to execute all these roles.
mobile phone/money
operators —the growth New opportunities offered through mobile technology
of outreach of mobile — there are examples in other sub-Saharan countries of
phone/mobile money the use of mobile phones to provide extension services to
“the growth of outreach has been one of the smallholder farmers, such as mFarmer in Kenya and Far-
of mobile phone/mobile key characteristics of merline in Ghana. Some projects are now being piloted in
money has been one of the recent years. As noted Mozambique.
key characteristics of in the report, the immi- Warehouse Receipts — warehouse receipts as promoted
recent years...” nent entry into the mo- by the Bolsa de Mercadorias de Moçambique and USAID’s
bile money market of Trade Hub offer secure facilities to store agricultural prod-
two new players, Movi- ucts in appropriate conditions, access to finance, and in-
tel and Zoona, will give creased linkages to the market. It is also a relatively risk-free
014 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
ENABLING AND INHIBITING
FACTORS
way of involving the banks in financing agriculture CLIENT LEVEL
INHIBITING FACTORS ENABLING FACTORS
Limited outreach of banking institutions — although the Gradual spread of better farming practices. Although the
number of bank branches, automated teller machines process is relatively slow, and the government extension
(ATMs) and point-of-sale (POS) devices has risen signifi- service is not entirely effective, agricultural practices are
cantly in the past few years, this has scarcely scratched the gradually improving because of interventions by NGOs and
surface in terms of increasing access to financial services. out-grower companies.
Given the very high cost of operating in rural areas, it is to Better seed supplies are
be expected that the banks’ outreach will be determined also increasing. FAO’s
by their ability to use alternative strategies. Even banking e-voucher scheme will
agents are likely to operate relatively close to a branch be- help to improve ac-
cess to better-quality “agricultural practices
cause of the need for support and supervision.
inputs, strengthen the
Banks’ limited commitment to financing agriculture — De- are gradually improving
input dealer network,
spite the existence of numerous lines of credit and guaran- and provide technical
because of interventions
tee funds to encourage banks, and to a lesser extent, other advice. The use of mo- by NGOs and out-grower
financial service providers to lend to agriculture, take-up bile-based technolo- companies. ...”
seems quite limited. The experience of Standard Bank and gies, such as those of-
the AGRA fund is probably being replicated in other banks. fered by ESOKO, could
The recent rise in interest rates and the effect of increasing also play an important
bad debts in other sectors, such as commercial and con- role.
struction, will make their use more problematic. For small- Continued growth of
holder financing, banks are so risk-averse that these will not ASCAs. Although good data are hard to come by, what ex-
be sufficient to provoke a change in attitude. ists indicates a continued growth in the number of ASCAs.
Failure of MFIs to grow to a scale sufficient to make a sig- This is undoubtedly the most effective first step on the path
nificant impact—although the creation of new kinds of mi- to financial inclusion.
crocredit institutions was made with high hopes of increas- INHIBITING FACTORS
ing services to the rural areas, growth has been slow and Low income levels. Poverty and low income levels continue
limited. to be a significant barrier to financial inclusion.
Lack of interoperability between mobile money operators Low educational levels. Low levels of literacy hinder partic-
and between mobile money and other payment systems ipation in informal savings schemes and make mobile tech-
— the launch of Movitel’s mobile money product can have a nology difficult to access.
significant impact on access to digital finance services (DFS) Small plot sizes. The very small plot sizes make it difficult to
because of their extensive network coverage in rural areas. produce enough for family consumption and with leftovers
MPesa and, to a lesser extent, other established players to sell or trade. One solution is higher productivity, through
have experience in promoting agent networks and educat- the correct use of fertilizers and pesticide, another is to re-
ing clients. Interoperability between the three companies duce post-harvest losses. Land is not scarce and families
would make the introduction of DFS for smallholder farm- could farm larger areas if they were able to pay for manual
ers much simpler. The Central Bank has stated this as an labor.
aim, but there is no plan yet. Some banks can integrate with Limited attraction of agriculture as an occupation. Mo-
mobile money through developments to their core banking zambique needs its smallholders to stay on the land, and
systems and through payments switches, but there is still agriculture is, therefore, the occupation of choice. As such,
work to be done to achieve interoperability. agriculture needs to be a more profitable business, through
improved productivity and access to financial services
FSDMoç | 015INVESTING IN FINANCIAL INCLUSION
SMALLHOLDER PROFILE AND
NEED FOR FINANCIAL SERVICES
Smallholder families represent between 75 percent and 80
percent of the population in Mozambique—about 21 million out
of an estimated 26 million people5.
PROFILE OF SMALLHOLDER POPULATION4
TABLE 1 SHOWS THE DISTRIBUTION OF AGRICULTURAL FARMS
PROVINCE SMALLA MEDIUMB LARGEC TOTAL
Niassa 168,926 341 5 169,272
Cabo Delgado 414,029 4,436 21 418,486
Nampula 739,457 3,222 34 742,713
Zambézia 688,439 1,452 23 689,914
Tete 358,210 8,520 40 366,770
Manica 194,036 3,829 52 197,917
Sofala 228,983 3,113 77 232,173
Inhambane 199,354 13,603 36 212,993
Gaza 194,669 10,068 167 204,904
Maputo 775,971 3,288 273 779,532
Total 3,962,073 51,872 728 4,014,673
a. Small farms—fewer than 10 ha of planted area without irrigation; fewer than 5 ha of irrigated planted area; fewer than 10 cattle, 50 goats/sheep/swine, and/
or 5,000 poultry.
b. Medium farms—between 10 and 50 ha of planted area without irrigation; 5–10 ha of irrigated planted area; 10–100 cattle, 50–500 goats/sheep/swine, and/
or 5,000–20,000 poultry
c. Large farms—more than 50 ha of planted area without irrigation; more than 10 ha of irrigated planted area; more than 100 cattle, 500 goats/sheep/swine,
and or more than 20,000 poultry
Source: Anuário de Estatísticas Agrárias 2015, Ministério da Agricultura e Segurança Alimentar
A majority of small agriculture farms are in the central (37 Research from the Instituto Nacional de Estatística (INE)
percent of smallholders) and northern (33 percent) regions. points to very small average farm sizes, with the average
farm size ranging between 1 and 2 hectares. More than
The most populated provinces, Zambézia and Nampula, are 80 percent all agricultural holdings manage fewer than 2
where most smallholders are located (around 36 percent). hectares.6
FIGURE 1: SIZE OF AGRICULTURAL HOLDINGS IN MOZAMBIQUE
Source: Anuário de Estatísticas Agrárias 2015, Ministério da Agricultura e Segurança Alimentar
4
Unless otherwise noted, most data presented in this section are from the CGAP study National Smallholders Survey.
5
INE population projections for 2016.
6
Anuário de Estatísticas Agrárias 2015, Ministério da Agricultura e Segurança Alimentar.
016 | FSDMoçADVANCING FINANCIAL INCLUSION FOR
SMALLHOLDER HOUSEHOLDS IN MOZAMBIQUE
Smallholders mostly farm
on plots that belong to the
household under customary
law (44 percent).
Smallholders mostly farm on plots that belong to the With these very small plots, most smallholders produce
household under customary law (44 percent). This means primarily for consumption, with little available for sale or for
that they do not have a title that states that the land trading. The Smallholder Survey indicates that most of the
belongs to them. About 24 percent of the households crops grown are food crops (especially maize and cassava).
own their own land with a lease or a certificate. Around 14 Very few produce cash crops (12 percent produce sugar
percent share communal land, and 2 percent use land that cane and 11 percent sesame).
belongs to the government.7
FIGURE 2: FOOD AND STAPLE CROPS FIGURE 3: CASH CROPS
Source: National Smallholders Survey, CGAP, 2016
Some of these traditionally considered food crops are now Not surprisingly, given these factors, smallholders are
finding bigger markets. Cassava is being grown for sale to poor, particularly those in rural areas. Fifty-five percent of
Cervejas de Moçambique to make beer, and Mozambique the smallholders are below the poverty line of US$1.258 a
is a source of cowpeas for the Indian government. Other day; 85 percent are below the US$2.50 poverty line.
crops like soya are becoming increasingly important.
7
National Survey and Segmentation of Smallholder Households in Mozambique, CGAP, 2016.
8
From Progress out of Poverty Index 2013, Grameen Foundation, http://www.progressoutofpoverty.org/.
FSDMoç | 017INVESTING IN FINANCIAL INCLUSION
SMALLHOLDER PROFILE AND
NEED FOR FINANCIAL SERVICES
FIGURE 4: POVERTY STATUS OF THE HOUSEHOLD ($1.25/DAY) FIGURE 4: PPOVERTY STATUS OF THE HOUSEHOLD ($2.50/DAY)
The Smallholder Survey found that income sources are sale (25 percent vs. 15 percent of those age 15–29).
relatively stable across demographics. There are small
Smallholder farmers who consistently contribute to the
differences by age for farming-related activities and getting
income of their households said that growing and selling
money from family. Those under 30 are slightly more likely
crops are the most important, most reliable, and most
to generate income by getting money from friends and
enjoyable farming activities (Table 2). By comparing
family (38 percent vs. 30 percent of those age 30 and older).
these three concepts, data show that a large portion of
Those age 30 and older are more likely to earn income from
smallholder farmers equate the most important income
growing and selling crops (61 percent vs. 53 percent of
source with the one they like getting the most and with the
those age 15–29) or rearing livestock, fish, poultry, bees for
one that is the most reliable.
TABLE 2: WHICH OF THE FOLLOWING INCOME SOURCES IS…?
INCOME SOURCES MOST IMPORTANT (%) LIKE GETTING THE MOST (%) MOST RELIABLE (%)
Growing something and selling it, such as
crops, fruits, or vegetables 40 40 41
Earning wages from occasional jobs 14 14 14
Getting money from family or friends 8 7 7
Earning wages or salary from a regular job 7 6 6
Rearing livestock, poultry, fish, or bees, and
selling it or its byproducts 5 5 4
Running own business in retail or manufac-
turing (selling or making goods) 4 4 4
Running own business by providing services
4 4 4
Getting a grant, pension, or subsidy of some
sort 3 3 3
Other 2 2 2
Don’t know 13 14 14
Source: National Smallholders Survey, CGAP, 2016
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