Thursday, January 28, 2010
By Chiwoyu Sinyangwe
Wed 27 Jan. 2010, 04:00 CAT
ZAMBIA’s market for agriculture finance is fundamentally ‘abnormal’ with farmers saying working credit is scarce and expensive, while bankers contend that agricultural lending is risky and expensive.
And agriculture remains the single most risky lending sector for the commercial banks, with non-performing loans in the sector estimated to be around 37 per cent compared to 13 per cent across other sectors.
The agriculture sector accounts for the single largest recipient of commercial banks’ loans in the country with about US $463 million being poured into the sector at the end of last year.
This amount of financing which is about 19 per cent of all loans dispersed by commercial banks makes agriculture receive almost twice as much credit as the manufacturing sector or wholesale and retail trading sectors.
According to official statistics from the Central Bank, commercial banks had nearly K1.4 trillion US 9 million in loans denominated in kwacha outstanding to the agricultural sector as at September 2009, representing 17 per cent of all kwacha-denominated loans.
Agriculture accounts for 29 per cent of United States dollar-denominated loans, or about US $164 million as at the end of last year.
When both the US dollar and the kwacha- denominated loans are combined, the agricultural sector accounts for about 19 per cent of all commercial bank loans.
Although the agriculture sector is seemingly the biggest recipient of financing from the commercial banks, the relationship between farmers and bankers is not functioning normally.
Farmers contended that credit is scarce and expensive while commercial banks felt that lending to farmers was risky and expensive.
“Zambia’s market for agricultural financing is fundamentally dysfunctional. From the farmers’ perspective, credit is scarce and expensive,” a recent report on Zambia’s agricultural finance market has revealed. “Loan terms are too short and turnaround times too long.
These problems cause an already-risky enterprise to become even riskier. From the bankers’ perspective, agricultural lending is both risky and expensive. They commercial banks are reluctant to lend without very high collateral and a high risk premium.
When they do lend, they often lose money. The high level of non-performing loans that the banks are now experiencing represents a serious loss for them – one which will make them even more reluctant to lend in future…the agricultural finance market is caught in a self-perpetuating cycle of risk and loss, which benefits no one.”
In addition to normal risks associated with agricultural production such as weather, macroeconomic instability and price volatility, four factors were identified by the report as part of the dynamics that account for the fundamental problems in Zambia’s agricultural finance market.
The report sponsored by Zambia National Farmers Union (ZNFU) and Profit, Finance and Technology (PROFIT) stated that some of the fundamental problems cited included high risky lending environment caused largely by unpredictable government intervention as well as weakness in legal framework, limited understanding of agricultural markets and limited expertise in agricultural financing among most banks and other financial institutions, poor risk management practices and limited financial analysis and management capabilities within the agricultural sector.