HARARE – Leading micro-financier FMC Finance (FMC) has availed a further $5 million to assist small-scale Zimbabwean farmers in securing inputs and other necessary equipment for the 2016/2017 agricultural season.
This comes as the Reserve Bank of Zimbabwe has ordered financial institutions to allocate 20 percent of their loan portfolios to the sector as well as energy and the entire micro-finance (MFI) industry’s outflows have grown to nearly $190 million as at last year.
FMC group chief executive Ranga Mavhunga told businessdaily recently that his company had not only chosen to invest in the key agricultural sector due to its strategic importance, but earnings potential and capability to anchor the local economy as well.
“The loan was designed to ensure that farmers have at least a minimum hectarage, which they cultivate during the farming season,” he said, adding farmers have been accessing anything between
$2 000 to $10 000 for cropping in the past few seasons and as part of a revolving fund established years ago.
Last year, the company released $4 million to agriculture with farmers making bullet payments after harvesting.
Zimbabwe’s agricultural sector — for long the country’s economic backbone – has shrunk since the year 2000 and, therefore, FMC believes it must be adequately funded to ensure food security, and the timely provision of inputs to agro-based industries.
While the new farmers lack key skills and collateral to access loans for ramping up production, Mavhunga said the Harare administration must consider “restoring and reinforcing” the stop-order system to unlock funding opportunities and enhance farm viability.
Last year, banks put aside $1 billion to support strategic crops such as maize, soya beans, cotton, tobacco and livestock production, in order to ensure national food self-sufficiency.
Despite a strong desire to finance agricultural activities, financial institutions are still grappling with a number of factors such as lack of mechanisms to ring-fence sales from farmers and curtail side marketing, which form some of the biggest factors militating against greater support for the sector.
With an average $20 million loan book, the ex-African Banking Corporation executive’s company has also taken a keen interest in assisting the small to medium enterprises (SMEs) sector.
“Our business model is salary-based and we target the civil service, and private corporates. Given the economic situation where the bulk of government revenue goes towards employment costs — 85 percent out of $4 billion in 2016 — it is only prudent to target the civil service to… to finance their farming activities… and SMEs (as well),” Mavhunga said.
“We are slowly diversifying the thrust to enterprise lending through group lending methodology, invoice discounting and order finance… as we realign our model towards productive lending,” he added.
Amid serious misconceptions about the MFI sector’s interest rate regime, Mavhunga said customers must realise that the cost of money and loan tenures was also determined by the short-term nature of licensing, which makes it difficult for lenders to raise cheaper financing for long-term and productive lending.
By law, Zimbabwean micro-finance players are licenced for a year.
And in the absence of a robust credit reference bureau, some MFIs have not only taken a cautious approach in a sector marked by growing non-performing loans, but adopted rigorous approaches to manage their portfolio at risk.
Having spent eight years at the regional banking group’s Zambian arm Microfin Africa Limited, the veteran banker and consumer finance specialist has grown FMC to 24 branches countrywide — with 10 of them in the rural areas — at the back of a robust information technology platform, which has enabled him “to deliver and upscale quality service to his customers”.
As a measure to diversify country risk, FMC has also opened in Lusaka where it now operates at least three branches.
In Zambia, the company is also pursuing an enterprise-lending model specialising in order financing, invoice discounting and short-term loans to SMEs.
According to officials, the business has immense potential at the back of a growing economy in that country.
FMC avails $5m to agric