In many African countries such as Zimbabwe, banks, micro finance institutions and insurance companies are concentrated in urban areas. With 70% of the population living in rural areas, it follows the majority have no access to financial services. Many banks no longer have functional branches in rural areas. Since the bulk of commodities flowing into urban food markets like Mbare (Harare), Sakubva (Mutare), Garikayi (Gweru), eMalaleni (Bulawayo), Chikonohono (Chinhoyi) come from rural areas, injecting money into these markets is the only way of financing rural areas.
While banks still think financing agriculture should target the farmer as the main recipient of the loan, in Zimbabwe there is enough evidence showing that when traders have money, such money end up with farmers in Mutoko, Chipinge, Murewa, Gokwe, Mhondoro, Mwenezi, Muzarabani and many other rural areas which supply commodities to the people’s market. The table below shows amounts of revenue that migrated from Mbare Agriculture market to diverse rural areas in Zimbabwe from January to March 2015:
|Expected Revenue (E R)|
|MHONDORO||$ 146,649.00||$ 208,704.62||$ 239,892.20||$ 595,245.82||14%|
|MUTASA||$ 165,442.50||$ 213,380.30||$ 195,112.60||$ 573,935.40||13.43%|
|MUREHWA||$ 171,134.00||$159,165.28||$ 226,284.17||$ 556,583.44||13.03%|
|MUTOKO||$ 120,120.50||$ 117,674.62||$ 262,207.32||$ 500,002.44||11.70%|
|MAKONI||$ 195,809.00||$ 145,415.43||$ 94,543.88||$ 435,768.31||10.20%|
|HARARE||$ 155,941.00||$ 165,076.10||$ 112,571.19||$ 433,588.29||10.15%|
|GOROMONZI||$ 106,773.00||$ 94,851.08||$ 87,401.60||$ 289,025.68||6.76%|
|WEDZA||$ 49,203.00||$ 56,567.17||$ 51,870.09||$ 157,640.26||3.69%|
|SHAMVA||$ 32,143.00||$ 43,531.23||$ 42,642.94||$ 118,317.17||2.77%|
|MARONDERA||$ 50,061.00||$ 35,486.92||$ 24,544.79||$ 110,092.71||2.58%|
|CHIMANIMANI||$ 22,160.00||$ 30,221.60||$ 54,737.00||$ 107,118.60||2.51%|
|MAZOWE||$ 37,577.00||$ 25,955.85||$ 33,528.07||$ 97,060.92||2.27%|
|NYANGA||$ 17,592.00||$ 11,394.33||$ 28,874.44||$ 57,860.77||1.35%|
|BUHERA||$ 1,056.00||$ 7,217.25||$ 35,558.00||$ 43,831.25||1.03%|
|U M P||$ 11,634.00||$ 15,060.98||$ 12,741.99||$ 39,436.97||0.92%|
|SEKE||$ 9,940.00||$ 7,899.40||$ 940.70||$ 18,780.10||0.44%|
|BINDURA||$ 8,625.00||$ 5,746.33||$4,323.65||$ 18,694.98||0.44%|
|MASVINGO||$ 3,756.00||$ 7,320.63||$ 6,231.00||$17,307.63||0.41%|
|CHIKOMBA||$ 9,159.00||$ 1,166.40||$ 3,676.40||$ 14,001.80||0.33%|
|CHIRIMUHANZU||$ 168.00||$ –||$ 13,063.32||$ 13,231.32||0.31%|
|GOKWE SOUTH||$ 840.00||$ 434.50||$ 11,700.00||$ 12,974.50||0.30%|
|ZVIMBA||$ 5,351.00||$ 1,238.79||$ 2,886.88||$ 9,476.67||0.22%|
|CHIPINGE||$ 672.00||$ 5,020.54||$ 3,598.00||$ 9,290.54||0.22%|
|BEIT-BRIDGE||$ –||$ –||$ 8,856.00||$ 8,856.00||0.21%|
|CHEGUTU||$ 5,225.00||$ 631.75||$ 2,928.60||$ 8,785.35||0.21%|
|GURUVE||$ 838.00||$ 871.18||$ 4,989.80||$ 6,698.98||0.16%|
|CHIREDZI||$ 1,396.00||$ 1,089.90||$ 3,690.00||$ 6,175.90||0.14%|
|GWERU||$ 1,200.00||$ 1,613.20||$ –||$ 2,813.20||0.07%|
|MUTARE||$ –||$ 200.00||$ 2,191.52||$ 2,391.52||0.06%|
|MT DARWIN||$ 195.00||$ 761.28||$ 720.00||$ 1,676.28||0.04%|
|RUSHINGA||$ –||$ –||$ 1,584.00||$ 1,584.00||0.04%|
|MUDZI||$ 84.00||$ –||$ 1,440.00||$ 1,524.00||0.04%|
|GUTU||$ –||$ 581.28||$ 614.00||$ 1,195.28||0.03%|
|KADOMA||$ 816.00||$ –||$ –||$ 816.00||0.02%|
|ZAMBIA||$ –||$ –||$ 780.00||$ 780.00||0.02%|
|ZAKA||$ 225.00||$ –||$ –||$ 225.00||0.01%|
|KWEKWE||$ –||$ 164.00||$ –||$ 164.00||0.00%|
|MAKONDE||$ –||$ –||$ 120.00||$ 120.00||0.00%|
|$ 1,331,785.00||$ 1,364,441.93||$ 1,576,844.15||$ 4,273,071.08||100%|
At US$ 595,245.82, Mhondoro district took away the largest share from Mbare market between January and March 2015. Mutasa, Murewa and Mutoko completed the list of districts that cloaked more than half a million dollars ($573,935.40, $556,583.44 and $ 500,002.44 respectively). All this income went back to stimulate the rural economy. Very few banks and micro finance institutions will be willing to extend such amounts of money to rural farmers.
Interestingly, Mbare agriculture market was also able to extend funds to what are normally considered low potential districts like Chimanimani ($107,118.60), Buhera ($43,831.25), Masvingo ($17,307.63), Gokwe South ($ 12,974.50), Chipinge ($ 9,290.54), Beitbridge ($ 8,856.00), Guruve ($ 6,698.98) and Chiredzi ($6,175.90). Also visible on the market were Mt Darwin, Rushinga, Mudzi and Gutu district where ttere are no banking services for farmers and rural artisans.
Availability of a ready market as a finance model in its own right
Zimbabwe has reached a stage where the market is a key determinant of success or failure. Availability of a market has become a finance model in its own right. If a market enables a farmer to meet the cost of production and remain with a profit from a particular market, such a market is as good as a finance model. If financial institutions and development partners are keen to finance agriculture they should do it via the market. By doing so, they will be financing production plus profit as illustrated in this scenario:
If a farmer takes 60kg of butternuts to the market at a production cost of $50 and sells the commodity at $65,s/ he gets $15 profit (30% plus profit). If you multiply that by 10 (months) = $150 which the farmer can re-invest in the land to increase production. Let us compare this farmer with another farmer who obtains a loan to produce butternuts. The farmer produces 60kg butternuts at a production cost of $50 and if s/he gets $15 profit, $10 goes to loan repayment and s/he is left with $5 x 10 (months) = $50. This farmer is trapped in poverty since s/he will continue borrowing.
If you want farmers to grow, encourage them to grow products that meet market standards and expectations. Extending loans to traders specializing in potato means the money will end up with farmers who specialize in potato production. These traders go and buy from farmers at prices that cover costs, leaving farmers with enough to increase production. Strong relationships are also created between farmers and traders because farmers will be assured of income while traders are assured of good quality products.
If a financial institution extends $10 000 to traders in Mbare, farmers end up with the $10 000 while traders will start selling commodities worth $10 000 which can end up growing to $13 000. On the other hand, the farmer has bought inputs worth $10 000 from the input supplier toward continued production. The trader has enough money to go back and buy from the farmer while the farmer continues to produce. Through a multiplier effect, the initial $10 000 injected in the market will generate business worth more than $30 000. Where a financial institution gives $10 000 directly to a farmer and the farmer buys inputs, chances are that the market won’t be able to buy the farmer’s produce because traders have no money. The farmer is unable to go back for more inputs because produce has not been bought. The whole chain collapses at once.
Financing rural areas through the market increases the multiplier effect of money more than would happen if funding is given to farmers without a clear sense of market dynamics. The market can easily direct financiers who to give loans. Those who bring commodities to the market and participate in the market clearly receive loans while those not participating cannot do so ahead of market actors. This is an example of a viable rural finance model.
Another variation of this model is target financing informed by the market calendar. In most cases traders order as per demand using market trends. They allow the market to be an assessor for the farmer. This is about financing the crop not the farmer. Often it is difficult for a commodity to introduce itself to the market and immediately start competing against commodities that will have established themselves in the market and have chosen their companions.
Financing via market as a national imperative
Injecting money in the market should be a national strategic imperative. If banks inject $5 million today, by year end it will be $150 million due to short cycle crop calendars and the diversity of commodities which will drive the multiplier effect of the injected money. Small pockets of money from micro finance institutions are important for short term problem solving but a strategic intervention at national level should see banks thinking big and using the market as a powerful business institution. Seventy percent (70%) of money injected in Mbare market can end up with farmers in Mutoko, Murewa, and Manicaland and Mashonaland West provinces. Sixty percent (60%) of money injected in Bindura market will end up with farmers surrounding Bindura market. The same for money injected in Masvingo, Mutare, Gweru and other areas, which ends up in the pockets of farmers in those areas. If bakeries can agree to sell a loaf of bread for a dollar for many years, why can’t banks agree to introduce one financial package for agriculture market towards reviving Zimbabwean agriculture? Unfortunately, each bank tries to create its own product and group of people to finance without looking at the bigger picture. Financial institutions urgently need to upgrade their skills so that they can be able to see both the fish and the water.
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