2014-05-06 MOZAMBIQUE RANKS LOW IN CREDIT ACCESSIBILITY Mozambique now ranks 130 out of 189 countries in terms of the legal and institutional strength for getting credit, according to the 2014 Doing Business Report recently released by the World Bank. The ranking comes as no surprise for many borrowers, who currently face interest rates between 16 and 20 percent. Such hefty borrowing costs slows entrepreneurship and business expansion, with over 50 percent of manufacturing firms identifying access to credit as the top business constraint in a report published last year. Partly to blame is the low level of private savings in the country. Only 10 percent of Mozambicans hold accounts with formal financial institutions and, of these, only 2 percent record positive savings. Notwithstanding, demand deposits comprise the bulk of funding in Mozambican banks. This, combined with poor credit information infrastructure and contract enforcement methods, makes long-term lending too risky for many banks. Other typical suppliers of long-term finance such as insurance companies and pension funds are limited by Mozambique’s underdevelopment of capital markets, making reliable long-term investments difficult. This dearth of long-term credit, along with the relatively small size of commercial banks, means local banks often miss out on financing big ticket projects. Furthermore, they largely remain unable to fund local companies to participate in high-cost sectors like mining and infrastructure. The latest Doing Business Report mentions the difficulty many small and medium enterprises (SMEs) face accessing credit in developing countries, a problem which is limiting many Mozambicans from fully benefiting from the current economic boom. In addition, the riskiness associated with farming projects means banks have steered clear of Mozambique’s lagging agricultural sector, which in 2012 received just 5 percent of bank credit, down from 19 percent in 2000. While the sector employs nearly 80 percent of Mozambique’s economically active population, less than 3 percent of farmers have access to any kind of credit, according to the 2010 Agricultural Census. Not only do rural areas suffer a lack of physical bank branches, but the small scale of most agricultural enterprises and the inability to use land titles as collateral make accessing credit very difficult. Still, progress has certainly been made in recent years, with the number of commercial banks growing from 12 in 2000 to 18 in 2013, as well as an emergence of microbanks, credit cooperatives and other new types of lending institutions. According to one study, the use of bank loans increased among SMEs from 12.8 percent in 2006 to nearly 18 percent in 2012. While the financial sector remains overwhelmingly concentrated in Maputo, increases in lending are recorded in Sofala and Nampula provinces. Institutions such as Banco Terra, Standard Bank and GAPI are also turning their attention to rural areas with a number of initiatives targeting agricultural borrowers.
Posted on: Wed, 07 May 2014 16:16:06 +0000
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