Lending to Agribusinesses in Zambia

Brian Mwanamambo, Victoria Salin () and Likando Mukumbuta

No 9822, 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: Microfinance has been celebrated in the last decade as a new paradigm shift in lending that has achieved immense success in improving the living standards of the poor through the provision of financial services. Institutions involved in microfinance around the world have used innovative loan contract mechanisms to profitably lend to the poor and achieve very high repayment rates while allowing the borrowers to profit and grow their enterprises. While high repayment rates have been realized by microfinance institutions focused on lending to consumers and to retail-type micro enterprises, few microfinance institutions focused on lending to agricultural producers have achieved comparable success. This article compares the mechanisms employed by major microfinance institutions with a successful lending institution in Zambia that serves agricultural businesses. Findings are: ZATAC uses progressive lending and group lending contracts adapted in some ways to suit seasonal agricultural production credit requirements. The institution also uses various forms of collateral substitutes like other microfinance institutions. We also find that ZATAC uses other mechanisms such as automatic loan repayments tied to production, cooperative sanctions, contracted production and provision of business development services that eventually improve loan repayments significantly and enable the lender to lower interest rates.

Keywords: Agribusiness (search for similar items in EconPapers)
Pages: 35
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea07:9822

DOI: 10.22004/ag.econ.9822

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