iDE and CETZAM Partner to Bring Microfinance to Rural Zambia
In 2008 iDE partnered with CETZAM Financial Services PLC, a microfinance institution operating in Zambia, to develop an agricultural loan product suitable for iDE smallholder farmers which would allow them to purchase micro-irrigation technologies and other agricultural assets to improve their incomes and livelihoods. More than three years later, the iDE-CETZAM model serves as a best practice example of an effective and sustainable approach to agricultural microfinance that is stimulating growth and income generation in rural Zambia, with total disbursements at 8.2 billion Kwacha (over US $1,500,000).
In 2011, over 2,820 loans had been provided over the prior 15 months, with an astounding loan recovery rate of 97.2%. To tap into this potential, CETZAM has expanded operations and opened 13 satellite offices in Southern, Lusaka, Central and Copperbelt Provinces, with plans to expand further this year. iDE Zambia believes that this approach can be successful not only in Zambia, but in other Southern African countries where low population density, long distances, poor transportation networks and low income levels act collectively to limit poor rural people's access.
Like most success stories, this one has not been achieved overnight. An initial pilot in 2008-09 failed dismally in terms of loan repayments. Not to be discouraged, iDE and CETZAM were determined to learn from this failure. This led to iDE providing recommendations to build the capacity of CETZAM in key areas:
Creating a new rural agricultural microfinance methodology
The new strategy focused on engaging agronomists as loan officers and enhancing the knowledge and capacity of existing loan officers with little or no agricultural experience. Initially this involved two agronomists attached to iDE project areas who were able to conduct informed business appraisals and provide technical assistance and follow up. After seeing the positive impact, CETZAM today has 13 agronomists working with smallholder farmers.
Designing loan products for smallholder farmers
iDE understood that in order to be successful, loan products must meet the particular needs and circumstances of smallholder farmers, who don't realize any profits until harvesting is complete. The payback period was extended to include a three month grace period and full payback after six months and the interest rate was set at 4% per month. A group lending model is used with groups of five to eight farmers taking individual loans for which the whole group is jointly and severally liable. Loans are tied to specific items of equipment or inputs and are paid directly to local retailers from whom farmers receive their goods.
Farmer training and organization
The organization and training of iDE farmers remains the most critical factor that is driving high rates of repayment. iDE farmers are trained to believe in their potential to succeed and understand that they must invest in their own future and cannot rely on handouts. iDE farmers have also been trained in the preparation of crop budgets and cash flow projections as well as in agronomic practices that reduce the risk of crop failure. iDE farmers are also trained to analyze marketing strategies that help ensure they maximize profits from each crop.
Major challenges still remain for CETZAM in achieving scale and reaching remote areas while keeping costs under control. The good news is that these challenges can be met with the help of iDE's newest innovation: Farm Business Advisors (FBAs). These are entrepreneurial lead farmers who are trained by iDE to become private sector extension agents. FBAs are paid a commission by retailers to create the demand for and facilitate the sale of a range of agricultural inputs and services. They also provide a number of valuable services for CETZAM:
Thanks to their strong relationship with the community, FBAs can provide a valuable screening process to increase the repayment prospects and security for CETZAM. FBAs help farmers fill out loan forms for CETZAM, significantly reducing the cost of processing loans, while encouraging and coordinating the collection of repayment installments from farmers.
Donald Tembo (pictured) from Chibombo District in Central Province of Zambia accessed a 2 million kwacha (US $380) loan from CETZAM in October 2011, facilitated through an iDE Farm Business Advisor. With this money he invested in a treadle pump which enabled him to irrigate four times as much land, expanding his garden from 1/8 hectare to Â½ hectare and sell his tomatoes, melons, cucumbers and green beans at the market.
The income that he generated was easily enough to pay back the loan over six months. He has been able to improve his agricultural business by buying a plow and a mobile phone, which he uses to find out market information. What's more, he has also bought clothes and blankets for his family and bricks to build a better house. The greatest impact, however, is that he is able to pay for his 16 year-old son to go to boarding school and his younger daughter to go to day school. Donald believes the future is in his children.