Innovations in Addressing Rural Finance in Moçambique

1. Innovations in Addressing Rural Finance in Moçambique Joana J.David, Msc Banco de Moçambique

2. Presentation Outline • Macroeconomic indicators • The Financial Services Environment. • The Legal reform. • Expansion of banking services to rural areas. • Achievements. • Challenges • Final remarks

3. Macroeconomic indicators • Population: 20.000.000 • GDPper capita: USD 350 • Inflation in 2006: 8.1% • Exchange rate: 24.98MT/USD • Urban population: 31% • TSavings/GDP: 10.7% • Credit/GDP: 30%

4. The Financial Services Environment (1) • The Banking network is still far below the needs of our population. • The statistical data shows that in 2006 the country had: • 12 banks with 229 branches to serve 20 million habitants. • 12.1% of the branches in the North • 21.3% in the Centre • 66.6% in the South • 47% in the Capital • 1 branch for 82 thousand people • 1 branch for 3782 Km2

5. Branch Geographical Distribution

6. The Financial Services Environment (2) • As shown in the map, branches are highly concentrated in the capital Maputo. • By the year 2000 the microfinance activity was still very informal and carried on by NGOs. • There were some money lenders operating but also concentrated in the big cities. • The legal framework was not adequate

7. Measures Taken • The Central Bank launched legal reforms by reviewing the bank act and issuing new regulations. • The new bank act introduced small sized institutions, Micro banks to operate with a very low minimum capital. • To expedite the licensing process the Central Bank has been given power to license all the institutions that supervises

8. Legal reform(1) Main innovations • Law 9/2004: • MICROBANCO (microfinance bank) • Caixa Geral de Poupança e Crédito; • Caixa Financeira Rural; • Caixa Económica; and • Caixa de Poupança Postal • Other Institutions • Operador de Microcrédito; • Intermediário de Captaçao de Depositos • Organizaçao de Poupança e Empréstimo;

9. Legal reform(2) • Decree 57/2004: Microfinace Regulation. • Governor Notice 4/2005: Setting minimum capital. • The parliament has recently approved a law giving Liquidation power to the Central Bank.

10. Legal reform(3) • Decree 57/2004 and Governor Notice 4/2005: An Outlook: • Supervisory Regime (prudential Ratios and limits)

11. Legal reform(4) • Decree 57/2004 and Notice 4/2005: An Outlook: • No supervisory scheme

12. Encouraging expansion of banking services to rural areas(1) At the Government side: Taxes on income from rural branches were relaxed. Import Duties reduction on softwares, equipment and materials to build branches on rural areas. The MPD has designed projects in conjuction with donnor to promote the expansion of financial services, namely: Raised funds Organised training activities Saving campaign is now taking place

13. Encouraging expansion of banking services to rural areas(2) At the Central Bank Level: 5 new branches were open. Cash is included on the calculation of reserves requirements. Loans are excluded on the calculation of the liabilities subject to reserve requirement.

14. Achievements • Financial services have expanded: • In 2007 10 new micro lenders were licensed. • 9 new banks were licensed • 27 new branches were also opened • However, there is still big concentration in Maputo

15. New geographical branch distribution

16. Challenges(1) • Improvement of basic infrastructures in the rural areas; • Promote formal business by expediting the licensing process of the companies. • Promote microfinance activities in the rural areas. • Introduce savings culture in the communities.

17. Challenges(2) • Break the myth that regard agriculture as a risky activity. • Introduce deposit insurance schemes for low income depositors. • Create private CRCs.

18. Final Remarks Despite the remarkable growth in terms of the number of financial institutions, we consider that the expansion of financial services to the all population still has a long way to go.

19. ObrigadaKanimanboThank you