Integrating Financial Services into Poverty Reduction Strategy (Experience of Mozambique)

1. Integrating Financial Services into Poverty Reduction Strategy(Experience of Mozambique) By: Joana J.David Maseru, 11-12 October 2005

2. Agenda • Introduction • The country situation • Brief description of the country • Background of the financial system • The poverty reduction strategy • The way Forward

3. Introduction • Mozambique has launched a 5 year program for poverty reduction in 2001. • The objectives of the program was reduction of poverty from 70 to 60% in 2005. • Financial services are of course one of the key issues for the success of the program. • Mozambique has a very poor coverage in terms of financial services to the rural areas where the poor people are concentrated.

4. Brief description of the country • Located in southern africa with 799,390 Km2 • The population estimate is 19,4 million • 52% of the population are women • Member of Bretton woods institutions since 1984 • Economic growth rate is around 10% • FDI amounts 44.7% of GDP • Inflation has been around 9% • GDP per capita is around USD 200

5. Background of the financial system • Banking sector • Begining of nineties the banking sector was composed by 2 state owned banks and one private bank. • By 2005 the sector has grown and there are 12 commercial banks, 5 cooperatives, 3 leasing companies, 45 non monetary institutions and 24 exchange houses. • Although there is a big concentration of instituitions in the big cities. • The total asset has grown five times in the last 8 years.

6. Branches Distribution over the country - 2004

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10. Cont. • Microfinance sector • The activity started by 1990 to serve the victims of war. • By 1997 there were 25 institutions serving 6000 clients, most of them financed by NGOs. • By 2000 the number of clients was 16000 and 52000 by 2004. Now we estimates that 100000 may be served with a total portfolio of USD 11 million.

11. The poverty reduction strategy • The strategy apart from social and macroeconomic targets has defined some in the financial sector: • Minimization of financial crises; • Promotion of actions to improve financial services in the rural areas and poorest regions; • Improve financing to small and medium enterprises; • Reduction of interest rates and spreads between loans and deposits operartions; • Strengthening banking supervision including development of adequate legal framework.

12. Cont. • Last year a new bank law introducing new kind of institutions was approved, such as, microbanks, rural banks, postal bank, non taking deposit instituitions. • Minimum capital requirements for each kind of instituition were set up and may be reduced to half if the institution is created in very remote areas.

13. THE WAY FORWARD Opportunities: • Legal Reforms will promote rural finances • Political willingness to promote rural finances Challenges: • Undertake base work to arise awareness on the importance of such services • Lack of guarantees on finance to agriculture • Investments in infrastructures

14. Cont. PARPA II is the main governmental strategy against poverty, and, among the others, its aim to improve the role of financial system in the social and economic development process, given its impact on productive industry, what is essential sector for the sustainable fight against poverty.

15. Thank you Joana J.David Joana.david@bancomoc.mz Telephone: 258 21 428 818 Maputo Moçambique