Credit line for MSMEs and agricultural financing

active

Core problem The majority of the Mozambican population lives in rural areas and is involved in agriculture. However, financial services for the sector are inadequate. According to the Mozambican Central Bank, on average only around 3 percent of domestic loans are provided for the agricultural sector. One reason for the lack of access to finance is the low presence of formal financial institutions in rural areas. To make matters worse, financial institutions have been much more risk-averse since the Mozambican financial crisis in 2016 and are issuing fewer loans, particularly in rural areas, and demanding a high risk premium. The corona pandemic is further exacerbating this problem. Module objective The module objective is to ensure that needs-based financing instruments aimed at MSMEs and the agricultural sector - preferably for rural areas - are provided and used in a sustainable manner. The FC module aims to provide a credit line to Mozambican partner financial institutions (PFIs) yet to be selected, which are to use these funds to lend to MSMEs operating in rural areas or in the agricultural sector. In times of the corona pandemic, the PFIs will act even more risk-averse and will issue loans very selectively due to the increased risk of default. To ensure that there are still enough economically healthy borrowers (CN) after the crisis, a grant component is to be placed upstream of the credit line to finance the running costs of the MSMEs. The grant component thus aims to retain MSMEs that are eligible for support and, if necessary, to support them in their development and growth after the pandemic by facilitating access to loans on economically viable terms. The grants are also intended, among other things, to counteract the expected mass loan defaults, which could also plunge the PFIs into financial difficulties. This will form the basis for the sustainable development and expansion of the lending business aimed at the rural sector. The module contributes to the stable provision and use of a wide range of needs-based financing instruments for MSMEs operating in rural regions and in the agricultural sector. Key outputs Economically healthy MSMEs are supported by the grant. Refinancing to selected PFIs is provided and is used. Lending to borrowers (KN) in rural areas and the agricultural sector is improved. Target group The indirect target group of the FC module is primarily MSMEs operating in rural regions and in the agricultural sector, which receive improved access to financial services. Employees and the associated households and families of the supported MSMEs benefit indirectly. The immediate target group is the PFI and the Mozambican Central Bank (BdM). Contribution to the national implementation of Agenda 2030 The FC commitment in this priority area contributes to the creation of broad-based and sustainable economic growth as well as productive and decent employment (SDG 8). Overarching goals that are indirectly influenced by the measure are gender equality (SDG 5), the reduction of hunger (SDG 2) and poverty (SDG 1).