Lending to Agribusinesses in Zambia



3. Progressive lending : The business development section of ZATAC works with
the ZATAC Investment Fund (ZIF) to develop long term relationships with
borrower cooperatives. Better performing cooperatives with good repayment rates
have the promise of receiving further loans. Subsequent loans are not necessarily
larger than the first loan due to the high cost of initial investments required for
agricultural production and processing projects. Nevertheless the continued loans
are often necessary in the early years of these projects for sustainability of
operations and in later years for business expansion.

Differences also exist between the ZATAC model and other microfinance institutions.
These include:

1. Lower real interest rates : A significant difference between ZATAC and the other
microfinance institutions analyzed is that the former offers much lower annual
real interest rates, ranging between 5% and 9% compared to a 17.3 - 47% range
for the other institutions.

2. Larger loans provided by ZATAC: The size of the loans provided by ZATAC is
significantly larger than those provided by comparable microfinance institutions.
This can be explained by the high investment costs required for agricultural
investments to be profitable.

3. ZATAC is very small : Compared to the other institutions analyzed in the published
literature, ZATAC is much smaller. Partly, the current size is a reflection of the
short period ZATAC has been in operation given the initial startup capital that it
had. The smaller number of borrowers also enables ZATAC to easily monitor the
borrowers and reduce the risk of default.

30



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