Lending to Agribusinesses in Zambia

4. No deposits : Unlike all other microfinance institutions analyzed, ZATAC does not
take deposits. ZATAC therefore does not use ‘forced’ deposits mechanisms
sometimes employed by other microfinance institutions to improve repayment
rates. Borrower cooperatives are, however, required to maintain loan repayment
accounts with a commercial bank with which ZATAC has a fund management
agreement for purposes of monitoring loan repayment activity.

5. Automatic repayments tied to production : This is a mechanism extensively
exploited by ZATAC to improve repayments that is not used by other
microfinance institutions. Cooperative members are required to sell all contracted
produce through the cooperative marketing centers. The cooperatives then deduct
loan repayments from the sales of each member, based on production, and directly
pay to ZATAC. By publicly displaying charts of both production and loan
repayment trends of each member, the cooperative creates a system of peer
monitoring which improves production and loan repayments through social
pressure. The cooperative leadership can also quickly detect defaulting members
and take corrective action as members in good standing try to avoid bearing
defaulting members’ loan liability. Because payments of sales are made to the
members monthly by the cooperative, members have a ‘banking’ system within
their cooperatives and the lump-sum payments enable them to invest in other
businesses or expand their current businesses.

6. Loans disbursed : Often ZATAC disburses loans in the form of building,
equipment and inputs to small-scale farmer cooperatives, based on the
cooperatives’ project proposals. This ensures borrowed funds are invested in the

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