Lending to Agribusinesses in Zambia

The fourth contractual mechanism identified in the research is the use of frequent
regular loan repayment schedules, such as weekly repayments, a mechanism used by
many microfinance institutions to give an early warning of problem borrowers so that
lenders can remedy the situation before it worsens. Finally the use of various forms of
collateral substitutes, including group tax and “forced savings” which borrowers cannot
withdraw until after a specified length of period, provide alternative forms of
demonstrating financial commitment, replacing the conventional collateral required by
banks.

Despite the abundant literature available on the evolution and developments in
microfinance, most of it has focused on microfinance programs that give consumer loans,
lend to retail-type micro enterprises, or other very short duration activities. This is largely
because most of the microfinance programs have concentrated on such type of lending.
Examples of successful agricultural production microfinance programs around the world
are not many. One possible explanation could be that the risks inherent in seasonal
agricultural production have deterred micro lending programs from financing such
activities. It is important to note, however, that in many developing countries, the rural
poor depend on agricultural activities for their survival and agriculture makes up a
considerable proportion of these countries’ gross domestic product - 21.5% in the case of
Zambia in 2005 (UNDP 2006). It is for this reason that this article examines an
agribusiness lending institution in Zambia - the ZATAC Investment Fund (ZIF), with an
eye towards identifying whether the mechanisms discussed above are employed in this
successful microfinance program.

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