Posts

,

The Growing Importance of Credit Access in Mali

Credit Access in Mali
Mali is a landlocked country located in West Africa with a population of approximately 18 million people. While the national poverty fell from 55.6 percent in 2001 to 43.6 percent in 2010, Mali remains 175th out of 188 countries on the United Nations Human Development Index.

Diagnosing the Problem

Credit access in Mali stands out as one the leading impediments to economic growth. A smallholder farmer is refused a loan seven times out of ten because of the high risk and unpredictable nature associated with the agricultural sector. This difficulty accessing credit is only further compounded by the fact that about 80 percent of the entire labor force actively participates in farming.

Credit serves an important role in the growth of developing countries’ economies. Increased credit access in Mali is essential for allowing farmers, businesses and consumers across Mali to utilize investment capital and thus help expand economic activity. If 70 percent of farmers are refused loans from the start in a country where 80 percent of the workforce is engaged in farming, significant economic growth becomes nearly impossible.  

Moussa Sylvain Diakite, a mango producer and exporter in Bamako, explains this discrepancy noting that “Malian banks have a commercial focus and not an agricultural one which is why they struggle to accompany agricultural activities.”

Improving Credit Access in Mali

One of the leading initiatives to improve credit access in Mali is the Agricultural Competitiveness and Diversification Project. Led by the Malian government and the World Bank, the program hopes to provide financial support to both individual Mali farmers seeking credit and commercial banks. By enfranchising Mali farmers and reducing risk for commercial banks that offer them loans, the Agricultural Competitiveness and Diversification Project will help scale agricultural production and the number of small and medium enterprises throughout Mali.

Above all, the Project works to “reduce the risk of investing in agriculture endeavors through technical assistance, new technologies, and greater knowledge of the supply chain and key actors,” according to World Bank Agribusiness Specialist Yeyande Kasse Sangho.

Benefits of Greater Credit Access in Mali

Researchers who partnered with Soro Yiriwaso, a microfinance institution in Mali, conducted a two-stage randomized evaluation in 198 villages in rural Mali. The findings point to agricultural lending as an effective means of increasing investments in the agricultural sector, as well as increasing profits and yields.

Village households which were offered loans spent about $10.35 more on fertilizer and $5.08 more on herbicides and insecticides than the households in villages that did not get loans. These loans also contributed to an increase in the value of agricultural output by $32. Many of these households also received grants invested 14 percent more on inputs than households that did not receive grants. Those households also saw output and farm profits increase by 13 percent and 12 percent, respectively.

As the relationships between farmers and commercial banks strengthen, credit access will only continue to spread in Mali and enable further economic growth. With continued efforts and projects as the ones mentioned above, there’s significant hope that the focus on credit access in Mali will serve as an example for the economic development of other impoverished regions.

– McAfee Sheehan
Photo: Flickr

, , ,

Credit Access in Mali Needs Further Improvement

credit access in MaliFor many of the poor in developing nations, securing loans is often an unfeasible task. Reforms to credit access in Mali, however, are providing much-needed relief to smallholder farmers endeavoring to improve conditions for themselves and their families.

The Importance of Microfinance in Development

The practice of providing access to financial resources and small loans to those in developing nations, known as microfinance, has become the latest instrument in the effort to alleviate poverty. Too often, the world’s poor are denied access to loans, making it exceedingly difficult to start businesses or make capital investments that would enable them to improve productivity and elevate their incomes. Although microfinance across developing economies has yielded mixed results previously, the capacity remains for well-structured and pragmatically targeted initiatives to succeed.

Credit Access in Mali Denied

When these programs are successful, the implications can be powerful, especially for women and smallholder farmers. In developing economies, women reinvest 90 cents of each dollar they earn into “human resources” like healthcare, nutrition and education, according to a study conducted by the Harvard Business Review. This is substantially more than men and illustrates the impact small investment opportunities can have for the well-being of women and their families.

Despite this, securing loans is harder for women because most do not have property in their names to offer as collateral, typically make lending to them impractical. Furthermore, in Mali, 70 percent of loan applications sought by farmers are rejected because they are deemed risk-prohibitive. Because farmers’ incomes typically fluctuate with seasonal variance in agricultural output, banks are usually hesitant to provide financial backing.

Securing loans is also rare for farmers in Mali because banks focus primarily on commercial lending and often refuse the longer term loans many Malian farmers in the young mango, papaya and cashew nut industries need to get their businesses off the ground. Unstable political institutions in the country, like inconsistent enforcement of contracts, and poorly defined property rights further exacerbate these challenges.

Credit Where Credit is Due

An initiative which began in 2013 is addressing these issues and attempting to increase credit access in Mali. The Agricultural Competitiveness and Diversification Project by the World Bank seeks to “reduce the risk of investing in agricultural endeavors through technical assistance, new technology and greater knowledge of the supply chain and key actors,” according to World Bank Agribusiness Specialist Yeyande Kasse Sangho.

To provide loans, the program relies on the Innovation and Investment Fund (IIF) and the Guarantee Fund. The IIF offers a three-tiered lending system with each tier providing different levels of subsidies based on the size of the enterprise, with smaller enterprises receiving a greater subsidy. The Guarantee Fund, also financed by the World Bank, offers up to 50 percent of the loan guarantee, giving a needed cushion to the two commercial banks in Mali receiving the deposits.

In addition to this World Bank initiative, Mali sought in 2016 to improve access to credit by improving its credit information system regarding the regulations of credit bureaus in the West African Economic and Monetary Union. In 2017, it established another credit bureau, doubling-down on its resolve to ensure its citizens have access to capital.

With initiatives like these, Mali is demonstrating its commitment to making accessible credit the new normal for its people. Further improvement to credit access in Mali will only serve to assist in lifting more people out of poverty.

– Brendan Wade

Photo: Wikimedia Commons