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Credit Access in Lesotho
Lesotho is a small landlocked country with a population of over 2 million surrounded by its much larger neighbor, South Africa. The rural population accounts for 75 percent of the total population with about 40 percent of the Basothos living there involved in the agricultural sector. This sector, despite experiencing declines in production in recent years remains a central part of the nation’s economy.

Lesotho has a GDP of $1,141 per capita which categorizes it as lower to middle-income country with a 3 percent economic growth rate in the past three years. This progress can be attributed to the performance of textile manufacturing and as well as the agricultural sector after it recovered from the 2015 and 2016 droughts. However, this progress was thwarted by the rand/dollar depreciation. Unemployment, high level of inequality and poverty remain an issue for Lesotho reflected by 2017 estimates that indicate 51.8 percent of the population still lives below the poverty line.

Long-Term Strategies to Improve Credit Access in Lesotho

The government of Lesotho has been creating strategies to meet the goal of improving access to financial services for Micro, Small and Medium Enterprises in order to alleviate the aforementioned challenges including extreme poverty. One of the main strategies outlined by the central bank of Lesotho is attaining higher savings and investment ratios. The report shows that achieving this goal has results of economic growth and an increase in employment as well as food security.

However, given that more than 50 percent small and medium-sized enterprises lack access to credit in particular, it would be essential to work on widening that resource further to augment the overall economic growth in Lesotho. One of the main interventions used to achieve this improvement is called a public credit guarantee scheme (CGS).

This strategy involves resolving the lack of financial history records which poses a risk, through third-party credit risk mitigation to lenders. This is because the scheme allows for a part of the losses to be absorbed by the loans given to small and medium enterprises, in exchange for a fee. Moreover, this solution is particularly viable in developing nations such as Lesotho as it is growing to cover more than half of the developing world already.

This is increasingly relevant in agriculture, one of the biggest economic sectors, which has not yielded as much contribution to the economy due to the fact that most of the people involved still practice subsistence farming. The government attributes this lag in diversifying and increasing agricultural productivity to credit market failure, lack of access to information and technical support, restricted market integration and climate change.

Furthermore, the sector is marked as high risk and low return by the financial sector, a label that can potentially be reversed with the development of the Micro, Small and Medium Enterprises through improved access to financial services including credit access in Lesotho.

Importance of Credit Access in Lesotho

Given its potential to accelerate economic growth, improving access to credit access in Lesotho has the ability to significantly augment big sectors such as agriculture. Creating a strong financial sector that increases credit access in Lesotho can have the effect of strengthening the 40 percent of the population involved in agriculture in its transition from subsistence farming to advanced agriculture by allowing the ability acquire the technology as well as the technical support that is lacking.

The work towards creating a financial sector that could meet these development objectives has had challenges due to inadequacies in technical and entrepreneurial skills as well as the lack of proper documentation of financial records. Although this poses an issue with increasing credit access in Lesotho and creating an inclusive financial sector as a whole, without a strong foundation of a stable, liquid and efficient financial sector, the nation will continue to have challenges in creating sustainable growth.

Bilen Kassie
Photo: Flickr

development projects in lesothoLesotho is a small landlocked country surrounded by South Africa, with a population of nearly two million people. Natural resources in Lesotho are scarce and fragmented, a result of the highland’s arid environment and the lowland’s limited agricultural space. The lack of natural resources and the country’s high poverty and unemployment rates have made the Lesotho population economically dependent on South Africa.

There are several development projects in Lesotho dedicated to increasing agricultural production, constructing income-generating activities and improving development effectiveness. Below are five development projects in Lesotho.

  1. Lesotho Highlands Water Project (LHWP)
    The LHWP is a binational infrastructure project between South Africa and Lesotho intended to provide water to an arid region of South Africa and to generate hydroelectricity and income for Lesotho. Phase I of the project was completed in 2003; work on Phase II of the LHWP began in 2013. Phase II involves water transfer and hydropower components that are meant to increase both water transmission to South Africa and the amount of electricity generated in Lesotho by 2020.
  2. Cultural Heritage Plan
    The Cultural Heritage Plan was developed and implemented in response to Phase II of the LHWP. Its objective is to preserve and manage Lesotho’s history by protecting cultural heritage and burial sites, rock art and Stone Age occupation sites.
  3. Lesotho Smallholder Agricultural Development Project (SADP)
    Work began on the SADP in early 2012, as part of the Lesotho government’s National Strategic Development Plan, but the project’s design was restructured in 2016. The project’s development objectives are to increase and improve the marketed portion of agriculture output among project beneficiaries and to generate practical responses to an Eligible Crisis or Emergency.
  4. Sustainable Energy for All Project
    In 2016, the Lesotho government implemented the Sustainable Energy for All project. Developed by the United Nations Development Program (UNDP) and the Global Environment Facility (GEF), the project’s goal is to improve access to clean energy services in the rural areas of Lesotho by 2021.
  5. Lesotho Data for Sustainable Development Project
    The Lesotho Data for Sustainable Development Project was implemented by the Lesotho government in 2016 and is expected to reach its developmental goals by January 2018. The project’s objectives include the collection, analysis and distribution of development data; the construction of institutional and technical capacities for the management and evaluation of development projects; and to improve national and sectoral capacities to generate data and facilitate accountability for resources.

The rate of poverty in Lesotho has declined steadily over the last decade, an achievement credited to economic growth. With these development projects in Lesotho, the nation should continue to improve its capacity to address development challenges and constraints, to sustain growth and to prioritize human welfare progression.

– Gabrielle Doran

Photo: Flickr