For lending purposes, fish-farming in Zambia (as in most countries) is considered a sub-sector of agriculture. Sources of credit to fish-farmers are therefore to be found among sources of agricultural credit in general.
It is commonly estimated that Zambian commercial farmers are those who cultivate 5 ha of land and more, using maize - a domestic staple cropas a yardstick to measure the area under cultivation (see Appendix 2).
It can be stated that the only source of credit available to the smaller farmers (i.e., those operating at the subsistence level or tilling less than 5 ha of land) are public, government-funded institutions or cooperative organizations.
The main commercial banks, Barclays Bank, Standard Chartered, Zambia National Commercial Bank Ltd. (ZNCB) and Grindlays Bank Int., have specialized agricultural departments which cater to the credit needs of the large commercial farms.
Apart from the commercial banks, the other main sources of agricultural credit in Zambia are parastatal institutions (Agricultural Finance Company (AFC), Zambia Agricultural Development Bank (ZADB), and the Development Bank of Zambia (DBZ), and apex corporate bodies in the cooperative structure (Finance Services Ltd. (FSL) and Credit Unions and Savings Associations, Zambia Ltd. (CUSA)).
Among the parastatals, AFC is the oldest institution; it has been operating since 1970. It is mainly a source of short-term credit (more than 90% of the total amount loaned - in an average year - is in the form of seasonal loans). However, it also provides real estate, cattle (grazier) and other medium to long-term loans. Up to the 1985–86 fiscal year, AFC had accounted for the largest share (ca. 80%) of the total amount of agricultural credit distributed by the non-commercial banking sector. During 1985–86, AFC was granted K 37.5 million as budget allocation. In previous years, since its capital base was completely eroded by recurrent losses, it had to rely heavily on short-term borrowings from the commercial banks in order to continue expanding its lending activity. However, with a mere 1.8% interest spread (difference between the lending and the borrowing rates), a 13- to 15-fold increase in the 1985–86 loan volume (of K 42.3 million) would be needed to sustain overheads amounting to K 10.5 million. Yet, despite such burdensome overheads, AFC's geographic coverage remains minimal (the ratio of field staff to loanee was 1:608 in 1985–86 - whereas the ratio of general, i.e., headquarter-based - staff to field staff was 3:1 during the same year). It must, however, be observed that the average loan (K 1 000–2 000) may not warrant a more extensive geographic coverage by field staff.
The AFC does not have the capacity to remedy its persistent structural deficiencies. Given a mere 20% rate of recovery (on cumulated loans) to date, its shortage of permanent capital implies that it must keep borrowing from some banks (with the gurantee of the GRZ) in order to re-imburse others) for the sake of its survival, which is not a very sound financial position to occupy.
The ZADB was established in 1983 with World Bank support (and World Bank-funded managerial staff). It provides both seasonal and medium to long-term loans. The cumulated loan amounts disbursed as at 31 December 1986, were K 16.9 million and K 7.2 million for each category respectively. The average loan size is only K 1 370. Yet the Bank still operates mostly from its Lusaka Headquarters. Under an FAO/World Bank jointly-sponsored, on-going programme, ZADB has granted 57 loans to lake or river-based fisheries for a total amount of K 1.035 million. At this early stage, an assessment of the bank's repayment record (for which no statistics were provided) would in any case be premature.
The DBZ has operated since 1975. Its primary concern is to foster the long-term development prospects of all sectors of the Zambian economy, not just agriculture. Through 31 March 1986, it had financed 18 loans (11 which are overdue) belonging to the agro-industrial (or agriculture-related) sector, amounting in total to K 68.9 million and accounting for the largest sectoral share (42%) in the Bank's loan portfolio. DBZ approved a loan for a fishing enterprise in 1985/86 but has not yet committed itself to any fish-farming venture.
Since the agriculture-oriented parastatal institutions (AFC and ZADB) have widely-scattered branches throughout the Zambian rural areas (42 in total) the cooperative network is the only channel through which isolated village communities - where precisely the supply of fish is the most deficient - can be serviced. Both apex bodies previously mentioned (CUSA and FSL) cater to the financial needs of primary cooperative societies' members. CUSA intervenes primarily as a re-financing institution, on behalf of and through cooperative unions, at the provincial level. It federates unions of primary societies which operate in all sectors of the Zambian economy, not exclusively in agriculture. FSL's activities are more specific. The company was established as an ad hoc outfit. A fully owned affiliate of Zambia Cooperative Federation (ZCF), it operates as its financial appendage, mostly in the agricultural sector. Whereas CUSA is managed and manned by Zambian nationals, which makes it more sensitive to domestic political considerations, FSL is arguably more independent. It has, since inception, been strongly supported by Swedish aid (SIDA and the Stockholm-based Swedish Cooperative Centre) in the form of both funds and staff (FSL's current General Manager is a Swedish lady banker and SIDA has pledged SKr 6.5 million over 3 years). In contrast with CUSA, FSL has also been used extensively as a financial channel by donor institutions (fifteen of which - including the World Bank and FAO - have channeled a total of $US 50 million through the FSL network). As will be emphasized in a subsequent paragraph, the GRZ has recently followed suit and allocated budget funds to FSL.
In terms of field coverage, FSL, through the cooperative unions network, has a larger capacity than AFC to reach out to remote villages (with a 650-strong field credit officer staff - seconded by the provincial unions but funded by FSL - the company has a current staff to loanee ratio of 1:19, yet the average loan size is only K 581).
The agricultural inputs financed on credit by FSL are provided in kind (except in the case of ZCF consumers' shops). A 25% downpayment is required.
The rate of interest charged by FSL has been maintained at 16% for short-term (seasonal) as well as for long-term loans. This interest charge can be broken down as follows:
3% renumerates the primary cooperative society for processing the loan;
3% goes to the union for credit supervision;
3% covers FSL's overheads;
7% feeds the revolving credit fund.
In lieu of real guarantee which would be unrealistic to exact, for reasons studied elsewhere in this report, the cooperative finance company utilizes group pressure to enforce repayment. If the collective rate of recovery obtained from all the members of a borrowing society falls below the 93% benchmark, then no member of that society is eligible for any new loan from FSL during the next cropping season/fiscal year. The society can come back into the ZCF credit system during the second succeeding year only and will be kept in thereafter if, during that second year, a 100% rate of recovery is being achieved.
The enforcement of such strict rules can be expected to bring about a fairly high turnover among the societies borrowing from FSL, expecially if the rules are not amended in times of exceptionally poor harvests. No precise statistical data on the subject could be obtained during interviews at FSL Headquarters in Lusaka. However, it can be observed that, in 1985/86, only two out of the nine Zambian provinces stood above the 93% benchmark in the provincial breakdown of repayment tallies (the national average standing at 90.1%).
The question of how realistic and desirable such strict enforcement rules actually are, becomes particularly relevant now that FSL is also engaging in medium-term lending (loans for hammer mills, oxen traction, fencing works, irrigation pumps, oil expellers, bicycles, motor-cycles, and other eligible purposes, repayable over 36 months, amounted already to a cumulative total of some K 800 000 at 31 December 1986).
Medium-term lending is the normal extension of an efficiently-run production credit system, such as that being operated by FSL but, under such conditions, will the repayment rules hold when the same cooperative society applies simultaneously for loans with different maturities (which is hardly avoidable)? It would be difficult to enforce different sets of rules applicable to different types of loans.
In terms of lending capacity to agriculture, CUSA and FSL were roughly at par until the 1985/86 (end-March) fiscal year, the former with a (multi-purpose) loan total of K 10.5 million (39% of which were categorized as delinquent) and the latter with seasonal loans (chiefly for maize growing) totalling K 5.9 million (delinquency rate: 9.9%).
However, during 1986, owing to government pressure, the loan-processing capacity of both institutions had to be considerably enhanced, as a subsequent section of this report will reveal.
Nine commercial banks are presently registered in Zambia:
Meridien Bank
Standard Chartered
Indo-Zambia
Zambia National Commercial Bank
Bank of Credit and Commerce International
Barclays Bank
Grindlays Bank International
Citibank
African Commercial Bank
Out of these nine banks, only four (Barclays, ZNCB, Standard Chartered and Grindlays) are substantially engaged in lending to the agricultural sector. According to the reports of these four banks to BOZ, they made loans during the 3 years proceeding fiscal year 1986, which can be categorized as agro-industrial (or agriculture-related) loans in the following aggregated amounts:
| Year | Total Agro-loans (K'000) |
| 1983 | 235 263 |
| 1984 | 297 739 |
| 1985 | 270 329 |
In 1986, total agricultural lending suddenly increased markedly under circumstances detailed subsequently in this report.
No accurate breakdown of these totals by type of activity could be found, but it can be safely assumed (following interviews with bank managers at BOZ, Barclays and ZNCB) that, currently, commercial lending for fish-farming purposes is negligible.
A recent FAO report (by L'Heureux, 1975, see Appendix 6) has listed and analysed 10 commercial farms. These account for the bulk of cultivated fish production in Zambia (estimated at 1 000 t). Being off-shoots of mining/manufacturing companies or adjunctions to large existing farming estates, they do not attract any credit earmarked for their specific activity; the initial investment is financed by the “parent” venture.
Other attempts to finance fish cultivation on a more artisanal level (e.g., by the Refugee Malnutrition Relief Project of the UNHCR which has given grants, through Zambia Catholic Secretariat, for the displaced population in the northeast to dig some 1 000 ponds, and by the World Bank's Eastern Province Agricultural Development Project which operates a cooperative credit unit) are still very much in the experimental stage.
As a result, no credit experience has been acquired in the field and no readily accessible mechanism for loan application and processing exists for artisanal fish-farming which remains an economic innovation in Zambia.
The current re-structuring of ZADB and AFC which are being merged into a new state-owned institution, the Lima Bank - due to start operating on 1 June 1987 - materializes the GRZ's endeavour to rationalize the distribution of agricultural credit in the country (under the World Bank persistant prodding). It is also a de facto recognition of AFC's past failings. In 1986, as part of the government's recent drive towards national self-sufficiency in food production (labelled the small scale-farming Lima Programme), the parastatal and cooperative credit institutions have received large budget allocations.
The amount allocated to AFC (K 37.5 million) has not been reflected in an increased lending activity (K 42.3 millions' worth of loans were distributed in the year ending 31 March 1986, against K 45.5 million in 1984–85). AFC used instead the unprecedented injection of cost-free capital to reduce its short-term indebtedness by K 16.9 million.
Out of the total that the GRZ made available for onlending to the cooperative sector (K 76 million) the largest share (K 57 million) was allocated to FSL, thereby abruptly requiring a tenfold increase in the cooperative finance company's lending capacity. Similarly, the loans made by CUSA under the Lima Programme represented 73% of the total lent by its member credit unions in pursuance of their normal procedures. Both institutions run the risk of overstretching their current capacity to administer loans adequately. FSL hired new personnel to cope with the increased loan volume. In order not to tamper with its normally strictly enforced repayment rules and to avoid the danger of contamination through spreading delinquencies, it keeps separate accounts for the Lima loans. Also, FSL's management negotiated with the GRZ the right to be compensated for its increased operational cost- an additional sum of some K 3 million may be allocated to the company for that purpose.
It is still premature to assess the impact of this recent crash credit programme on agricultural production and on the overall repayment performance of the cooperative system, which has thus been force-fed.
Since 1986, the GRZ has also induced the commercial banks to engage more actively in agricultural lending. The banks seem to have responded massively to the government's sollicitations, although their reports to BOZ may reflect some measure of “window-dessing”.
Barclays (Zambia) Ltd., for example, operates its own private version of the Lima Programme. It has loaned, since 1980, K 50 million of the bank's own funds to small farmers.
Overall, the four main agricultural lenders among the commercial banks reported to BOZ an increase in their agro-loans volume, which by extrapolation and seasonal adjustment can be estimated at 240% in the year 1986 over 1985. Whether or not the trend will continue is a matter of conjecture.
The GRZ's recent injection of the International Monetary Fund (IMF) prescription for the country's economic recovery will have important repercussions on agricultural credit policies. In particular a ceiling is to be imposed on the interest rate charged by banks. The rate enforced for agricultural lending (normally 15%) will bring in returns lower than the cost of administering most loans (even if the inflation rate is not taken into account). Under such conditions a slow (= long cycle) revolving fund - earmarked for fish-farming - will be depleted sooner, even if the borrower's repayment record is optimum. Or, alternatively, a certain portion of the monies allocated to operate the fund will have to be used to subsidize the lending institution for the interest rate differential (negative spread).
Such a solution would be unsatisfactory, as a matter of principle, since specific aid (e.g., for fish-farming) - in contrast with IMF loans - should not be used to correct structural deficiencies in the economy (Appendix 4 provides some statistical data on the extent to which monetary erosion may affect the replenishment of a revolving fund).
Conversely, the planned implementation by BOZ of a Credit Guarantee Scheme which will cover the major portion (70%) of the loans made by commercial banks for small-scale enterpreneurial ventures (among which fish-farming could conceivably be included) may have a favourable impact on the propensity of these commercial banks to lend for future fish-farming enterprises.
