Mbatau Wa Ngai
17 June 2008
analysis
The good news is that Finance Minister Dr Ezra Suruma has allocated Shs22 billion "to consolidate the nationwide network of rural savings and credit co-operative organizations" in the 2008/09 budget.
In sub-counties where these institutions already exist, the government will lend them money for onward lending to their members. In sub-counties where such institutions do not exist, the government will "sensitize the people and help set them up."
In addition, the government intends to organize youth in various trades like boda boda, wheel burrow pushers, newspaper vendors and vendors in the market into savings and credit societies through which they will access micro-financing.
The bad news is that by joining the private-sector-led micro-finance band-wagon, the government shows that it is not aware that the sector can't bring about the country's economic take-off. True, micro-finance institutions are doing a good job of alleviating poverty in the rural and urban areas.
But one thing micro-finance will not do in its current form of "one size fits all financial products" and lack of flexibility in product offerings is to transform agriculture in any meaningful way. And that is where the bulk of the people live.
Only effective, well-designed rural financial services, provided by sector sensitive but "best practice " focused institutions will do for this vital sector. In general, agriculture is a technical and fluid sector for any lender. It's also an expensive and risky sector.
The fear for lenders is , therefore, genuine as there are high transactional costs, vagaries of weather exacerbate the exposure, uncoordinated markets for agricultural produce crippled at harvest times and poor contractual adherence by farmers and marketers. It is these risk factors that result in an under-provision of financial services to the sector that the government ought to take a leadership role in resolving if rural agriculture is to take-off.
At its best, microfinance pushes the rural active poor to urban areas and creates a nation of traders and hawkers. These cadre of microfinance clients do not feed the nation, though in an equal measure they improve the food value chain and access.
Though it is true that many factors contribute to the rural urban push, access to financial services is increasingly becoming an important one.
As the government's budget plans testify, you only need to start a second-hand clothes shop in an urban set-up, link up with fellow second-hand cloth or shoes sellers, co-guarantee each other and a microfinance institution will support you.
Attempt to start a farming enterprise, however, and you will be hard-put to find financial support from anywhere.
The lot of small-holder farmers have, therefore, continued to be a hard one as they continue facing credit constraints unlike their counterparts in small-scale trading. Both businesses have different cash-flows and microfinance models favor one over the other. More is the pity.
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