1. Innovations in Addressing Rural Finance in Moçambique Joana J.David, Msc Banco de Moçambique

2. Presentation Outline Macroeconomic indicators The Financial Services Environment. The Legal reform. Expansion of banking services to rural areas. Achievements. Challenges Final remarks

3. Macroeconomic indicators Population: 20.000.000 GDPper capita: USD 350 Inflation in 2006: 8.1% Exchange rate: 24.98MT/USD Urban population: 31% TSavings/GDP: 10.7% Credit/GDP: 30%

4. The Financial Services Environment (1) The Banking network is still far below the needs of our population. The statistical data shows that in 2006 the country had: 12 banks with 229 branches to serve 20 million habitants. 12.1% of the branches in the North 21.3% in the Centre 66.6% in the South 47% in the Capital 1 branch for 82 thousand people 1 branch for 3782 Km2

5. 5 Branch Geographical Distribution

6. The Financial Services Environment (2) As shown in the map, branches are highly concentrated in the capital Maputo. By the year 2000 the microfinance activity was still very informal and carried on by NGOs. There were some money lenders operating but also concentrated in the big cities. The legal framework was not adequate

7. Measures Taken The Central Bank launched legal reforms by reviewing the bank act and issuing new regulations. The new bank act introduced small sized institutions, Micro banks to operate with a very low minimum capital. To expedite the licensing process the Central Bank has been given power to license all the institutions that supervises

8. Legal reform(1) Main innovations Law 9/2004: 1. MICROBANCO (microfinance bank) Caixa Geral de Poupança e Crédito; Caixa Financeira Rural; Caixa Económica; and Caixa de Poupança Postal 2. Other Institutions Operador de Microcrédito; Intermediário de Captaçao de Depositos Organizaçao de Poupança e Empréstimo;

9. Legal reform(2) Decree 57/2004: Microfinace Regulation. Governor Notice 4/2005: Setting minimum capital. The parliament has recently approved a law giving Liquidation power to the Central Bank.

10. Legal reform(3) Decree 57/2004 and Governor Notice 4/2005: An Outlook: Supervisory Regime (prudential Ratios and limits ) Legal form Scope Minimum capital Caixa Geral de Poupanca e Credito Savings and loans operations and other complementary authorized by BM MT 5 million (US$192.300) Caixa Financeira Rural At least 50% of savings and loans activities should be in rural areas MT 1.2 million (US$46.150) Caixa Economica Owned by a non-profit or charitable entity; savings and loans where deposits cannot exceed term over 1 year MT 2.4 million (US$92.300) Caixa de Poupanca Postal Cannot extend credit; savings shall be allocated to bank deposits and investments MT 1.8 million (US$69.230) Cooperativas de credito Savings and loans operations among its members MT 0.2 million (US$7.700)

11. Legal reform(4) Decree 57/2004 and Notice 4/2005: An Outlook: No supervisory scheme Legal form Scope Minimum capital Organizações de poupança e empréstimo Member-based savings and loans, with members not to exceed 200 in number and deposits from each member not to exceed MT10 million (US$385.000) MT 0.15 million (US$5.770) Operadores de microcrédito Only lending, not savings MT 0.075 million (US$2.885) Intermediarios de captação de poupança Deposit- taking on behalf of banks and other financial institutions No minimum capital

12. Encouraging expansion of banking services to rural areas(1) At the Government side: Taxes on income from rural branches were relaxed. Import Duties reduction on softwares, equipment and materials to build branches on rural areas. The MPD has designed projects in conjuction with donnor to promote the expansion of financial services, namely: Raised funds Organised training activities Saving campaign is now taking place

13. Encouraging expansion of banking services to rural areas(2) At the Central Bank Level: 5 new branches were open. Cash is included on the calculation of reserves requirements. Loans are excluded on the calculation of the liabilities subject to reserve requirement.

14. Achievements Financial services have expanded: In 2007 10 new micro lenders were licensed. 9 new banks were licensed 27 new branches were also opened However, there is still big concentration in Maputo

15. New geographical branch distribution 2007 Prov í nciaN º de Agências Percentagem Cidade de Maputo11143.36% Prov í ncia de Maputo 228.6% Gaza155.86% Inhambane155.86% Sofala2610.16% Manica145.47% Tete103.91% Zamb é zia 103.91% Nampula228.59% Cabo-Delgado72.73% Niassa41.56% Total256100.00%

16. Challenges(1) Improvement of basic infrastructures in the rural areas; Promote formal business by expediting the licensing process of the companies. Promote microfinance activities in the rural areas. Introduce savings culture in the communities.

17. Challenges(2) Break the myth that regard agriculture as a risky activity. Introduce deposit insurance schemes for low income depositors. Create private CRCs.

18. Final Remarks Despite the remarkable growth in terms of the number of financial institutions, we consider that the expansion of financial services to the all population still has a long way to go.

19. Obrigada Kanimanbo Thank you