Charles Dhewa Correspondent
Among dozens of terminologies that have found their way into Africa over the past few decades is rural finance.
The term suggests that there is probably also something called urban finance.

How can we, on one hand, characterise some financial services as rural, while purporting to be promoting financial inclusion?
Developed economies do not have a demarcation between rural and urban finance. In fact, the same services and lifestyles found in cities are also prevalent in rural Europe, for instance.

Rural finance has some deep colonial roots.
Mentioned above are some of the issues through which imported knowledge in business and financial institutions is misinforming decision-making processes in Africa.

In many African countries, attempts to distinguish rural from urban finance were derived from differences between rural and urban economies, as determined by colonial agendas. From an agricultural perspective, urban areas were associated with value addition and processing while rural areas were largely associated with primary production done in farming systems like communal, large-scale and resettlement areas. Rural was also about black farmers producing largely for subsistence, while large-scale farms that bordered rural areas were not considered rural. However, the fact that some large-scale commercial farms paid levies to rural councils showed they recognised their belonging in rural areas.

What features were used to define a rural economy?
Following land reform in Zimbabwe, it has become difficult to characterise Zimbabwean agriculture as strictly rural. Farmers who have moved from communal to A1 and A2 farms cannot be considered rural.

Comparisons in terms of infrastructure, services and value addition do not show much distinction between rural and urban areas. So what do we mean by rural? How do we define a rural farmer? Can we just use a boundary like a fence to demarcate rural from urban?

For instance, commercial and A2 farms in Mazowe District of Zimbabwe are merely demarcated from Chiweshe communal area by fencing and rivers, but they are in the same climatic region and share the same soil characteristics among other similarities.

Some people living in urban areas have invested in their communal areas where they came from so much that their areas have become remarkably more urbanised that some areas close to big cities, they have modern homesteads, solar power and Internet connection. Can such people living in the lap of modernisation far from the city be still considered rural?

On the other hand, many A1 and A2 farmers have stayed under-resourced because new farmers getting into a new area may not be able to share resources with their neighbours with whom they do not share indigenous relationships.

It is better to think in terms of ecosystems finance than rural finance
One of the biggest dilemmas is that African financial institutions do not conduct thorough investment analyses to figure out if there is really need for financial packages they develop from their head offices in the city.

Rather than thinking and functioning in terms of rural finance, it is better for financial institutions to embrace an ecosystems and value chain approach, especially given that most communities share the same resources like water, soils and passion.

If they carefully ask themselves questions like what type of finance model do we want to develop and for whom, they should be able to design different finance models for A1, A2 and resettlement rather than using an umbrella term like rural finance.

While finance that is targeted at irrigation schemes is framed as rural finance, most irrigation schemes were not designed for commercial purposes, but as a fall-back position to complement rain-fed agriculture. When financial institutions decide to finance irrigation schemes, to what extent are the loans going to be repaid by surplus production without compromising local food which is supposed to be a buffer?

More importantly, irrigation schemes depend on shared resources by plot holders.
Only a few farmers can realistically do commercial farming while the rest are subsistence producers.
What financial models can you develop in situations where resources
are shared?

Why have many agricultural-oriented financial institutions reduced their presence in the form of branch networks in production zones like Gokwe for cotton and Honde Valley for horticulture? These financial institutions are not sharing their critical lessons, but they are letting small players like Micro Finance Institutions (MFIs) getting into those areas.

Making sense of indigenous financing models
The fact that farmers and rural communities thrive without banks and other formal financial institutions is enough evidence that they trust their own indigenous financial models. Policymakers and development agencies have to invest in understanding and developing these models.

If money was everything, millions of farmers and communities would be seen queuing for loans.
Financial inclusion should not just be about cannibalising indigenous financial models like Voluntary Savings and Lending Associations (VSLAs) famously known as Mukando. Why should we burden these local indigenous finance models whose remarkable resilience is connected with social fabrics like beer brewing (Ndari)?

Traditionally, farmers in rural areas were attracted to the Post Office Savings Bank (POSB) model mainly because of the interest they earned that was a powerful incentive towards the wealth-creation route.
Today, rarely can you find a farmer selling a beast and depositing money in the bank.

Most farmers do not want to take loans from banks due to the unpredictability of markets. For instance, they cannot take loans for tomato production when there is no specific off-taker and prices on the open market can change any time.

On the other hand, most contractors have not invested in building good relationships with producers and farmers, so they cannot develop sustainable models.

Farmers who have participated in different contracts are still nursing their wounds and have sad stories to tell.
We should not rule out the element of self-exclusion where farmers exclude themselves from models that sound good, but turn out to be rapacious and predatory in nature, mainly at the point of marketing.
That is why participatory ways of developing financial inclusion indicators are needed.

How about financing value addition processes?
A majority of banks tend to have similar finance models and some even have MFIs.
Are these the right models for building a home-grown agricultural-driven economy?
Instead of just thinking in terms of rural finance, financial institutions in Africa should focus on value addition.

For instance, most agricultural commodities from rural areas and farms are getting into urban markets in a raw state.
It is better for banks to finance rural industrialisation under which value addition and agricultural semi-processing enterprises are set up at growth points and in production zones. Urban centres can then focus on final processing into finished products for domestic consumption and export.