Mozambique has a high poverty level and rate of deforestation driven by agriculture. Small and medium enterprises (SMEs) account for most registered companies and are important to the economy but face challenges accessing financing. Commercial banks charge high interest rates and require collateral while public programs offer lower rates but shorter terms. The study focuses on sustainable SMEs in forestry and agriculture in Zambezia province, where few government or non-government organizations provide needed capacity building support and informal SMEs are numerous. Effective financing models are needed that incentivize socially and environmentally responsible practices by SMEs.

1. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 1
Xiaoting Hou
Jones
December 2016
Author name
Date
Xiaoting Hou
Jones
December 2016
Financing sustainable small- and
medium-sized enterprises (SMEs)
in Mozambique
Money Where
It Matters

2. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 2
Xiaoting Hou
Jones
December 2016
MozambiqueHigh poverty level: 54% population
High deforestation, high forest cover: 40.1 million
ha (51%) forests; 0.21-0.58% deforestation rate
(1970-2002).
Main drivers outside of forest sector: agriculture
SMEs very important:
Informality wide spread: 90.9%
SMEs accounts for 98.7% of
the total 26,264 registered
companies
Focus of the research: sustainable SMEs in forest
and agriculture sector in a forest landscape
Focus region: Zambezia

3. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 3
Xiaoting Hou
Jones
December 2016
Sustainable SMEs
Capacities
Interests rate
Scale of investment
Rate of return
Repayment period
Grace period
Risk Management
Business, environment and
social
Market, climate Risks
10-
15%
Most require investment in
machineries
Poor infrastructure, high
fees keeping costs high
>=3 years
>=1 years
Commercial banks
Business
Collaterals, formality
Volatile interest rate,
current > 25%
Upper limits vary
6 months - 6
years but mostly
short term
Public sector
e.g. PRSP 10-14%; FDA,
FDD: 10%
FINAGRO: 70% grant for
equipment
Require no collaterals, risk
sharing (FDD, Landscape)
Provide technical support
(IPEME, CEPAGRI,
Landscape)
<= 3 years
?

4. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 4
Xiaoting Hou
Jones
December 2016
Actively invest in
development since
1990;
Governed collectively
by private and public
sector with private
sector as the majority
shareholder;
Manages development
funding from
international
development partners

5. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 5
Xiaoting Hou
Jones
December 2016
Sustainable SMEs
Capacities
Interests rate
Scale of investment
Rate of return
Repayment period
Grace period
Risk Management
Business, environment and
social
Market, climate risks
10-
15%
Most require investment in
machineries
Poor infrastructure, high
fees keeping costs high
>=3 years
>=1 years
Commercial banks
Business
Collaterals, formality
Volatile interest rate,
current > 25%
Upper limits vary
6 months-6 years
but mostly short
term
GAPI
30%-40% of funding
targeted for business
capacity building
Risk sharing program where
25%-75% loan is guaranteed
(administered through
commercial bank)
Central Bank Base Rate –
5%
E.g. 20,000 USD
average loan, with
50% of the loan
given as grant if
repayment schedule
is followed through
12 month-3 years;
but there are cases
that get longer period
Flexibility offered
through loan
restructured

6. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 6
Xiaoting Hou
Jones
December 2016
The Capacity Building Gap: Zambezia
Province as an example
Managed by Programme
Capacity/Tota
l funding
Forestry Agriculture
Environment Social Business Environment Social Business
Public
Sector
IPEME
3
employees
X X
CEPAGRI
15
employees
X
Landscape Not defined X X X
FINAGRO
4
employees
X
PPP GAPI
30-40% of 50
million USD
X
NGOs
RADEZA
7
employees
X X X X
FONZA
5
employees
X X X X
CECOHAS
4
employees
X X X X
In Zambezia: 1,805 registered SMEs in a country where informality is estimated at 91%

7. Financing sustainable small- and medium-sized enterprises (SMEs) in Mozambique 7
Xiaoting Hou
Jones
December 2016
Financing SUSTAINABLE SMEs
Is there finance for SMES?
Is the finance providing
the incentives/support
for socially inclusive and
environmentally
responsible SMEs?