Two Decades of a Liberalized Agricultural Sector in Zambia: Is there an Agricultural Credit Market Failure?

This paper has attempted to examine how well a liberalised financial and banking sector can service the farming community especially the small scale farmers in Zambia. On the demand side, the study focussed on Chongwe and Mazabuka Districts while ZANACO Plc and BBZ Plc was the subject of focus on the supply side. Contrary to most of the postulations of the neo-liberal paradigm’s standard competitive model on which the liberalization programme was based; the paper has found that the agricultural credit market in Zambia has inherent imperfections. While the neo-liberal theory assumes perfect and complete information with costless transaction contracts, this study has found that the credit market in Zambia is riddled with asymmetric information, high transaction costs, inherent risk and imperfect competition. In the face of these frailties, the credit market cannot operate efficiently and may end up in a market failure. In a way, this may have led to the private financial sector’s lukewarm response in filling the vacuum created by the demise of state monolithic institutions. Further, the agricultural credit market in Zambia is not only riddled with asymmetric information and high transaction costs but the banks also lack adequately qualified human capital to assess risks inherent in agricultural lending. Despite the state’s market involvement through the Farmer Input Support Programme (FISP), the study has also found that a great majority of the small scale farmers are still facing difficulties in accessing agricultural credit. It has also been found that most of the studies conducted on the impact of liberalization on the agricultural sector in Zambia have been concentrated on the product side with very little work done on the input side especially agricultural credit. Relevance to Development Studies The agricultural sector plays a crucial role in the development process of the Low Income Countries through the provision of livelihood for the majority of the population. The study shows that the availability of affordable agricultural credit still remains one of the key drivers in enhancing productivity and efficiency of the agricultural sector. Hence, access to affordable credit will enable farmers to diversify their agricultural activities. Notwithstanding credit’s importance in the development of a viable robust agricultural sector, most of the studies conducted on the impact of economic liberalization on the agricultural sector in Zambia have been biased towards the product side. This study will therefore contribute to the available scanty literature on the agricultural credit market in Zambia and other LICs in the face of liberalization.