UNDP throws life line to rural business

MASERU — The United Nations Development Programme (UNDP) and the government of Lesotho last Thursday launched the Support for Financial Inclusion in Lesotho (SUFIL) project that seeks to improve access to finance for low-income individuals in rural areas.

The US$4 085 000 three-year project will run until 2013 and will seek to service individuals who are not covered by large commercial banks.

The project will offer small loans, insurance and agricultural financial support to rural-based businessmen.

At least 80 percent of Lesotho’s 1.8 million people live in rural areas and remains unbanked.

The new project will seek to close this gap, according to UNDP officials.

UNDP resident representative Ahunna Eziakonwa-Onochei said mobilising domestic savings and attracting direct investment will significantly improve economic growth for Lesotho.

“Export-led growth and increased private sector development are essential components in (Lesotho’s) quest to attain sustainable and broadly shared economic growth, create jobs and reduce poverty,” Eziakonwa-Onochei said.

She added that micro-finance services and products can also facilitate access to short-term lending for consumption and enterprise investment.

“It is hoped that this will encourage the poor to build their assets through savings and investment in housing, farms and cottage industries,” Eziakonwa-Onochei said.

She said there was therefore need to set up a well-functioning rural financial system to cater for the lower income groups.

Eziakonwa-Onochei said without proper rural financial institutions and services self-help would be severely limited.

“Households cannot obtain the working capital to develop cottage industries and small micro-enterprises that support non-agricultural income generating activities,” Eziakonwa-Onochei said.

She said commercial banks had weak linkages with the rural or informal economy.

“Financial intermediation in this country is still very small as evidenced by the absence of diversified financial instruments and institutions,” Eziakonwa-Onochei said.

In an interview with the Lesotho Times finance principal secretary Mosito Khethisa said financial inclusion remained a major challenge for the government as there was still a large portion of the population that is unbanked.

“We have to regularise and supervise players in this sector through formulation of laws that are specifically formulated to cater for micro-financiers,” Khethisa said.

He estimated that about 50 percent of the population was mostly in the informal and rural sectors.

Khethisa said in cases where there are a few financial service players, costs of transaction are often high.

He said there was therefore a need to increase the number of financial services players in rural areas.

“There is going to be more regulation to ensure that service providers deliver services.

“However there needs to be more institutions to increase competition and reduce the costs of transaction,” he said.

“There has been a high level of defaulting among borrowers and these are some of the issues that we have to look into to ensure that consumers get appropriate services.”

The project will be financed by the government of Lesotho, UNDP, United Nations Capital Development Fund, Central Bank of Lesotho and other international financiers.

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