Mozambique: Promoting Reforms through the FSDS
Following the FSAP 2009 recommendations, the Government of Mozambique asked FIRST to assist with the development of a full-fledged FSDS to address the issue of access to finance, particularly in rural areas, among other issues. TA worth $228,000 was successfully completed in 2013 and has led to follow-up reforms worth nearly $48 million, supported by the World Bank, DFID, and FIRST.
Challenge:
The 2009 FSAP Update indicated that although Mozambique had made significant progress in overall financial system development and stability, serious deficiencies remained in terms of financial access. This was confirmed by the 2009 Finscope survey, which revealed that 78 percent of the adult population was financially excluded and uses neither formal nor informal financial products. The key challenges that hindered the usage of financial services were (i) the high collateralization of loans, at about 90 percent; (ii) the lack of bank presence in rural areas-only 51 of 128 districts had banks, branches, or ATM/POS facilities; (iii) the low penetration of microfinance in rural areas, with the rural portfolio accounting for just 5 percent of the total microfinance portfolio and 12 percent of the customers.
Solution:
Responding to the request from the Ministry of Finance on behalf of the Mozambique government, FIRST funded a team of financial sector experts, including rural finance consultants, to develop an FSDS with a detailed, time-bound, and prioritized action plan. The launch of the FSDS 2013-2022 was led by the Ministry of Finance and attended by over 100 participants from government, the donor community, and the private and financial sectors. The strategy has helped set a vision for the Government of Mozambique "toward a strong, healthy, inclusive, competitive, transparent, and resilient financial system that promotes economic development."
Results:
The FSDS led to a three-part series on Programmatic Financial Sector Development Policy Operation during FY2014-FY2016 to support the reforms laid out in the FSDS, specifically on three themes: (i) financial stability, (ii) financial inclusion, and (iii) long-term financial markets. The first loan in the series, with a $25 million operation, was approved by the Board of the World Bank in July 2014. The next two are planned to be delivered to the Board in September 2015.
In addition, the FSDS has catalyzed additional donor and World Bank TA support, specifically through the upcoming $20 million Financial Sector Deepening Fund for Mozambique (recently launched by DFID, with other donors expected to join) and the $2 million Financial Inclusion Support Framework under a World Bank trust fund facility. Furthermore, in February 2014, FIRST approved a project worth $410,000 for development of the Mozambique debt market, in line with the FSDS recommendation to promote access to long-term capital for the private sector.