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Banking on Rural Innovation for Poverty Reduction: A Case Study of Value-chain Lending in Mozambique

Simonetti, R   Wuyts, M   Wuyts-Fivawo, A

The European Journal of Development Research   19 (1) 136-155

June 2007   (Version of record first published June 2007)

Coordination failures due to the absence of markets are a key constraint to the development of rural production in low-income countries. This paper shows how GAPI, a domestic financial institution in Mozambique, has contributed to poverty reduction through successful industrial ventures. GAPI's innovative lending strategy is based on the integration of supply of credit with the active improvement of the borrowers' ability to repay loans through the provision of business services, a value-chain approach to lending that focuses on the viability of whole networks of producers, and partnerships with non-market institutions that provide centres of specific competencies.