The Bank of Mozambique (BdM) has introduced a framework allowing commercial banks to deduct mandatory metical reserves when they extend new loans to support import substitution and export diversification. The mechanism sets interest rates indexed to the MIMO policy rate — currently at 9.25% — for investment lending, and at the same rate plus 150 basis points for working-capital financing.

The measure is set out in Notice No. 9/GBM/2026, dated 26 October, entered into force on Wednesday, 28 October, and will remain in effect for 18 months. It covers exclusively new loans denominated in local currency, excluding the renewal, restructuring, or replacement of credit facilities originated before the notice took effect.

Under the framework, eligible institutions may deduct from their mandatory reserve requirements 110% of the outstanding principal on qualifying investment loans and 100% on working-capital loans. The incentive is designed to transform resources immobilised at the central bank into funding for productive activity.

9.25% for Investment, 10.75% for Working Capital

With the MIMO rate at 9.25%, the nominal annual rate on investment loans corresponds to that level. Working-capital financing carries a reference rate of 10.75%. Both rates move in line with any future changes to the monetary policy rate.

The regime covers the production and processing of goods as well as tourism. The BdM will identify eligible sectors and activities through separate circulars.

Eligible borrowers include legally incorporated companies, sole traders, and cooperatives with a clean tax status, full or simplified accounting records, and the capacity to execute the financed project. The use of domestic factors of production is prioritised, though imports may be justified where local supply is absent, insufficient, or inadequate.

Banks Face Semi-Annual Lending Targets

Each participating institution is required to originate at least 50 new operations every six months, with disbursements equivalent to at least 6% of the average reserves held over the previous six reserve-maintenance periods. Failure to meet these targets must be formally explained to the regulator.

The expiry of the 18-month window does not automatically terminate reserve deductions on loans already originated under the scheme; those credits may retain the benefit until maturity.

Credit Grew Just 0.5% Through September

The initiative comes against a backdrop of weak credit expansion. According to data presented by BdM Governor Felisberto Navalha at the central bank’s Consultative Council meeting in Tete, bank credit to the economy grew by just 0.5% in year-on-year terms through September.

Navalha attributed the sluggish performance to public debt and government payment arrears, which keep lending rates elevated and concentrate liquidity in money-market instruments. The new mechanism will also draw on the support of the Mutual Guarantee Fund to facilitate access to credit for eligible firms, particularly micro, small, and medium-sized enterprises.

In May, the central bank raised the mandatory reserve coefficient for metical-denominated deposits from 29% to 39% to curb excess liquidity and inflationary pressures. The framework now introduced creates a selective deduction mechanism linked to productive lending.

The actual flow of financing will ultimately depend on decisions made by individual banks. At a meeting with the BdM held in October, the Confederation of Economic Associations of Mozambique (CTA) highlighted lenders’ risk appetite as a key determinant of the measure’s effectiveness and called for clear and transparent access conditions for businesses.

The initiative follows the BdM’s decision in May to raise the metical reserve requirement from 29% to 39% of deposits — a step taken to absorb excess liquidity in the financial system and contain inflationary risks.

Nigeria and Kenya Have Used Reserves to Support Credit

The use of reserve requirements as a tool to stimulate lending has precedents elsewhere in Africa. In Nigeria, the central bank introduced a mechanism in 2018 to release mandatory reserves for the financing of agricultural and industrial projects, including the expansion of existing facilities. The programme offered credit at an annual rate of 9%, subject to bank assessment and central bank approval.

In Kenya, a differently designed intervention produced measurable results in liquidity deployment. In March 2020, in response to the pandemic, the central bank cut the reserve ratio from 5.25% to 4.25%, releasing 35.2 billion Kenyan shillings. By July, it reported that 31.4 billion shillings — 89.1% of the released amount — had been deployed to support lending, primarily to tourism, transport, trade, and industry.

The Kenyan example demonstrates that reserve reductions can mobilise resources for bank customers. Those figures, however, measure the utilisation of funds and do not allow the measure, in isolation, to be credited with any specific increase in output or employment. For Mozambique, any assessment will need to track both loan disbursements and the on-the-ground results of the projects financed.

Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=556462