Maputo  - Mozambique's government announced this week incentives for banks to expand their services into rural areas where millions of people have yet to open a bank account.

Mozambique's President Armando Guebuza made the announcement Wednesday at the inauguration of Banco Terra, a new donor-backed bank focusing on agriculture.

Guebuza said the move to extend the banking network was in response to a boost in economic activity in rural areas as a result of increased agricultural production and productivity.

More and more cash is circulating in around the countryside but only 36 out of 128 Mozambican districts have access to the banking network.

Banks that open up branches in rural areas benefit from fiscal incentives and relaxed requirements on conditions such as initial capital.

Mozambicans have a culture of saving but often tie up their extra cash in goods, cattle or food, rather than deposit accounts.

Others stash money in their home or invest in community saving schemes at little or no profit.

When it comes to getting a loan, most turn either to a relative or a loan shark even though the latter can charge interest of up to 30 per cent, far above a bank rate.

Banco Terra is the brainchild of Mozambican former microcredit institution Gapi, which owns a 29.3 per cent stake. Other partners in the bank are Rebobank of Holland, KfW of Germany and Norfund of Norway.

Headquartered in the capital Maputo Banco Terra began with a start-up capital of 185 million meticais (7.7 million US dollars) and aims to open 20 branches in rural areas over the next three years.

Mozambique, an impoverished country of 21 million people in south-east Africa, has become a magnet for foreign investment in the energy sector, including gas, coal and biofuels. (dpa)