Farmers in dire need of financial support

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WITH the onset of the 2014/15 cropping season beckoning, farmers are expecting financing for inputs.
They expect financial institutions and Government to come to their rescue with incentives to ensure the country gets enough to feed the people.
Despite agriculture being the cornerstone of the economy, farmers have in the past seasons failed to obtain affordable financial resources to boost operations.
While the entire agricultural sector faced challenges accessing bank loans, A2 farmers have been the most affected, as the majority of them did not have the collateral demanded by financial institutions.
This year farmers pinned their hopes on their 99-year leases or the proposed Special Purpose Vehicle.
Banks proposed that a Special Purpose Vehicle (SPV) be established by Government and that in the event farmers fail to pay back loans from banks, the SPV would step in and clear the liability to financial institutions.
Last week the Reserve Bank of Zimbabwe set up an SPV, known as Zimbabwe Asset Management Corporation (ZAMCO) to acquire Non-Performing Loans from banks in order to clean up and strengthen banks’ balance sheets and provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence.
Is this initiative, the SPV, good news to farmers?
The answer is a big NO.
The newly formed SPV, ZAMACO, will only takeover NPL secured against recoverable collateral.
As at June 2014, the banking sector had lost $700 million to non-performing loans.
However, NPLs amounting to US$45 million have already been acquired by ZAMCO from three banks as at 15 August 2014.
This is not the first time an SPV has been formed.
When the ZB Bank had problems of NPLs, Government set up what was called Climax, which took the debt off the book of ZB.
When CBZ was beset with a similar fate, Government created, CBZ Nominees to terminate its NPLs.
Nigeria and Malaysia are examples of countries that have successfully employed SPVs to deal with NPLs.
And the farmer’s best bet for acquiring loans is the 99-year leases.
But banks have not been eager to recognise the leases.
The past six months witnessed an impasse between Government and Banks on 99- year leases.
Government wants banks to recognise the 99-year leases as collateral but banks argue the land titles are not transferrable and bankable.
While resettled farmers struggle to obtain loans from banks, in the past commercial farmers would simply acquire financing using their land titles as security.
Financial institutions this year only contributed 15 percent to the agricultural sector, a figure that is way below the required funding.
Failure to access funding has prejudiced the country millions of dollars in potential revenue from agriculture.
The few bank loans being extended to farmers are largely short-term whereas the sector requires patient capital.
Addressing stakeholders at this year’s Agri-Business Conference last week, Bankers Association of Zimbabwe President Sam Malaba said the country medium and long-term funding was critical for agricultural growth.
The country’s debt overhang, he said, was affecting financial institutions’ ability to source capital for long-term lending.
Since dollarisation, in 2009, farmers have not accessed long-term funds.
“Usually, long-term financing came from donor funding, but until the country deals with issues of land tenure and addresses the $9,7 billion external debt, there will be no long-term money,” said Malaba.
However, last year the country secured a US$98 million loan from Brazil to fund the mechanisation of the agricultural sector, including rehabilitation of irrigation schemes.
Malaba said resolving the problem of limited credit to the agricultural sector calls for concerted efforts by all stakeholders, including farmers, bankers, Government, non-banking financial institutions.
Better prices for crops such as maize and others, he said, will inspire confidence of financiers.
Presently financiers have preferred to support tobacco, sugarcane and cotton producers as these are guaranteed of higher returns which reduces risk of default.
“There has been a discernible shift in agricultural financing and production towards cash crops such as tobacco and sugarcane away from traditional cereals such as maize due to efficient value chain,” he said.
The 2014/2015 cropping season begins next month and farmers say without support a poor outcome will be recorded.
Stakeholders have called on Government to support the Agricultural bank of Zimbabwe (Agribank) which is mandated to fund farmers.
The bank published in their financial report early this week that it is impaired and unable to fulfil its mandate.
Agribank board chairman Sijabuliso Biyam said the bank was in dire need of recapitalisation.

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