Farm lease changes unlikely to make banks eager to dole out loans

Aug 31, 2011

After Zimbabwe's land reform (or land grab, depending on your point of view), it was belatedly realized that possession did not automatically lead to productivity and wealth. Among the many impediments to farm productivity identified is the fact that the new farmers are lease-holders rather than owners of the land they work, and so cannot use that land as collateral to apply for bank finance. Changes have been made to the clauses of the 99-year leases to take into account the reasons for banks' reluctance to get involved in farm lending. Although the bankers' association is reported to be pleased and reassured about those changes, it is a patchwork solution that is unlikely to achieve the desired results.

"Banks happy with changes to 99-year farm leases" was the interesting heading of an article in the Herald about modifications to the leases to make them more 'bankable.'

An official of the Bankers Association of Zimbabwe is reported to have said, "A lot of the constraints which made the lease unattractive to beneficiaries have been addressed to our satisfaction." Among other adjustments to the lease, a new clause states, "The lessee may use the lease as collateral in securing agricultural financial assistance from any financial or agricultural institution."

That is all very well, but it is unlikely that just stating that is going to make a significant difference to the banks' reluctance to get involved in agricultural lending the way they once did under the old free-hold title system that had been an integral part of Rhodesian farming for decades, and then Zimbabwean farming from independence in 1980 to the start of serious land reform in about 2000.

Among clauses of remaining concern to the banks is one that states that, "Lessee cannot cede, assign, hypothecate or enter into a working partnership without the authority of the lessor (government), lessor has six months to respond."

Not only is six months too long for the banks to get a response to a dispute over a non-performing loan, if the six months response time is exceeded by the government there is little the banks can do about it. Government could choose to keep approval of a banks' request for a farm to be ceded to it or transferred to someone else for an indefinite period.

The BAZ point out that the government retains broad powers to withdraw a lease. Numerous land disputes in recent years have shown that these broad powers can easily be abused for political reasons. That is perhaps the biggest danger towards the establishment of a new system of land tenure that is trusted as transparent and fair by all key players in commercial agriculture, including financiers.

The system of using title deeds as collateral works in a capitalist system where in the event of a dispute between lender and borrower, the title deed reverts to the lender through the courts without much fuss, and without the need for government intervention. Trying to panel beat the new system where government owns all land to fit that capitalist system is mixing up two systems that are not easily compatible.

By deciding that all farm land now belongs to the state, with new farmers being renters rather than owners, the government necessitated a fundamentally new way of thinking about how to address the vexing problem of those new farmers being able to access finance. If banks are being looked at as a hoped for major source of farm lending as once before, it will be very difficult for that to happen in any system in which the borrower is not also the owner of the land. That introduces too many additional, new variables that can potentially impinge on his farm performance, and therefore on his ability to repay his loan, that are outside his control.

One example is the experience of ZANU-PF MP and deputy minister Tracy Mutinhiri. She is no longer in good books with the party, and has been recommended for suspension, allegedly for being a little too cozy with the party's main opposition, the MDC. Some people in ZANU-PF are agitating for her to be stripped of her farm for her 'disloyalty,' although technically she was given the farm in her capacity as a black Zimbabwean rather than as a ZANU-PF official.

But the point is that she is marked for at least serious harassment from party members who would like her off the farm. Unlike a farm she had bought and had a title deed to, she can't just call the police to arrest trespassers disrupting production, because the disturbances have a charged political element. In a clearly capitalist, free-hold, strictly rule-of-law system, she could hire private guards or request the police to deal with trespassers. In fact one of the things many of the white farmers of old were resented for is how their farm boundaries were sacrosanct. They jealously, sometimes ruthlessly dealt with trespassers who traversed them in a way that is no longer really possible in the new dispensation, where land is in a way "everybody's" because it is the government's.

The attempt to mix and match two basically different land tenure systems to try to unlock bank lending for the new farmers is understandable, but there are too many factors working against the likelihood of success. Don't expect the banks to significantly increase lending to the new farmers, no matter how pleased they say they are about changes to the government farm lease to vainly try to make it perform some of the key functions of a title deed. It's simply a question of apples and oranges.

Government and all 'stakeholders' will need to think much harder than trying to pretend that the new lease can be sort of like the title deed of old in making finance more readily accessible for new farmers. It's not going to happen. By and large, farmers will have to find other kinds of support, or go it alone, with all the implications of that for the development of their farming businesses and for the recovery of the country's commercial agriculture.

The government took a radical, unconventional, controversial and ''out of the box" solution to land reform, but thinks it can then revert to selected conventional parts of the system it removed to make the new system work. What is needed is an acceptance of the need to design a completely new system in most aspects, including how to fund the new farmers.

At the very least, it is going to take a long time for all players in commercial agriculture to accept and trust the legal sanctity of the lease document, in terms of its transferability without administrative or political hassle. It is not simply a matter of incorporating a few new clauses, but of instilling trust and confidence in a whole new system. Even if there were not the messy 'ownership' wrangles that continue between new farmers, often times with political overtones, it would still take many years to entrench a new system everyone, including lenders,  was confident covered their interests and was actually legally actionable.

Zimbabwe is struggling with a legal crisis of confidence where one can have a court judgement in one's favor, but have no way to implement it if it is against a prominent political personality, to give just one example of  how the disruption of the old rules cannot simply be fixed by political declarations and new documents.  

No matter how the 99 year lease is re-worded, the changed political circumstances in which farming in Zimbabwe operates now means that there will not be many farmers who are going to be able to convince banks to lend them money based on that rental document. It's not likely to work; it must be back to the drawing board on finding a new model of farm finance.

Sorry to be a bad news bear.


Post a Comment