The banking sector has set aside $1,1 billion in funds for the 2017 /8 agricultural season. These funds comprise of figures derived from each bank in the sector, except Steward Bank, which is yet to commit an apportionment. It is clear, however, from submissions that banks are voluntarily not supporting national policy direction.
The banks further broke down the $1,1 billion into crop categories. Tobacco and maize crops have been apportioned the greatest share of loans to be disbursed, taking up a cumulative 72 percent or $800 million.
Sector analysts have raised query on whether or not such a proportion of loans is balanced, considering that the sector should be diverse in cropping.
Cotton, for instance, has only been allocated 5 percent or $55 million of loans to be disbursed for qualifying creditors. Introspective bankers questioned the rationale of a relatively paltry allotment for a crop that should be a significant export earner supporting the balance of payments and bringing in foreign currency.
Cotton output has been on the decline since its peak in 2011 of 475 tonnes, decreasing to an output last year of 80 tonnes last year, a figure last seen in the drought year of 1992.
The low apportionment is contradictory to overt signalling by the RBZ which extended a 5 percent export incentive to cotton farmers at the beginning for the year and promised greater allocation of loans. Indications are that banks have lost enthusiasm with financing this crop.
It is understandable that tobacco and maize have high apportionment of loans respectively. Tobacco exports rose 9 percent in 2016 from the prior year.
Banks have allocated an extra $100 million to 2016’s $600 million loan allocation creating a $700 million purse for the 2017 /8 season. Maize, through command agriculture, is also expecting greater output and returns so banks predictably perceive more profitable lending.
In a vague crop category of “other”, banks have set aside $126 million to an unspecified basket of crops. Assumption is that horticulture and cash crops are rigidly to fit within this loan budget, which has in fact decreased from $200 million last year.
This means all horticultural crops, potatoes, and sugar beans will have to compete for a relatively small amount. Global horticulture markets were traditionally, and due to normalized relations with Europe could still be, top earners of foreign currency.
In 2016, horticultural produce exported to EU were valued at $83 million. Under Statutory Instrument 64 of 2016, potatoes were a crop under import restrictions, with fast food retailers and large commercial chains complaining about the low local supply. Agricultural observers logically expected a greater allocation of financing to be targeted towards horticulture and potatoes as there was favorable government policy for the crop.
Banks are expected to submit these figures to the Ministry of Finance next month. However, a trend is evident that loan allocations are not in coherence with recent fiscal and industrial policy direction. There is also a lack of cognizance, or intentional disregard, for agricultural structural reforms by banks. Market demand for sugar and soya beans, for instance, are well over 300 000 tonnes, yet financing made available is for less than half this demanded yield.
This hints banks are not tracking market demand and supply composition for crop allocations.
There is a suggestion that banks have developed a crop preference in terms of profitability, with certain crops either showing strengthened structural value chains or credible off takers of which risk averse banks favour.
Crop expertise is typically considered when loans are being budgeted. Less technical crops are favourable for bankers are more farmers are likely to succeed in yield and apply best farming practices.
Last year, for the 2016/7 season, banks allocated $1,1 billion as well. But, analysts wonder what proportion of that allocation was actually disbursed?
Bank executives have spoken of farmers not being creditworthy due to a lack of security, hence talk on 99 year leases. Innovative executives though have ventured into investigating and even hosting forums on securitised value chains are other structural mechanism of loan security.
However, widespread sentiment is that most farmers nationwide remain uncreditworthy to access these loan allocations. Agriculture, Mechanisation and Irrigation Development (Crop Production) Deputy Minister Davis Marapira said: “Most of our farmers are still struggling to get funds from the banks due to collateral issues so the proposed $1 billion figure is a bit flattering for us as the same farmers still have not done much to get indemnity.”
Risk tolerance in banks also remains low as most banks are committing to lending short term depositor funds.