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New funding model for agriculture

30 Nov, 2018 - 00:11 0 Views
New funding model for agriculture

eBusiness Weekly

Tawanda Musarurwa
Zimbabwe is prepared to provide guarantees to banks that will be financing agriculture to help plug the funding gap to the sector, according to Finance and Economic Development Minister Mthuli Ncube.The move is part of broader efforts by the Government to crowd in private sector funding into agriculture.

While the model is not too different from the Command Agriculture through which the private sector would pre-finance farmers with the Government providing guarantees, credit would now be extended based on bank’s risk assessment.

Many beneficiaries have defaulted, resulting in the Government picking the debt.

Due to lack of proper supervision and criteria from providing support to the beneficiaries of Command Agriculture, the facility was open for abuses which included the sale of the inputs or diversion of inputs towards production of crops not contracted.

Agriculture, despite being the mainstay of the economy has failed to attract meaningful support from the local financial institutions due to deficiencies in the 99-year leases.

According to local farmer organisations, the 99-year leases issued to farmers after the land reform programme remain largely “invalid” for borrowing.

The lease is a legally binding agreement between the Ministry of Lands, Agriculture and Rural Resettlement (Government), which is the lessor and the farmer; who is the lessee.

In its present form, farmers claim the land title is not bankable instrument for borrowing.

Ncube said while the Government was working on perfecting the 99-year leases, the Treasury was chipping in by providing guarantees to banks’ lending the farmers.

“They (the banks) have said they want perfection on the 99-year leases, and that is a legitimate request or concern, which is being done,” said Ncube.

“But in the meanwhile, the Treasury stands ready to give guarantees, especially

to State-owned banks for them to be able to extend credit to farmers.

“There are players that are missing in the financing of agriculture. So what we have been doing as the Ministry of Finance is to really work with the Ministry of Agriculture to crowd in the private sector, for instance, by making sure that the banks fund agriculture.”

Ncube said in addition to engaging local banks, Treasury was also encouraging agriculture-based manufacturers to facilitate out-grower schemes to assure the availability of critical raw materials locally.  “The other leg of the private sector is industrial corporates who are users of agricultural commodities in the form of cotton, wheat, sorghum, and soya beans among others. They must get into out-grower schemes and we have the example of Delta Corporation who have mastered this game, so there is a model out there to copy. So by crowding in the private sector in this way would be fantastic.

Minister Ncube, however, emphasised that the financing of the strategic grain reserve lies with Treasury. “That is our statutory responsibility,” he said.

 

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