Lack of title deeds is not the main impediment to agricultural financing in Zimbabwe

by Chido Makunike

It's no secret that banks everywhere are generally very leery of agricultural lending, for all sorts of reasons.

One key way that Rhodesia became an farming powerhouse is by successive governments, the farming and banking sectors, over decades, finding a way to work together to purposefully drive the development of a sophisticated agricultural economy. After independence in 1980 government changed its composition from white to black but by and large for some years the alliance held, if more uneasily than before.

The agricultural infrastructure remained in place and even expanded after independence. Reliable local and domestic markets continued to encourage farm production. On the farms there was not much change from the way things had been done before 1980, easing the fears of what Independence would mean for them for the then dominant large-scale white commercial farmers. Banks in turn felt comfortable continuing to lend to them under the largely-unchanged scenario. While the holding of title deeds by the farmers may have been part of the reason for the banks' continued confidence in lending, government loan guarantee schemes were another reason that they felt relatively protected from the risk of default by the farmers. And so on and so forth.

Since 2000 almost all these conditions have changed drastically.

Most obviously and famously, the white farmers who over a long time grew experienced at large-scale farming have been forcibly replaced by smaller-scale 'new' black farmers. Even if that radical, overnight change had not been controversial, it would simply have taken time, probably many years, for the new farmers and their banks to develop a mutual confidence that could then eventually result in a lender-borrower relationship. But of course the change was extremely controversial, in ways that made it almost predictable that the banks would stay clear of lending to agriculture in the way they had done before.

Certainly the issue of title deeds would be one of the factors but the prevailing conventional wisdom that it is the main reason for banks not lending to the new farmers in any significant way must be questioned. The willingness of the banking sector to lend to the former white farmers was based on confidence in an entire established socio-economic system in which title deeds as collateral was only a part.

Once the decision was taken to go ahead with the type of radical land reform that was embarked on, it was then necessary to devise and implement a different socio-economic support system for the 'new' type of farming system it was hoped would replace the old. It now seems clear that there was no comprehensive thought given to what such a system would be, the government seeming to make things up from day to day, season to season.

If a farm loan goes bad, what recourse does a bank have where there was neither a title deed or any other form of collateral? In the Zimbabwe of the last 10 years the politically correct answer to this question is of course that the banks should not 'seek to reverse the gains of the revolution' by asking too many questions. They should just put out the money, and hurry up about it too!

This of course hasn't happened and isn't likely to. It is surprising that so many in both government and in groups representing the new farmers seem surprised by this. As a result more time and effort continues to be expended on moaning and groaning about this than in devising a new system in which lenders and borrowers can again have confidence that their mutual fears and interests are catered for. In the first years or decades of building such a system, it is almost inevitable that government will have to play a prominent intermediary role of one kind or another. Ideally, eventually a new farming finance system in which lenders and borrowers can again have direct, strictly commercial relations as had happened with the now deposed system of agriculture will develop.

In a situation where few of the finance-seeking new farmers have collateral to match the kinds of credit they need from banks, it has been sometimes suggested that lending should instead be based on the 'viability' of the farming operation in question.

Apart from the issue of the difficulty of getting all parties to agree on the definition of 'viability,' if a 'viable' project becomes unviable, the lender would still want to be assured there was a means of recovering their money. There was and remains a huge gulf between what many of the new farmers were and are expecting from the banks, and the way the banks look at the issue in general, and the risks of lending to the new farmers in particular. Because of the fundamentally different way that lending institutions and new farmers seeking credit see their interests, there is an inevitable need for a third party, at the very least led by or with the strong representation of government, to play a bridging role. The provision of loan guarantees to banks lending to rigorously vetted applying farmers would be just one example of such a role.

Instead of naively hoping that bank-to-farmer lending would continue under the new system as under the old, it was necessary to think about how the differences of the new system from the old would impact on everything, including the confidence of the banks to lend to the new farmers.

For instance, once government effectively annulled the title deeds of the white farmers, replacing them with occupancy 'offer letters' to the new farmers, what reason was there to expect that the banks would have much confidence in them as security? The laws were eventually amended to make these offer letters legal documents, but we have seen over the years that they could be easily withdrawn by the issuing minister or some other official, with no real implementable legal recourse for the affected farmer.

Therefore, offer letter or not, the whole idea of security of tenure for the new farmers was in public perception shaky. There have been countless disputes about these offer letters, and high-profile cases of farmers with them being displaced by bigger political fish. The offer letter is very far from being conceived to confer anywhere near the security of tenure that the title deed of old did then.

If there had been established a precedent from the beginning that having an offer letter was as good as having a commercial lease (or as good as having a title deed in the pre-land reform era), the land reform effort might have had a chance of beginning to establish a new confidence in security of tenure in the new system. This would have been good for the farmers themselves, giving them confidence that whatever they did on their farms could not be forfeited at a moment's notice on the whim of a politician or a bureaucrat. Eventually this would have also improved their prospects of borrowing money for their farming activities.

Government seems to have finally realized that this lack of confidence in the security of tenure is one factor that is preventing a return to normality in commercial farming. Ministers are now frequently heard saying continuing farm invasions are counter-productive and that new 'invaders' will be treated harshly. For a government that encouraged such invasions for years, this new concern has a hollow ring and not surprisingly, is often not heeded, with the government now too compromised by its previous encouragement of them to do much about them, even when evicted farmers have the backing of the courts to stay on. The genie of lawlessness that the government thought it could unleash selectively against unpopular white farmers is now proving very difficult to control and put back in its bottle.

Which brings up another key reason the issuance of new title deeds or offer letters is unlikely to make the banking system any more willing to significantly lend now to farmers, new or old.

With regards to farmland in particular, but to many other matters in general, the Zimbabwean government has so often disregarded its own laws that it is very unlikely that the banking sector in 2010 could have confidence that being in physical and legal possession of a defaulting farmers' title deed would provide sufficient grounds to repossess a farm after winning a court judgment. Will that judgment be enforcable, especially against a lender who is politically powerful? In a situation where gun power is far more important than the rule of law, what practically could the bank do to recover its loan money? That these question can not be answered confidently in the Zimbabwe of 2010 is a sign of the extent to which the rule of law will have to be restored before large scale lending for farming can resume. This will not be easy and will just take time, even if the continuing seeming arbitrariness of land allocation and re-allocation is stopped. For all these reasons, even if new title deeds were issued, for some time to come they are likely to have relatively little 'security' value for banks considering whether to lend or not.

One does not have to be a fan of the banking industry to see that the murkiness of the legal and political situation regarding land ownership or possession does not "lend" itself to encourage injections of credit or investment.

So new title deeds will only give agricultural lenders and investors confidence when a whole new system (legal, political, infrastructure, etc) to support agriculture is not only in place, but is seen over years to be respected and adhered to when conflicts arise (such as a loan default) by the political establishment, the judiciary and the rest of the country's systems. Unfortunately Zimbabwe is still very far from that, at least 10 years after deep thought should have begun on all the implications of overturning the old system, which was as functional as it was considered to be socio-politically unpalatable. Little thought and planning seems to have gone into what it would take to develop a system of agriculture as functional as the old one, but without what were considered to be its unacceptable socio-political aspects.

Excerpts from 'Govt makes U-turn on farm title deeds' in Newsday of September 26 2010:

Government says it is considering giving farmers security of tenure for land acquired during the chaotic fast-track land reform programme in order to unlock funding for the agricultural sector, a move that marks a landmark policy U-turn.

Since introducing the 99-year leases in 2006, government has resisted the move, arguing it would reverse the land reform by allowing dispossessed white farmers to buy back the acquired farms. The resistance reached its climax in July when some Members of Parliament booed Finance minister Tendai Biti for recommending the securitisation of 99-year leases.

But in a surprise move, Lands and Rural Resettlement minister Herbert Murerwa said government had engaged local banks to securitise the leases...(this) would convert 99-year leases into transferable, tradable and bankable property without ceding title deeds and empower banks to alienate the leases if the owner defaults.

“The Ministry of Lands and Rural Resettlement is currently engaging the Bankers’ Association of Zimbabwe (BAZ) to see how this problem (of security of tenure and access to agricultural funding) can be overcome. There is a team working on this issue in order to see how the leases can be made bankable,” Murerwa said during his address at the Zimbabwe Commercial Farmers’ Union annual congress. The Bankers’ Association of Zimbabwe gave us some recommendations which we are still considering as government. We cannot disclose the recommendations as they are technical.”

BAZ president John Mushayavanhu: “It’s true we are engaging with the ministry on the 99-year leases. We want the leases to be transferable. We want the ministry to make it possible for banks to take over the lease and pass it on to the next person if the owner of the lease defaults.

“We also need clarification on the duration of the 99-year lease in terms of tenure,” Mushayavanhu said. Citing the examples of Zambia and Mozambique, Murerwa said securitised leases can serve the same purpose as title deeds.

These talks are not likely to lead to any concrete, favorable solutions to the impasse in the short term. Either the government now naively believes that if the new farmers have title deeds the banks will open the money taps wide, or it knows better and is politicking by giving the new farmers false hope that their newly minted pieces of paper will also be 'bankable.'

Then of course there is the additional issue that the banks themselves are struggling to recover from the last several very difficult years for Zimbabwe, during which no sector was unaffected. Do the banks have the money to lend at all to the huge extents needed, especially to an economic subsector, agriculture, that even in the best of times is considered high risk?

The banking sector is as averse to risk as the farming sector cannot avoid it and almost thrives on it. A banker will demand 100 different guarantees that it is safe to get out of bed every morning before s/he does so, and then expect iron-clad 'security' that they will be compensated if anything goes wrong should they take the big risk and actually get out of bed. A farmer, on the other hand, does what s/he can to minimize risk but also accepts that his/her life choice unavoidably involves multiple risks against which there cannot be any security.

So there is a way in which the whole ethos of banking and of farming are at odds with each other, before you throw in all the many additional complications of the current Zimbabwean situation.

It's all very well for the bankers to 'engage with the ministry on the 99 year leases.' Suppose the results of that are positive. Will the ministry/government be able and/or willing to implement what they would have agreed on with the bankers in the case of a high default rate? Or will the matter then become again more 'political' rather than legal? Would whatever assurances the government gives about the transferability of leases in the event of default be respected?

Unfortunately there has been in the last decade a lot of reason for these questions to be asked of the government, and for its 'assurances' to be doubted! Therefore amongst many other factors, the government has the tall order to convince the banks that the era of arbitrariness in regards to everything to do with land was a temporary one. This will not be easy, and I suspect that even when the banking sector is in a stronger position than it is now, it will take a long wait and see attitude before it dispenses farming loans in any significant way.

Obviously for the serious new farmer access to finance is a pressing, immediate and perennial issue, while the bankers and the politicians can afford to waffle about the issue for years. And definitely the country needs and would greatly benefit from a serious plan to come up with a new farming paradigm that takes into account the vastly different realities of today, compared to 10 or more years ago. How to make access to finance more readily available would be an important part of that new paradigm.

It is good that finally the issues of security of tenure and access to finance are being discussed more seriously than they have in the past ten years. It is alarming and a great disservice to the new farmers to make them hope that if Mr. Murerwa's ministry issues them pieces of paper with the words "title deeds" on them, finance will flow to them. It's not going to happen.

Unfortunately for the country and for the new farmers, for the foreseeable future they will probably have to source private finding for their operations; funding which is likely to be unreliably accessible and inadequate.

This means whatever recovery is seen in farming will still be below the country's potential, even when all the other problems are taken into account.

It is time for Zimbabwe to look at the requirements of the new land tenure and farming systems that exist in a new, holistic way in order to provide the different support systems that they need for their success, and for that of the country.

The Zimbabwe Review
http://www.thezimreview.com