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Putting money where the mouth is


During the launch of the Presidential Well-Wishers’ Special Agricultural Input Scheme, Agriculture Mechanisation and Irrigation Development minister Joseph Made announced the available input schemes for the 2012/2013 season. From a commercial banking perspective, Agribank was to set up a $15 million credit facility targeting  A2 and other eligible farmers. To say the very least, I was a bit sceptical then and, in fact, rather dismissive because I thought  it was one of those panicky government initiatives typically announced at this time of the year. Two weeks earlier, I had written in this column that following the launch of the Agricultural Policy, the 2013 Budget was government’s first opportunity to put its money where its mouth is through tangible agricultural financing initiatives. So when Agribank announced the Agricultural Credit Facility, I took immediate notice. This week, I could, therefore, not resist focusing on the nuts and bolts of the facility.

Opinion by Omen Muza

A key aspect of the facility is its revolving nature, which means all things being equal, it should be available in future seasons to support farmers. However, this is largely dependent on the ability of farmers to produce after loan disbursement and subsequently to repay their loans. Disappointingly, some farmers have developed notoriety for failure to repay their loans and accordingly, Agribank is expected to up the credit risk management ante to ensure that only those who deserve the facility can access it; otherwise its sustainability will be called into question. So this facility is seed. Anyone failing to repay a loan under this facility is guilty of roasting and eating seed (kukanga mbeu).

Loan recoveries under the facility will be through the tried and tested stop order system, ordinarily the best way to secure repayment. However, it must be remembered that this facility is targeted at maize farmers whose marketing challenges need no introduction. We have now become accustomed to Grain Marketing Boad (GMB)’s perennial struggles to pay farmers for maize deliveries. Under the stop order system, GMB will be expected to pay Agribank instead of the farmers. If such payment delays persist, the result may be liquidity mismatches for the bank, threatening the long-term sustainability and indeed viability of the facility.

While it is a drop in the ocean of agriculture’s financing requirements, this facility should go some way in allaying the fears of stakeholders such former Zimbabwe Commercial Farmers Union (ZCFU) president Donald Khumalo, who recently urged the government to go back to the traditional ways of supporting agriculture.

“Today what is believed to be the land bank, Agribank, is underfunded to the extent that it is not in a position to lend cheap finances to the agriculture sector as was the case with the former Agricultural Finance Corporation,” he said.

At an all-inclusive cost of 4,5%, Khumalo will have to agree that the facility is — by any local standards — reasonably priced when compared to prevailing market interest rates in the region of 15-30%, therefore, its utility to farmers is not in doubt. In theory, a total of 150 farmers are set to benefit from each annual cycle of the facility, assuming drawdown at the maximum amount of $100 000. However, in practice, the number of beneficiaries will be much higher because some drawdowns will be for lower amounts. While the number of beneficiaries still appears small, hopefully the idea is to ensure that only those with the know-how, capacity and proven track record to produce can access the facility, instead of the scenario we have become accustomed to whereby anyone with a heartbeat can access inputs, regardless of whether they can farm or not.
Sometimes less is more!

While it should be heartening for Agribank that an initial disbursement of $5 million has already been made under the facility, they would probably already be anxious about when the next disbursement will be made, given the paucity of government’s cash resources and the demands placed against it.

Operationally, I trust that Agribank already have their ducks in a row and all its branches can provide all the relevant information about the facility because it’s not unheard of for facilities to be announced when internal capacity to deal with applications has not been deployed.

Feedback: omen.muza@gmail.com.

Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory, research and training company with interests in banking, technology and agriculture as well as the convergence area among them.

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