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NewsDay

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Banks dishonest on 99-year leases: Govt

Business
GOVERNMENT has accused bankers of being dishonest concerning the conditions needed to use 99-year leases as collateral, and implored financial institutions to reduce the cost of borrowing.

GOVERNMENT has accused bankers of being dishonest concerning the conditions needed to use 99-year leases as collateral, and implored financial institutions to reduce the cost of borrowing.

BY TATIRA ZWINOIRA

Interest rates for loans from banks average 15% to 20% per annum.

Speaking at a breakfast meeting yesterday at the Harare Agricultural Show, Agriculture deputy minister (livestock) Paddy Zhanda said bankers have to understand that finance was a major challenge in agriculture.

“The challenges of agriculture in this country are issues to do with finance, and on the issue of finance, is the issue of the interest rates. On the issue of productivity, when you are talking about agriculture as a business, you are talking about basically what yield are you achieving, whether you are producing eggs, milk or whatever you are producing. The viability of agriculture is dependent on your yield that you achieve. Also, there is an issue of access to the markets and climate change,” Zhanda said.

“Even if the 99-year leases are bankable, the issue here is that bankers are not being honest. The issue here is that the Reserve Bank (of Zimbabwe) requires that bankers give you loans on the basis of security that you provided.

Therefore, banking institutions should never be on the basis that you have given security,” he added.

“It must be on the basis that the project makes sense and the money is structured in a manner that it gives client-to-borrower flexibility. Also, your interest rate has to be reasonable. Really 15% or 20% is for the top farmers.”

Government and banks have been haggling, with the latter arguing that the 99-year leases in their present form do not constitute collateral.

This comes nearly two decades after government embarked on a fast-track land reform exercise meant to redress colonial imbalances.

In the past, commercial farmers used to pledge land as collateral and get loans from banks.

The land reform exercise has brought uncertainty as government has failed to bring closure to the exercise.

Bankers’ concerns are on proposals that bankable 99-year leases must ensure that the farmer has stability, an assured stay on the land for as long as they are productive and an incentive to invest in the land such as a structures that promote productivity.

Other concerns included farmers having an established market for their produce, reasonable and predictable transfer market of buyers, and allowance for the lender to hold both movable and immovable as collateral.

However, disagreements between government and bankers started after banks asked for moveable and immovable collateral, than in the old days when they would only ask for the latter.

Bankers also stated that there will also be other risk factors involved on top of these concerns.

Government proposed farmers use these 99-year leases to access loans from banks, as the sector struggles from a lack of funding.

The agricultural sector is estimated to require $2 billion in financing.

But banks currently allocate about 20% to 25% of their lending to farmers.