Major bank deal for farmers

Major bank deal

 Banks are now required to allocate at least 20 percent of their loan packages to small-holder farmers in line with a new policy that is tailored to increase agricultural output. The financial institutions have up to June 30, 2016 to comply.


The Agricultural and Rural Credit Policy extends banking services to rural areas and enables small-scale farmers to circumvent credit terms such as colletaral. Farmers have been failing to access bank loans due to lack of prescribed collateral.

Reserve Bank of Zimbabwe governor, Dr John Mangudya told The Sunday Mail last week that the new dispensation ensures a profitable and sustainable agriculture system. lt will also stimulate conditions for agro-processing and related industries.

He said the Agricultural Marketing Authority will be required to identify and promote vibrant markets and linkages.

“The Central Bank has developed an Agricultural and Rural Credit Policy that aims to make agricultural credit more disciplined and methodical, easily available to all farmers and areas with a view to expanding banking services to rural areas and maximising use of agricultural land.

“The policy covers major sectors of agriculture, including crop, livestock, fish production, agri- equipment, irrigation equipment, grain storage and marketing. Under this policy, total lending to agriculture should constitute a minimum of 20 percent of a banking institution’s total loan portfolio.  He said banking institutions are required to report quarterly on their agricultural portfolios with effect from the quarter period ending 30 June 2016.

Dr Mangudya also highlighted that the detailed variables to be reported will be provided by the RBZ in due course.

“In complementing Government’s efforts to revolutionalise agriculture through introduction of modern farm mechanisation, improvement in production yields, promotion of better market access and integration of farming with other diverse markets, banking institutions should provide more innovative and sustainable value-chain financing products to smallholder and rural farmers,” Dr Mangudya said.

“In order to ensure the country’s self-sufficiency and food security and to boost exports, banking institutions should prioritise lending for production of maize, cotton, tobacco and horticulture.”

Zimbabwe Farmers’ Union executive director Mr Paul Zakaria welcomed the development.
“We applaud RBZ governor Dr John Mangudya for supporting small-scale farmers. This will improve productivity. Small-scale farmers co-guarantee each other on loans.

“This category of farmers is organised as groups that pay input suppliers’ companies, banks and contract workers. Despite such security, though, there is need to consult farmers that will use the facility, assessing possible risks,” said Mr Zakaria. Annually, Zimbabwe requires 1, 8 million tonnes of maize for human and livestock consumption.In 2014/15, the communal sector covered 61 percent of the area under maize, with A1 farmers contributing 18 percent.

Nigeria’s Incentive-Based Risk System for Agriculture entails that country’s government and banks to share credit risk.

Under the scheme, the state repays loans when farmers default and then recover the money from the culprits.
Over the years, the Nigerian government has committed US$350 million to this arrangement in order to encourage financial institutions to embrace agriculture. Consequently, agro-financing increased from roughly 0,7 percent in 2011 to 7,5 percent in 2014.

Agricultural input markets also expanded, with food production increasing by well over 17 million metric tonnes during that period.