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We see tremendous potential in the Agricultural and Rural Credit Policy in terms of creating conditions for revolutionalising the small-holder agriculture sector and driving rural development. This is one area that basically operates on its own, relying on the farmer’s sweat and the strength of his oxen and donkeys with some support from the government if the farmer is lucky to be picked to benefit. Small-holders have failed to reach their potential because of lack of finance and proper machinery such as tractors and so on.
Yet this is arguably the most fundamental level on which national food self-sufficiency must be built.
With the government coming up with the policy we expect a drastic transformation of the small-holder farming sector. We look forward to it contributing to improvement in the socio-economic wellbeing of the rural population and greater development in the countryside. Furthermore, it should advance the government’s longstanding agenda of bringing banking facilities to villagers.
The policy says that banks must allocate at least 20 percent of their loans to small-holder farmers.
Reserve Bank of Zimbabwe governor, John Mangudya was quoted in our sister paper, The Sunday Mail yesterday saying that banks have up to June 30 to comply.
“The Central Bank,” he said, “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. In complementing the 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.”
Farmers must be happy, as we also are, that the facility does not end with just providing loans so as to boost farm output. Equally important is that it entails the creation of vibrant markets for the increased output. Without greater market access there was a possibility that the loans were going to enhance output but farmers would have nowhere to sell it as most of our small-holders lack skills to market their produce effectively.
The policy is great in that it covers a broad range of elements connected to agriculture. It looks beyond crops to include livestock production and fishery.
Historically small-holder agriculture has relied on manual labour, which negatively affects production, productivity, efficiency and quality of output. With the new policy, benefiting farmers would have their operations mechanised.
On paper, the policy has massive potential, like any other. The challenge will be on how the interest groups – the government, farmers and the financial services sector – are going to implement it to the benefit of everyone. We have had many colourful policy statements before that were forgotten as soon as they were unveiled or that failed along the way.
The Agricultural and Rural Credit Policy must not suffer the same fate as others before it.
In many cases, policy failure occurred because policy makers did not engage other critical players adequately and got their buy-in. So the problem always came at the implementation stage of those policies when key groups refused or failed to commit themselves to their success. In this latest policy pronouncement, which will depend on banks, we believe that the government conducted the necessary consultations.
Banks will always consider the risks involved in lending to small-holders, like they do when lending to any other client. Small-holders often don’t have collateral to back their loans and typically, a bank does not lend money to individuals who have nothing that the lending institution can fall back on in case the client defaults.
Apart from the possible lack of collateral, lending to farmers, is sometimes riskier than other clients because of challenges pertaining to adverse weather conditions.
A bad rainy season frequently results in a farmer’s output being affected, which makes it difficult for such a farmer to service his or her loan. We wait to see how the collateral security issue would be handled.
At the same time, we hope that the Agricultural and Rural Credit Policy has a training component under which borrowers are trained to fully utilise the loans thus minimise chances of failure.
We raise these points because we take the policy as a potential game changer for our small-holder agriculture which must succeed. If properly executed, it will be good for the farmer, rural development, the lending institution and the economy as a whole.
Online Reporter