Solving riddle of agro-bank amid crop export ban won’t be easy

First among them is the much-hyped Tanzania Agricultural Development Bank, another billed as a land bank, and still there is a women’s bank that started to operate and showed promise and apparently slackened thereafter.

Nor is it clear if a much vaunted teachers’ empowerment bank has proved viable or derogated in its strategic priority listing among teachers, trade unions or the government, like the other banks.

As it would be expected, the reason these banks are proving difficult to set up and run is easy to gather, in the fact that the need for such facilities arose from inability to procure credit in a routine way from commercial banks and non-bank financial institutions.

Setting up a specialized bank isn’t as stakeholders wish the public to believe, that it is an effort to get around bureaucratic hurdles in processing loans, or inability to take specific groups with the importance they deserve in terms of credit worthiness.

Lands sector minister William Lukuvi routinely reminds officials of commercial banks to accept customary land titles as collateral, which is unlikely to be heeded.

On the contrary such titles can be more easily accepted in localized financial institutions like SACCOS or VICOBA, as the sort of entitlement and transfer envisaged will be consistent with being a villager, whereas a commercial bank would pick up any bidder to offload that property.

In a situation where the government is now, on a daily basis, urging invitations of investors from foreign countries to enable the country’s industrialization program to take off in a sustainable manner, issues of this sort need to be resolved.

And the government is taking up the matter hands on, as this is the precise thrust of the new land policy, by elevating occupancy titles to 99 years.

While this shift begins to offer a sense of direction for banks and collateral need or transfers of the use of such plots to investors on account of a sufficiently long period for medium and long term investments, the situation is still awkward for agro-sector banking facilities.

Unlike needs of investors in developing a piece of land, here the basic requirement to offer loans is that the borrower has ample chance of obtaining the wherewithal to pay the loan on account of positive price signals in the market.

But when the government bans grain exports, how is this assured, and in the absence of such assurance, how can an agro-bank lend to farmers? Just on collateral?

Collateral lending works where chances of failure to pay are low or minimal, or where the collateral whets the bank or financial institution’s appetite, not where the issue is seasonal and inputs lending, equipment access or farm expansion.

In addition, control of access to markets at the best prices that a farmer can expect and a bank can work with implies that conditions of loan repayment failure will apply to the breadth of the farmers as a class, which impedes any such consideration.

In other words the government needs to eliminate protectionist sentiments where a flawed market assures cheap grain for urban areas, opt for oversupply as the basis of cheap grain.

Urban grain consumers can’t be shielded by loan taking farmers but hoe cultivators, in which case government should lift exports ban, allow farmers to flood the market, and prices diminish.