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Land tenure reforms to spur agro-mortgage finance
2006-10-30 08:42:49
By Kasembeli Albert
The primary role of the banking industry is financial intermediation-mobilising funds from surplus units and making it available for investment to deficit units.
But this is only the classical or traditional function of a banking institution.
However, the Banking and the Financial Institutions Act, 1991 and the Bank of Tanzania Act, 1995 and several regulations promulgated under the two legislations provide prudential benchmarks to be adhered to by banks for the purpose of minimising incidence of bank failures.
In Tanzania, credits access is difficult and when available the interest rates are prohibitive. Credit access is a major problem particularly to the agriculture and mortgage sectors.
These two crucial segments of the economy have been starved financially, and sidelined by financial institutions.
The contention is that the pivotal role of agriculture in Tanzania cannot be understated. 80 per cent of people depend on it directly.
Agriculture accounts for 50 per cent of the GDP, yet the quality of life of farmers is appalling.
Equally so, is the status of housing and home ownership.
The speed of urban migration is increasing astronomically with 70 per cent of people living in unplanned and unhealthy dwellings.
The situation in urban and peri-urban centres in Tanzania is not rosy.
Most intriguing, however, is that, even the few with limited financial means or with access to finance, have not been able to own homes.
Herein, then lies a dilemma, which should be translated into a challenge for all.
Statistics released by the Bank of Tanzania (BoT) illuminate that in 2003, the total liquidity held in the banking system was 2.5tn/-.
Out of this amount, only 800bn/- representing 40 per cent was invested in loans and advances.
In addition, less than 6 per cent of Tanzania had access to credit with agricultural sector performing miserably by accessing less than 1 per cent.
So the principle question is what role should the banks play in revamping our agriculture and housing sectors? In most cases banks have blamed for being ”greedy.”
There is a myth that, banks consider agriculture sector too risky to qualify for financing. Sustainability of the business; adequate property rights, which a lender may have recourse in case of default; administrative cost of the loan; underwriting and efficient mechanism of enforcement of contractual obligations are what banks consider.
Mechanisation of agriculture has been hampered by finance and the outdated land tenure system.
The land tenure system provides the biggest reason for the reluctance of banks and financial institutions to extend credit to agriculture and mortgage.
Land tenure in Tanzania is in the form of a right of occupancy and leasehold. There is no freehold system.
The primary legislation governing landownership is the Land Act, No. 4 of 1999 as well as Village Act, No. 5 of 1999. Under the Land Act, there are several categories of land but the most relevant is general land.
Very few Tanzanians fulfil the provisions for land ownership, which could be used as collateral in accessing credit facilities for agricultural entreprise.
Chapter X of the Land Act, No. 4 of 1999 relating to mortgage has been of concern to bankers as its provisions tended to inhibit bankable projects especially mortgages from accessing finance.
There is need for the government and stakeholders to review the legislation and amend.
As we all know, lenders require security for their advances. In agro-mortgage finance, security could be the land, properties constructed thereon.
This collateral cover is quite appealing to bankers as it is easy to enforce. Consequently, property rights – in all its forms of collateral – must be clearly defined and should not be let to chance.
For it is a fact of life that any farmers who fails to discharge his obligations to a lender due to his inability to mitigate the risks – be they against vagaries of weather or mismanagement – should give way to another farmer who is capable doing better.
Agro-mortgage finance is only feasible in an environment where there is an efficient land delivery system.
Serviced land should be available to property developers who in turn, can link up with finance houses such as banks.
Lack of serviced land also affects property rights.
It is imperative, therefore, for the government to ensure that serviced land, even if its availability attracts a premium, is readily accessible to developers for passing it over to the consumer – the mortgagor.
Hampering financing at all levels is lack of credit information.
It is informative to note that recent amendments to the Bank of Tanzania Act provides for credit reference system and make it mandatory for all banks to submit information on borrowers to the credit reference data bank.
Even with the credit bureau in place, lack of national Identification Card (ID) makes it difficult to positively identify persons. Lack of storage and retrieval of data in important registries such as BRELA, Registrar of Titles, Registrar of births, deaths and marriages and court registries ought to be rectified.
Banks are also worried by their inability to divulge information of defaulting customers due to legal limitations.
Therefore the government ought to address these with a view to creating an enabling framework for a vibrant agro-mortgage finance market. In the same vein, banks ought to engage directly in the two sectors.
Funds should be set aside to finance farming and agro-business that add value to agriculture.
At the same time, there is need for regulations currently under review to be expeditiously finalised. In this case, all stakeholders should forge a partnership in the way forward.
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