Why village land title deeds qualify as loan collateral

05Jun 2016
Gerald Kitabu
Guardian On Sunday
Why village land title deeds qualify as loan collateral

SEEKING bank loans without having collateral remains one of the biggest challenges most rural communities face.
Most villagers intending to apply for loans have village customary land certificates of right of occupancy, but these are often rejected by banks as insufficient collateral.

Tanzania Natural Resource Forum (TNRF) programme officer conducts some training.

The recent move by the government urging Luganga villagers in Chemba district, Dodoma region, to apply for the customary rights of occupancy (CCROs), was welcomed with joy because they believed they were now about to access loans from financial institutions. However, they were soon to be disappointed.

Maiko Fifi, one of the villagers, says that after they obtaining the certificates, the villagers approached financial institutions with a view to applying for loans, but were rejected by the banks.

Luganga village Chairman John Mongo says land is the only capital that can be used by the majority villagers as a way of accessing bank loans because many farmers are poor and do not have the kind of collateral usually found satisfactory by banks.

He says the banks’ rejection of their customary rights of occupancy as collateral only fuels their poverty as it limits them from escaping from abject poverty.

“Villagers now understanding the value of land more than at any other time. It will be disheartening if that value will not sucure them loans from financial institutions so they can venture into entrepreneurship,” he says.

The villagers’ grievances spurred Tanzania Natural Resource Forum (TNRF) to conduct a series of training on security of land tenure rights, gender and accountability in different villages in Iringa Rural district, Iringa region, and Chemba district, in Dodoma region, recently.

Masalu Luhula, a TNRF facilitator of the training, said the Village Land Act, No. 5 of 1999 and the Land Act, No. 4 of 1999 provide for two systems of land tenure security. These are the Granted Right of Occupancy and Customary Right of Occupancy.

Luhula, who is also a TNRF programme officer, said the two laws provide equal status to both types of land tenure security and hence can be used as collateral for one to get a loan from financial institutions in the country. However, challenges in the use of customary rights of occupancy as security are two-fold

He said many villagers live long distances from financial institutions, thus it becomes difficult and often expensive to verify their land ownership. This causes many banks to be reluctant to accept customary certificates of right of occupancy as collateral.

He also pointed out that there are legal complications when village land is taken over by banks when and if borrowers default in repaying loans. He said the procedure is very complicated.

He said it requires involvement of the village assembly because village land is legally under the management of the village council as a trustee.

According to Masalu, the Ministry of Lands, Housing and Human Settlements Development has been struggling to convene meetings with banks and other types of financial institutions to convince them to accept customary rights of occupancy (CCROs) as security for loans the villagers acquire.

He said that there is also a need to use the current opportunity during the ongoing National Land Policy Review, an initiative by the Ministry of Lands, for the Land Policy to state clearly the requirement for banks to accept CCROs as collateral.

He advised financial institutions not to get overly worried about the remoteness of the villages because village council members would help in verifying land ownership, including other additional documents required for verification before using CCROs as collateral.

He added that financial institutions should come up with schemes that support accessibility of banks in remote areas. This, he said, would facilitate loan application and repayment follow-ups.

The facilitator said that villages were fast developing, with villagers getting more enlightened about multiple economic activities, particularly agriculture. Therefore, it was for the advantage of the banks to put in place plans and strategies that will organize the villagers to easily access loans.

The banks would not only make profits but also stimulate rural development, a situation which would limit youth from migrating from rural areas to urban centres.

Villages which benefited from the training included Mbuyuni, Kinyika, Luganga and Magozi in Pawaga division, Iringa region, while in Chemba district they were Kinyamsindo, Ovada, Manantu and Magambua

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