Zimbabwe Farmers In 9th Cloud! 99 year lease

Yes it is the dawn of new era. Times are moving and quite too fast. A lot happened in the shortest period imaginable in our motherland, but this here is one to note. But wait, let's break it down. What does it mean for the ordinary farmer in Zimbabwe, what does it mean for the banker, what does it mean for the economy as whole and everyone else who is not in the business of flora and fauna.

Well, let's start with a quick summary of key events on how the lease works.

The lease is a legally binding agreement between the now Ministry of Lands, Agriculture and Rural Resettlement on behalf of the government who is the Lessor and the farmer who is the lessee. So what this means is that the government would retain perpetual ownership of the property and farmer (lessee) enjoys 99 years of using the property as the same way a person would use it if they owned it.

That's where the problem began and we will just break it in brief.

Now, when you get a farm i would take the same way as getting production equipment if you were in the manufacturing business. To produce merchandise, you need capital (funding) and there are quite a number of ways you can raise funding for production which include Equity funding, crowd funding, debt funding and many others.

Read: How to raise funding for any business

But, one of the most commonly used business funding channels available to other business ventures was quite unavailable to the new farmer i.e Bank Loans. Banks were quite justified on denying funding to these farmers because of the nature of how banking works. It doesn't make sense for a banker to give a loan to someone who has no security to offer. Banking is not charity. Banking is business. Otherwise if they get into the habit of just giving money away, they soon close because of what they call "None Performing Loans" which a nice banking word for "Irrecoverable Debts".

So, what changed?

1. Security

According to the The Zimbabwe Mail of 11 December 2017, the major issue on the 99 year leases was the issue of security and there was engagement between the banks and the ministry of lands on various aspects of the 99-year lease and in that engagement banks reached a comfortable position, but the outstanding issue is that there are actually no farmers known to the banks who actually hold the leases. So who has the lease? This feels like we have been nursing the the wrong wound all this time.

The security aspect has not changed, atleast for now. The government still retains ownership of the land.

2. Focus

Now, when a banker makes a choice of whether or not to advance a loan to an enterprise or individual, there are two main aspects they look at. One is security interms of assets, the other one is ability to pay back. All of this is done in good faith because the banker's job is to maximise shareholder wealth (banks are listed on the Zimbabwe Stock Exchange) and to safeguard the assets of the company or bank.

This is where the change is. Not that it's new but it now has renewed focus. Bankers are now looking more at the financial forecasts and models of the farming enterprise to decide whether or not to advance a loan

So what does the farmer need to do?

Get a good financially apt consultant to perform good financial models that address all the risks feared by Banks and you are good to go.