In a bid to limit local banks’ exposure to bad loans and defaults in the 2015/2016 agriculture season, financial institutions channeled 60% of the US$933 million pledged to fund agricultural activities to the blossoming tobacco farming, a banking official has said.
Bankers Association of Zimbabwe president Sam Malaba said banks would reduce lending to maize farmers because of non-repayment guarantee as the Grain Marketing Board (GMB) was defaulting on paying maize deliveries.
“We are giving about US$933 million to the agricultural sector in the 2015/ 2016 agriculture season. About 60% of that credit will go to tobacco. It’s largely because tobacco has a very effective value chain system whereby you lend money to contractors or a farmer who sell to the auction system and the bank is repaid,” Malaba said.
“We also have an effective value chain system in sugar cane where you give money to a farmer and sell sugarcane to Hippo Valley or Triangle and the bank is paid. Unfortunately, when you give money to a maize farmer, he will produce, send maize to GMB and is not paid. So that chain doesn’t work. Banks will minimise their exposure to where the value chain does not work.”
Malaba was speaking at the Institute of Chartered Secretaries and Administrators conference held at the resort town of Victoria Falls last week.
This means golden leaf farmers will get US$559,8 million, leaving a paltry US$373,2 million to be shared among maize, poultry, livestock and sugarcane production, raising food security concerns.
According to the mid-term fiscal policy, the overall crop and livestock financing requirements for the coming season is estimated at US$1,7 billion, of which US$1,3 billion is for crop production.
Malaba, however, justified bank’s lending bias to tobacco farming, saying most farmers had abandoned maize farming, preferring the cash crop. Of late, most farmers were concentrating on tobacco farming, which has proved to be thriving than the cultivation of grains.
This has seen experts calling on government to put systems that avert food insufficiency in the country. Although the failure of the last agricultural season was widely blamed on poor rainfall patterns, high cost of borrowed financing under the current environment characterised by liquidity constraints was also one of the inhibiting factors.
By end of July, outstanding payments to farmers for deliveries of grain to the GMB stood at US$29,2 million, down from US$48,5 million in January 2015.