Successful land reform is not about how much land is transferred, but about how it improves the lives of South Africans, the Land Bank told the land summit in Johannesburg on Friday.
Land Bank general manager George Oricho discussed the challenges of financing land reform in the country.
Some of these challenges are interest rates, people not having title deeds, farmers not having collateral, a lack of training and the need for more financial innovation.
Oricho said enough financing for a new farmer will not guarantee the viability of his farm.
”You need a holistic approach such as good marketing … and research,” he said.
Support mechanisms have to be in place for the farm to be successful.
Oricho said one of the main challenges facing farmers is that many of them cannot get conventional financing because they do not own the land to use as collateral.
In South Africa, many people have access to land, such as employees with tenure rights on a farm.
In these cases, banks should try to help by using the crops produced on the land as collateral, or livestock, or farming equipment such as tractors, he said.
Oricho said his bank has often been criticised for valuing a piece of land at a low price. But when the bank has to evaluate land not owned by the farmer, it has to evaluate the enterprise of the farm, such as its crops.
”When you borrow money based on enterprise and you cannot sustain the debt, it’s a no-go [for the bank]. The production value is often much lower than the commercial value,” he said.
Oricho said the main function of the Land Bank, a government body, and other development finance institutions is to mobilise resources from the private sector to fund land reform.
He said 90% of the money his bank loans to farmers is from the money market. The remaining 10% comes from the bank’s own resources.
The reason for this is that the government’s resources are limited.
On innovation in the sector, Oricho said South African finance institutions could consider demanding only that farmers pay the interest of a loan and not the principal, as is done when buying a house.
Like houses, the value of land increases. In Australia, farmers only have to pay the interest. The one problem with this is that if a person does not pay the principal of the loan, he will not own the property.
However, Oricho said this is no different than leasing the property, and by using it effectively the burden of debt will be lightened.
On complaints about the bank’s interest rate, he said this cannot be lowered because the rate is market-based, as the cash is borrowed from the money market.
The only way the bank would be able to make loans with a low interest rate is if it gets money from donors that does not have to be paid back, or by lending with a lower interest rate.
The bank tries many options before repossessing land when people default on payments.
When this does happen, a person involved in land reform is given first option to purchase the property before it goes to the money market, Oricho said. — Sapa