Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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Zimbabwe Financial Experts Question Government’s Latest Agro-Finance Plan

Zimbabwe Financial Experts Question Government’s Latest Agro-Finance Plan

16 December 2011

Some see the program as a desperation move as agricultural experts warn that 
many Zimbabwean farmers have found it more difficult than ever to purchase 
the seed and fertilizer they need

Violet Gonda | Washington

Zimbabwe Bankers Association President John Mushayavanhu said: “The main 
problem is that these bills are only 50% government guaranteed which mean 
the other 50% is unsecured.”

Finance has become a major hurdle to the recovery of Zimbabwe’s agricultural 
sector, but experts say Harare’s latest proposed solution looks like a 

Small Zimbabwean farmers chronically lack cash to purchase seed and 
fertilizer, which was often supplied by the state Grain Marketing Board in 
the past. The banking sector doesn’t consider a long-term lease on farmland 
to be good collateral given the uncertainties of ownership following a 
decade of disruptive land reform.

The government and a banking partner are now moving to float $100 million in 
agro-bills guaranteed in part by the government. But financial experts doubt 
investors will jump into such notes as they will have to count on farmers to 
repay half of the debt.

The Commercial Bank of Zimbabwe is the Harare government’s financial market 
partner in the launch of the latest agricultural financing instrument to be 
brought forth.

An inter-ministerial committee on commercial financing of agriculture led by 
Deputy Prime Minister Arthur Mutambara drew up the latest farm finance 
scheme, which proposes to match up investors with farmers who need capital.

The basic instrument is a US$10,000 agro-bill bearing a 10 percent coupon – 
though the envisioned tender operation could result in a higher yield or 
market interest rate, to which a two percent processing fee will be added.

Harare hopes to raise $100 million through this mechanism – not only to 
finance the 2012 cropping season but to pay down US$21 million the Grain 
Marketing Board owes farmers and US$18.6 million the government itself owes 
seed houses and fertilizer companies, plus another US$4.5 million to 
“kick-start” seed and fertilizer makers.

So in fact only about $56 million will go to finance farmers, the rest 
covering government debts and costs, but the government is offering only a 
50 percent repayment guarantee. This is likely to discourage the kinds of 
risk-averse investors the program proposes to attract, particularly 
ultra-cautious pension funds and insurers.

Though the funds will go to meet official debts and costs, investors will 
have to rely on farmers making good on their commitments to repay following 

So investors must be willing to bet that the government will make good on 
its guarantee, that the upcoming harvest will be a good one – some are not 
optimistic given longer-term weather signals – and that farmers receiving 
funds will do the right thing.

Nonetheless, Mutambara expressed confidence investors will step up to buy 
agro-bills, helping cashless farmers pay for their inputs.

“Our banks have not been forthcoming in terms of grain production. They have 
done good work in supporting cotton, they have done good work in supporting 
tobacco. So what we have done is come up with a scheme that gives incentives 
to the banks to put their money into agriculture for a profit,” Mutambara 

“We have given them the liquid asset status, tax exemption and a 50% 
government guarantee. This will allow every farmer in the country, communal, 
A2, A1 to have access to inputs without paying anything but with a stop 
order where they will pay after they have harvested,” Mutambara said.

CBZ Chief Executive John Mangudya said the government has done all it can to 
make the securities attractive to investors including insurance companies 
and banks.

Some see the program as a desperation move as agricultural experts warn that 
farmers have found it more difficult than ever to access the seed and 
fertilizer they need.

Zimbabwe Bankers Association President John Mushayavanhu said the planting 
season started last month so it is somewhat late to be raising funds.

“But the main problem is that these bills are only 50% government guaranteed 
which mean the other 50% is unsecured,” Mushayavanhu said.

“Obviously the risk that investors and bankers are taking is higher than 
would have been the case if they had been 100% government guaranteed.”

Economist John Robertson said the scheme will only work if financial 
institutions are willing to guarantee the 50 percent not covered by the 
government, but opined that the risk is too high for most players given 
currently low expectations for 2012 harvest.

“A thing like this has to be done properly and on time for the people who 
have borrowed the money to have a chance to get a good enough crop, to earn 
enough money to pay back the loans,” Robertson said.

But CBZ’s Mangudya said there is still time to make a difference, 
particularly as this is not the only scheme put in place to bolster farmers. 
“There are NGOs that are providing assistance. There are commercial 
transactions that the banks are financing … and the government has put in 
place some other schemes – the $30 million facility, the $45 million 
facility. This is only in addition to what is happening on the ground.”

Mangudya and Mutambara emphasized that funds from agro-bills would be 
accessed by all farmers – be they small communal cultivators or larger 
commercial players.

But Mushayavanhu of the Bankers Association said such a scheme is only 
feasible with commercial farmers, as most small-scale bankers are unable to 
meet lending requirements, which could impede their access in this case.

“Unless the government is going to disburse the money directly to those 
farmers – in which case then the risk is with government,” Mushayavanhu 

Less skeptical is analyst Masimba Kuchera, who says that although the 
Reserve Bank of Zimbabwe went broke from 2004 to 2008 supporting similar 
agricultural schemes, this initiative could help wean farmers from 
government dependency.

Yet Kuchera doesn’t see banks other than CBZ jumping in as it is not clear 
how they’ll get their funds back from defaulters without holding any 

Mutambara insists the government will push on using what he calls “moral 
persuasion” to convince bankers to seek profits where few have been 

The government and its private sector partner have launched and promoted the 
program, so it remains to be seen how many investors will convert capital to 
seed money.


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