Farm loans: A harvest of thorns

02 Sep, 2018 - 00:09 0 Views

The Sunday Mail

The lack of agricultural finance has caused a sharp decline in farmers’ ability to meet their debt obligations, resulting in severe stress, strife and sorrow. Not only has the farm debt crisis threatened agricultural production, it has, according to the Federation of Farmers’ Unions, resulted in loss of life.

According to FoFU, in Hurungwe alone three farmers committed suicide in the first quarter of 2017 after failing to repay debts.

FoFU represents the interests of the Commercial Farmers Union, the Zimbabwe Commercial Farmers Union, and the Zimbabwe National Farmers Union.
The federation says the number of farmers losing properties after failing to service loans is growing.

The farm debt crisis dates back to the early days of the multi-currency system when banks and private lenders provided loans, farm equipment and inputs to farmers.

Some farmers secured their borrowings against urban residential properties and movable farm machinery. Those who defaulted on repayments have seen houses and machinery auctioned to offset debts.

Auction houses are smiling all the way to the bank, literally.

Only a daily basis, auctioneers are taking up advertising space in newspapers to advise the public of the goodies siezed from defaulting farmers.

A Marondera farmer who preferred anonymity chronicled how she ended up in hot soup after accessing $25 000 worth of inputs under maize facility disbursed through a bank in 2013.

“My crop wilted due to drought and I failed to repay the loan in full. The interest has since ballooned to $51 000.

I am now being pressured by the bank to sell the only house that I have,” the farmer said.

Information availed by FoFU indicates that some debts have ballooned from $13 000 up to as much as $78 000.

Because of their bad credit history, these farmers can no longer borrow from formal markets as they bid to get back on an even keel.

FoFU has now petitioned President Emmerson Mnangagwa on the matter of farmers’ debts.

Signed by FoFU chair Mr Wonder Chabikwa, the farmers say: “First and foremost, the interest rate charges were as high as 36 percent and were compounded annually. In addition, there were other charges such as insurance and management fees. These were also charged on an annual basis…

“The inputs and working capital were inadequate and availed late, with inputs costs being higher than the market price. Erratic rainfall patterns resulted in Government declaring drought in six years.”

The farmers want banks to respect the in-duplum rule, which says interest on a loan stops accruing once the total equals the principal borrowed sum.

“Most of our farmers thought the in-duplum rule applied in our case only to be told by banks to pay up or risk having their properties auctioned.

This explains why current loans are now three to four times the original amount borrowed,” reads the petition.

Farmers want the State to provide legal protection against creditors through court sanctioned-measures like schemes of arrangement and judicial management.

FoFU argues that there is need for a debt structuring exercise which is modelled along the line of the Zimbabwe Asset Management Corporation.

Zamco has taken over some struggling enterprises’ loans and has also given borrowers grace periods of up to two years to settle their dues.

“In addition, fixing the interest on the principal loan sum to be paid by the farmer seems equitable. The resultant loan can be staggered over a much longer period to reduce the cash flow impact on the farmer operations. Loan sums may have to be frozen for the declared drought years with no interest being charged for that period,” FoFU proposes.

The petition raises other related issues.

“Government efforts to modernise and re-tool the farming sector are acknowledged and appreciated, there is a need to address the working capital needs of farmers. If there are no possible options under the current set-up, then an alternative needs to be established.”

Apart from advocating a Statutory Instrument that addresses issues to do with farm business recovery, the farmers also call for Government intervention and the implementation of turn-around strategies for struggling farmers.

By the time of going to print, the Bankers Association of Zimbabwe was yet to respond to our questions regarding farmers’ loans.

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