32
Lima Bank and has been erratic in recent years due to the drought. About K2.8 billion were disbursed
in the last agricultural season. Of this total, roughly 60 percent went to 120 large commercial and
corporate farmers, and roughly 40 percent to 1,025 smallholders and 52 "emerging" commercial
smallholders (table 1.12). All credit has a 5-year term or less to minimize exposure to inflation.
Defaults vary in the vicinity of 15 percent in normal to good years, but can be 40 percent or worse
in drought years (as occurred in 1989-91) (table 1.11). Most of the credit being extended to
smallholders is not secured by title. Rather, the individual's credit history is the principle guarantee.
For newcomers, credit will initially be disbursed for seasonal inputs sufficient for 2 hectares of land
(approximately K250,000 for a package of inputs). If repayment is made, the borrower is eligible to
increase the size of borrowing the next season to an amount sufficient to buy inputs for 4 hectares,
and so on up to around 40 hectares. Beyond that size limit, more intensive capital inputs (i.e.,
tractors) are generally needed and the bank is reluctant to extend such credit without title as collateral.
While smallholders do get access to credit without title, it takes a considerable number of years to
build the credit history and to reach medium commercial size.
Table 1.11: Direct agricultural financing, Zambia National Commercial Bank
|
Number of clients |
Amount of credit ______________(K1,000) |
Recovery rate | |
|
1987/88 |
1,374 |
47,475 |
83 |
|
1988/89 |
2,340 |
110,000 |
87 |
|
1989/90 |
2,737 |
304,768 |
60 |
|
1990/91 |
1,238 |
391,493 |
65 |
|
1991/92 |
1,140 |
743,552 |
45 |
|
1992/93 |
1,197 |
2,825,402 |
Source: Zambia National Commercial Bank.
In the past, banks were able to effect charge and stop orders that enabled the bank to claim
the crop in the field to ensure repayment, or to place a lien on crop sales at the local cooperative.
With market liberalization, however, farmers have the freedom to sell where they wish, greatly
reducing the effectiveness of such orders as collateral. Title's role in guaranteeing credit has increased
as a result. Title helps to secure the loan in case of default. Even without foreclosure, the landholder
is unable to go to another bank to get credit as long as the title is held by the former bank. Sooner
or later, the borrower will have to repay the loan to regain borrowing status.
Both banks expressed the need to help the rural population for sake of development and, no
doubt, partially due to development mandates imposed by government. Both banks are expected to be
privatized soon. It would be difficult to predict how the agricultural component in either bank's
portfolio will fare after privatization. Both banks have reported sizable defaults in recent years, yet
both report profitable operations from their agricultural lending activities. It is difficult to see how the
Lima Bank, which charges 47 percent interest on its loans, can earn income in an inflation
environment well in excess of 100 percent, along with the 15 percent losses reported earlier. Either
lending operations are being subsidized through indirect transfers from the state or its capital base is
eroding. On the positive side, both banks feel that land title is a strong form of guarantee and that a
strong land market enables easy liquidation of foreclosed property, thereby reducing lending costs.