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Business Reporter
TREASURY has paid off approximately 84 percent of the US dollar loans disbursed to farmers by CBZ Agro Yield under State-backed agricultural lending programmes, according to official figures.
CBZ Agro Yield was formed as a joint venture between the Government and CBZ Holdings to mitigate risk within the agriculture sector and enhance food security for the nation in the long term.
According to the latest Zimbabwe Public Debt Report released in November 2024, non-performing guarantees, as of September 2024, show that the loans were extended to farmers by CBZ Agro Yield to finance maize, soya bean and wheat production for farming seasons between 2020 and 2022.
A non-performing sovereign guarantee refers to a situation where the Government has issued a guarantee on a loan or other financial instrument but the borrower has defaulted on their obligations.
This means the Government bears the responsibility to fulfil the financial commitments it had guaranteed.
There are many factors that result in farmers defaulting on agricultural loans, with the major ones being poor weather conditions (such as the El Niño-induced drought last year that affected yields) for those who rely on rain-fed agriculture, poor crop management, invasion of crops by pests such as army worms and locusts, implements breakdown and veld fires.
Of the approximately US$356 million advanced to farmers under two different facilities, the outstanding balance is US$59 million. The maturity period of the facilities was December 2022.
According to the report, the recovery rate, averaging around 33,1 percent, has been impacted by a high default rate among farmers. This has prompted CBZ to review its lending criteria for assessing the creditworthiness of farmers.
The Government stepped in to guarantee the loans to bridge the gap left by local banks, which were reluctant to lend to farmers due to a lack of suitable collateral.
As witnessed during the initial phases of the Land Reform Programme, some farmers abused Government-backed facilities meant to ramp up farm output.
However, the implementation of a system where the Government issues title deeds to landholders is poised to unlock significant funding opportunities for Zimbabwe’s agriculture sector.
For the 2020/2021 summer cropping season, US$291,4 million was disbursed for maize and wheat production.
However, as of December 31, 2022, only US$63,4 million had been recovered. This represents an approximately 21,8 percent recovery rate. Additionally, US$980 000 was recovered as post-guarantee receipts.
The Treasury settled its guarantee obligations through an offsetting deposit with CBZ amounting to US$107,8 million and the issuance of promissory notes totalling US$80,17 million.
The promissory notes mature quarterly until June 30, 2025, according to the report. In total, Treasury has settled US$147,68 million related to these loans, leaving an outstanding balance of US$40,28 million.
In 2021, US$67,5 million was disbursed for wheat production.
As of December 31, 2022, US$35,5 million had been recovered. This resulted in a 44,9 percent recovery rate.
Post-guarantee receipts amounted to US$260 000.
Treasury settled its guarantee obligations through the issuance of promissory notes amounting to US$18,63 million and an additional amount in the local currency. The outstanding balance for wheat production loans is roughly US$18,63 million and ZiG3 million, the report says.
CBZ also issued Zimbabwe dollar loans to finance maize and soya bean production during the 2021/2022 season.
Of the Z$15 billion disbursed from the facility denominated in the domestic currency (ZiG9,2 million), Z$5,6 billion has been recovered, representing a 61 percent recovery rate as of September 30, 2024. The Government guarantee claim that is outstanding amounts to ZiG2,63 million.
The recovery rate for the domestically denominated facility, at 6 percent, was significantly higher than that of the US dollar-denominated facilities.
To address the issue of non-performing loans, CBZ Agro Yield underwent a significant period of restructuring, described by the company as “very painful”.
The restructuring involved several key steps.
Firstly, CBZ Agro Yield tightened its lending criteria, focusing on “stable farmers” to mitigate loan portfolio risk.
The company also strengthened its internal systems and processes to enhance loan assessment, monitoring and collection.
Zimbabwe’s agriculture sector has faced significant challenges, including limited access to finance for farmers.
A major contributing factor has been the uncertainty surrounding land tenure. Many farmers lack secure land rights, making it difficult for them to access credit from banks and other financial institutions.
Titles serve as crucial collateral for loans, enabling farmers to invest in their land and improve productivity.
The Government’s implementation of a new land tenure system, which will see farmers receive titles to their land, is expected to have a transformative impact on the agriculture sector.
Banks and other financial institutions will be more willing to lend to farmers when they have secure property rights, enabling them to invest in inputs, equipment and technology.
