Taxpayers pick up the tab of CBZ loan defaults
Zimbabwean taxpayers are bearing the cost of defaulted agricultural loans extended by CBZ Agro Yield, after a significant number of farmers failed to repay the Government – guaranteed loans, Business Weekly can reveal.
According to the latest Zimbabwe Public Debt Reporter released recently, non-performing guarantees as of September 2024, reveal that the loans were extended to farmers by CBZ Agro Yield to finance maize, soybean and wheat production between 2020 and 2022.
A non-performing Government guarantee refers to a situation where a 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.
For the 2020/21 summer cropping season, US$291,4 million was disbursed for maize and wheat farmers.
CBZ Agri-Yield was formed as a joint venture between the Government and CBZ Holdings with the primary objective of mitigating risk within the agricultural sector.
The initiative aimed to enhance food security for the country in the long term at both national and house level.
As of December 31, 2022, only US$63,4 million had been recovered, representing a 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. In total, the 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, resulting in a 44,9 percent recovery rate. Post-guarantee receipts amounted to US$260 000.
The Treasury settled its guarantee obligations through the issuance of promissory notes amounting to US$18,63 million and an additional amount in local currency. The outstanding balance for wheat production loans is roughly US$18,63 million and ZiG3 million, the report says.
Of the Z$15,4 billion disbursed (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 outstanding amounts to ZiG2,63 billion.
The Government guaranteed the loans to bridge the gap left by local banks, who were reluctant to lend to farmers due to a lack of suitable collateral. However, as witnessed in the aftermath of the land reform programme, some farmers have abused Government-backed programmes.
This history of abuse includes instances where Government-funded initiatives, such as the farm mechanisation programme aimed at modernising the agricultural sector, were not effectively utilised.
“I think it was due to the mentality that any assistance backed by the Government should not be repaid,” said a financial analyst at a local bank. “From the numbers, you can clearly see that the repayment rates are extremely low.”
CBZ Agri-Yield had to undergo a significant period of restructuring, which the company describes as “very painful.”
The restructuring involved several key steps. Firstly, Agri-Yield tightened its lending criteria to focus on “stable farmers,” ensuring a lower risk profile for its loan portfolio. Secondly, the company strengthened its internal systems and processes to improve loan assessment, monitoring, and collection.
A crucial objective of this restructuring was to regain the trust of both Government and private funders.
By demonstrating improved risk management and a more sustainable business model, Agri-Yield aimed to secure increased funding from a wider range of sources.
This included not only public funding but also private investors, who typically require a higher level of confidence and longer-term investment horizons.
The successful completion of the restructuring has enabled Agri-Yield to achieve financial stability.
“And we are all very well aware as to what has happened in the past with CBZ Agri-Yield funding, agriculture having high NPLs (Non-Performing Loans) under Government guarantee and Government having to pay off that particular guarantee,” CBZ Agro Yield former chief operating officer, Simba Mhungu, told an agricultural conference in Harare late last year.
“We definitely tightened the book until we got what we call stable farmers, tightened our systems, ensured that we could get the confidence of not only Government funders or public funders, but private funders in order to allow us to give you more money at a duration that actually works.”
Zimbabwe’s agricultural 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.
Land 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 agricultural sector.
Land titles will significantly enhance farmers’ access to credit.
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.
Increased access to finance will empower farmers to invest in improved farming practices, leading to higher yields and increased agricultural output.
This will not only enhance food security within Zimbabwe but also increase agricultural exports.
By enabling farmers to access private sector financing, the Government will be able to reduce its reliance on direct subsidies and bailouts for the agricultural sector and help to alleviate the burden on the Treasury and free up resources for other critical development priorities.-esienssweekl
