Extracts from the NATIONAL ASSEMBLY HANSARD 9 DECEMBER 2021 VOL 48 NO 19 where Finance and Economic Development Minister Professor Mthuli Ncube clarified issues pertaining to Government Guarantees given to banks in support of farmers
HON. MARKHAM: Madam Speaker, you are going very quickly here. Can I just come in on Lands, Agriculture, Water and Rural Resettlement? Madam Speaker, can the Minister explain to us. He talks about privatising the advancement of loans to farmers and we see these loans from CBZ, but we have underwritten it. As a Government, we are liable for those loans. Can the Minister confirm that the bank concerned has done a proper ‘Know Your Client’ and can the Minister confirm what his intentions are with future loans from banks and Government guarantees? Thank you.
HON. MUSHORIWA: I just want to also buttress the issues that have been raised by Hon. Markham in terms of the loans that as a Government, we have guaranteed to CBZ and companies where the rate is around 22% and the argument that I want to raise with the Hon. Minister is to simply say, what is the endgame in terms of agricultural financing. Is there anything wrong with the mode of financing?
I raise this primarily because the Minister will know that if the strategy simply remains in form, we gave the farmers inputs, fuel and nothing happened. We also tried through the RBZ to give these farmers some equipment then we also tried Hon. Minister, that they go to banks and borrow money from banks and you will recall that some of them are the reason why the banks created. You actually have been creating havoc on the package book of the bank. Now we then turn to the Command Agriculture, Minister you know the amount of money that we will need to equip the agriculture; you then came last year and said you changed the model, it is now the bank ,you are now advocating people to go through the bank but it has been Government guarantee. If we are to have 22% compliance, meaning that you have got a potential 75% of potential bad debtors, what is the thinking of Treasury in terms of the model of agriculture financing as we go forward in this country? I think agriculture is crucial and important for a nation but we need to be very careful because we may continue to lose a lot of money year in and year out.
THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT (HON. PROF. M. NCUBE): I thank the two Hon. Members for their interventions, the mode of model financing agriculture that we are pushing forward to as Government is a model funding that is private sector led. That is what we are transitioning towards full private sector led agricultural financing model. After all, the meat programme or the farmer command is a commercial agricultural programme and therefore, it is only fitting that the commercial banks are financing this programme. We also understand that there needs to be a transition and that transition is to make sure that Government stands behind the borrowers through this guarantee to the banks so that there is a transition period, it cannot be a big bang approach and that is why we are going through right now and I think that should answer Hon. Mushoriwa’s question about the model going forward and there will be participation of other banks going forward, from the burden and the risk is shared right across our banking or private sector.
Let me turn to the issue of how a guarantee is called. A condition that is clear on our agreement with the financial institutions is to only call the guarantee as a last resort but not as a first resort. So being a last resort action, the bank must be able to show that it has applied its best effort to collect from a client who has defaulted and failed and they are now seeking relief from Government by calling that guarantee. It is that clear; we are working very well and making sure that they enforce that kind of understanding. The Ministry of Agriculture is doing its part of making sure that they send Agritex officers on the ground to monitor the farmers and to make sure that there is no side marketing. That is our biggest problem to stamp on that they are doing that. I believe that when it is all said and done, we will be in a good space.
You can imagine anyone who has not paid back their loans last year; the bank will not take them on this year. So people are self blacklisting themselves, they find themselves out of that bucket through their behaviour and it deals with the adverse selection programme which you will typically face when you have a guarantee scheme. I thank you very much.
(V)HON. MARKHAM: The Minister said the last resort of guarantee which I certainly and I am happy about. What is the difference between the first call, second and the last call because there is now traceable involvement in all these guarantees. Secondly, we seem to be using one single bank, the CBZ. Can the Minister clarify why other banks are not being involved?
HON. PROF. M. NCUBE: We are using more than one bank guarantee that has been issued to AFC bank as well and the programme is expanding. He refers to the issue of title and so forth and land, I cannot address this issue through this Vote for the Ministry frankly, but that is a much broader conversation about their bankability and so forth. That is an ongoing administrative if not legal issue, which I am not sure I can address through a Vote allocation for this Ministry but we are making progress even on those discussions of making sure the lease is bankable. There is a sense of transferability perhaps which we then confer values which banks could be happy with in terms of their finance and therefore if there is need for Government to extend their guarantee to a bank.
(V)HON. MARKHAM: I asked on the tradable title, that is not the issue. The issue was – what is the difference between a first, second call and last resort when you are calling in a loan if there is no tradable title. I thank you.
HON. PROF. M. NCUBE: A typical borrower will be someone who has other assets that the bank can call upon. That should be the first resort before they call on to the Government to cover them by calling that guarantee. They have other assets, after all these are commercial farmers; they are in business and they have other assets that the bank can call upon before they call on the Government guarantee.
(V)HON. MARKHAM: Sorry, how do you get the collection from loans if you are still owed from other assets? I thank you.
HON. PROF. NCUBE: Thank you very much. That is exactly what we have asked the bank to do, to use every effort to increase their collection including following up on the assets owed by the defaulting farmers. I thank you.
(V)HON. MUSHORIWA: Hon. Minister, when you signed the guarantee with the bank, I want the Hon. Minister to confirm whether in terms of advances in terms of the quantum, you know it from the banking sector because you know that there are certain amounts that you know banks normally operate from certain limits, to say this limit, the bank can actually do what they want or this level can be done at branch level or this needs a board. Where there are any amounts of money that as a Government you would actually set so that at least there is no order that you as a Government you say above this certain limit, banks cannot just lend to their clients without the Government being the guarantor. I raised this issue primarily because knowing our Zimbabwean crimes from a bank point of view, most of the people that have actually borrowed huge amounts do not have assets specifically in their names and Government will own up on this debt. I am just wondering whether there were mechanisms that Government were involved in huge amounts of money that is lend to individuals.
HON PROF. M. NCUBE: From the banks that we contracted with, these banks have got a Risk Management Committee, Credit Committees both within management and then also at board level. There are several lawyers of risk management that are found in a typical commercial bank and these structures are also enforced by our delegated regulator, which is the Reserve Bank of Zimbabwe. So there is no need for Government having extended a guarantee to poke into the internal processes of a bank when we have got all these internal regulatory mechanism including the Central Bank. We did not see the need to poke into that, but we are very clear that our guarantee is the one that should be called upon only as a last resort. The institutions would have to come before us and show that it has applied best effort in collecting the loan before they can call on our guarantee. That issue is clear. Can you imagine Government going to every bank to check if its responsibilities and processes are in place? I do not think that is how you want Government to operate.
*(v)HON. RAIDZA: My question to the Minister regards the proposal on grain purchase for $25 billion. I just want to find out if that will be sufficient in terms of his projections on the required tonnage because our agriculture budget should not shoot too much beyond what is budgeted for grain purchase. So will that be enough to support the whole country for the coming season?
HON. PROF. M. NCUBE: I believe that the $25 billion is fair because we also expect the private sector to participate in grain purchases where once one has been paid for grain and it goes to GMB, those who need it and wish to process it as private players, the millers that is, they buy that grain then the fund is replenished. So, that action of creating that loop between Treasury, GMB and the private sector and millers’ purchases has allowed us to come up with an arrangement where all you need is this $25 billion which we think is fair in terms of grain purchases. We think this will work well going forward.
(v)HON. HAMAUSWA: I would want the Hon. Minister to clarify basing on what transpired in the last agricultural season. What percentage the private sector played in terms of helping in purchasing the grain from the farmers. This is because when we are going around the country, we are realising that the farmers are still owed. Maybe the Minister would want to take that into account that at the moment, the private sector is facing some challenges which the Minister of the Government has not looked to. So relying on the private sector might yield nothing without solving the problem our farmers are facing.
HON. PROF. NCUBE: We are working very well with the private sector especially on the wheat front where the private sector has agreed to buy 100 000 metric tonnes on this kind of model that I described. I am not aware of the challenges that the Hon. Member is referring to but we have a good working relationship with them. I am aware of the issue around maize which was a pricing issue where the market price was actually lower than the GMB price and that made it difficult for the private sector to buy the maize at that level when they could buy cheaply in the market. The issue really is just getting the price or making sure that the gap between the market price and the gazette producer price is narrow enough for the private sector to feel comfortable. We are working with private sector on that and do not foresee any difficulties.