“We know it was difficult for small scale emerging farmers to get into the market, whether they’re young or old. Those products needed us to review what is happening around the world and how do we structure it for our own circumstances in South Africa, and that has proven very successful," Land Bank CEO Phakamani Hadebe told CNBC Africa on Monday.
Hadebe said that in a space of three years, they had dispensed a total amount of 1.8 billion to those emerging farmers and they were hoping to disperse an additional 4.2 billion over the next four years, which will meet their target of six billion.
In the past, the Land Bank would price its loans according to risk instead of pricing according to the loan product, which meant that those who approached the bank with a very weak financial history would be priced more expensively due to one’s higher probability to default.
“The worst thing for a money lending institution is less on the return you’re getting and more on whether the people you have lent money to will pay back, so we’ve dealt with that. We’ve come up with the product that people are willing and they are paying us back,” Hadebe explained.
250million of the 1.8 billion has been earmarked for smaller scale farmers that cannot access finance at all and more funding for that aspect is expected to be provided by the Department of Agriculture. So far, the bank has not had any non-performing loans, which indicates the success of their product in the market.
Some of the biggest challenges emerging farmers face in the agricultural sector are high costs, lack of skills and access to the market, which the Land Bank is hoping to assist through its project.
“By bringing more emerging farmers into the fold, we will be able to meet our target, so if you come to us and we have a clear mandate, we need to tailor-make something that will suit the client. We should look at your probability to pay us, and the term you’re taking a loan, and decide how we come up with something you cannot get from the commercial market,” Hadebe said.