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Wednesday, 13 May 2009

Land tenure, titling and access to credit...

A new paper provides new evidence from Uganda on the impact of land tenure and titling on access to credit. It suggests that tenure rather than titling may be more important :
"..The continued emphasis on promoting freehold tenure and titling, with the corresponding positive effects on credit access, has pushed many African countries, including Uganda, to adopt land titling systems. This paper took on these hypotheses and assessed the impact of different titles/certificates and land tenures on credit access. The only statistically significant difference in access to any credit and to informal credit was found between freehold and customary without title, which happened to be the largest group. The impact, however, was not present in formal credit, contrary to the original hypothesis that freehold would impact access to formal credit, with only some effect on informal credit. The reason for the limited impact of tenure and title on formal credit may be the limited supply of formal credit; with such limited availability of formal credit, other factors inhibiting credit availability (such as access to markets) may be more binding than land tenure or title. A possible explanation for the significant impact of freehold tenure on informal credit access, despite the lack of lenders’ ability to use land as formal recoverable collateral, is the use of tenure status as a screening device rather than as collateral by informal lenders...."

.....Overall, the impacts of tenure and titling did not differ between general access and informal access, probably due to the pervasiveness of informal credit. Formal credit lacked significant results, due to the limited access to formal credit for all rural households. And as noted before, tenure status, not title, proved the difference in access to credit. Though not the end goal of the Land Act, which was the transition to a completely titled, freehold country, there is reason for hope. The positive impact of freehold over customary tenure on credit access may provide the incentive for customary households to transition to freehold, which is the purpose of the Land Act of 1998. Therefore, the government of Uganda should work to promote the increased opportunities for those with freehold, while fostering a desire for titling. This goal is possible if the Ugandan government first increases awareness of the Land Act, which is critical to further progress toward a free land market....."

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