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Thursday, 13 August 2009

Aid for land registration?

DFID recently committed £20 million to support a land registration programme for Rwanda. The five-year project will see million of Rwandans attain certified rights to land as well as create a data base of land ownership. According to DFID the "project is ground breaking in its approach....It is consultative and empowers local people to identify, verify and map the boundaries of their land, and to resolve any disputes themselves....This is a great opportunity to unlock fair and sustainable growth. In future, land titles will be acceptable as collateral for loans and will build confidence for investments”. I remain skeptical over the effectiveness of land registration programmes. We have previously discussed this on several blogs including The problem with land registration , Land tenure, titling and access to credit... and Reforming property rights.

17 comments:

  1. Land registrationis not a difficult thing, it still remanins the best way out of poverty. In Zambia we can make it if only the bereaucry at the Ministry of Lands is cut. People are longing to get title at grassroot level. In Mazabuka a project under Service Delivery Improvement Fund project under cabinet office is doing the to only 500 low cost houses, the response is good. Lets support such project as a way of boostering economic development. Ian Chibale

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  2. Ian Chibale,

    I am not sure why you think "it is a way out of poverty".

    It is a good thing to have title but it is not "a route out of poverty".

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  3. Possibly because a bank is more likely to lend money to land owner for production expansion if it is able to hold land title as collateral?

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  4. We have discussed that angle in the past.

    Empirical evidence with farmers in Zambia show that titling was not a huge constraint to credit.

    The problem with credit actually is that it is simply too expensive, which is why government has focused on subsiding it.

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  5. Okay, I guess the situation in Zimbabwe is different:

    http://www.thezimbabwetimes.com/?p=14369

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  6. Large investment naturally rely more on collateral.

    The Uganda case referenced in the main post is another example where tenure rather than titling is more important.

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  7. Cho,

    We have discussed that angle in the past.

    Empirical evidence with farmers in Zambia show that titling was not a huge constraint to credit.


    In:
    The Politics of Land Reform in Africa: From Communal Tenure to Free Markets by Ambreena Manji

    Ambreena Manji makes a very useful distinction between the kind of land reform desired by the people, and the type desired by the IMF/World Bank.

    The people want land redistribution, while the neoliberal IMF wants land title reform - enshrining land title, to make land easier to sell, and to enshrine land ownership patterns left over from colonialism into law.

    The problem with credit actually is that it is simply too expensive, which is why government has focused on subsiding it.

    The mainly western owned banks are lending at usurious rates, as high as 23% interest, putting loans out of reach of any legitimate business.

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  8. I agree that loan rates are too high for most, especially those with little or no collateral and/or credit history. It is important however to always consider currency inflation rates when comparing loan interest. The 23% rate being offered for kwacha-denominated loans contains a ~15% built-in inflation rate, with the remainder @~8% and considering historical default rates (people with good loans inevitably pay for those with bad loans), the private lenders really can't be accused of usury. Government could subsidize, or alternately undertake measures designed to reduce inflation (which might adversely affect growth rates in some or all sectors), both would be equally effective with regard to reducing interest rates charged to borrowers.

    The difficulties surrounding transfer of title (i.e. sale of land) in the Zambian and most other regional contexts (not necessarily a bad thing), mean that the more effective security is the productive capacity of the land over time rather than the potential sale price. Thus clear tenure that would enable me to argue that production on the land will be under my control over the entire repayment period of the loan is more convincing of my ability to repay on schedule than a potentially non-transferable title would be.

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  9. Yakima,

    "Government could subsidize, or alternately undertake measures designed to reduce inflation (which might adversely affect growth rates in some or all sectors), both would be equally effective with regard to reducing interest rates charged to borrowers."

    Presumably subsidies allow a speedier adjustment. It strikes me that in developing countries even lower inflation does not lead to quick adjustment in rates downwards because of the lack of competition or the risks may be captured elsewhere.

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  10. Yakima, Cho,

    What if the government created a bank run on Islamic law, which prohibits interest, but allows a percentage of the loan paid back.

    You borrow 100%, but pay back (for instance) 120% - irrespective of the time factor. They do this to prevent people from falling into debt because of accumulation of interest.

    The 23% rate being offered for kwacha-denominated loans contains a ~15% built-in inflation rate, with the remainder @~8% and considering historical default rates (people with good loans inevitably pay for those with bad loans), the private lenders really can't be accused of usury.

    Well they certainly keep money out of the hands of businesses.

    Also the government could eliminate the impact of domestic inflation, by backing these loans with foreign currency from a low inflation country, or back them with gold.

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  11. Cho,

    I agree that subsidies would likely have a faster effect on bank interest, however the financing of subsidies themselves may have adverse effects on inflation, mitigating their long term effectiveness.

    MrK,

    The "Islamic Law" version of interest could reduce default rates (it is still 20% interest, just simple interest rather than compound), however it inhibits a banks ability to "roll over" loans, thus increases the cost of maintaining the loan over time. It also makes it much harder to assess the health of a given loan prior to the expiration date, since the whole lump sum is due at once. If the term of the loan was several years, the lender would lose @20% simple interest due to compounding inflation.

    I am afraid that simply declaring the loan in foreign currency would not help (except in Zimbabwe where it is accepted legal tender), since the borrower still converts to kwacha and still faces the currency inflation attached. There is no effective difference between paying back in dollars/yuan/gold @8% and kwacha @23%.

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  12. Yakima,

    "I agree that subsidies would likely have a faster effect on bank interest, however the financing of subsidies themselves may have adverse effects on inflation, mitigating their long term effectiveness."

    Even decentralisee or targeted small scale subsidies?

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  13. Cho,

    If a subsidy is backed by government credit, then it will add to inflation in proportion to other elements of the budget deficit. But, since deficits are not the only driver of inflation, on balance I suspect that you are correct that targeted subsidies are a surer way of improving access to credit for land holders than overall inflation reducing budget restraint would. I think that it also matters to what degree priorities such as "ability to repay" are targeted as opposed to priorities like "family size" or regional factors such as "poverty rate" or "proximity to line of rail". If the subsidy succeeds in reducing default rates (in part by screening out likely unproductive borrowers), then there will be a multiplier effect on capital rollover rates for lenders and by extension presumably average interest rates. Default rate reduction in targeted loan sectors will also encourage lenders to tailor products for these borrowers and actively solicit their business. Thus I think that the nature of targeting may be just as important as the size of the initial subsidy. The flipside is that a poorly targeted subsidy (one which does not result in increased productive capacity, ie ability to repay) will not result in increased government revenues over time to justify the expense, thus inflationary.

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  14. Yakima, I think what we are probably saying is that if it is not done properly it will be a waste of money! But then again if the government cant implement localised subsidies properly, there's a little change they can successfully bring down inflation and deliver lower rates. lol!

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  15. Yakima,

    It also makes it much harder to assess the health of a given loan prior to the expiration date, since the whole lump sum is due at once.

    The principal doesn't need to be due at once, it still could be paid back on a regular basis - that is how Grameen works. There could be clear incentives for regular payments, like better terms on future loans, or a reduction in the simple interest of the existing loan.

    Cho,

    But then again if the government cant implement localised subsidies properly, there's a little change they can successfully bring down inflation and deliver lower rates. lol!

    Can't or doesn't want to. Again, there is ample room for professionalisation of the civil service and public oversight in the implementation of government policy.

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  16. Now you know why talk of 'land reform' by the likes of the World (American) Bank is always of land title reform, not land redistribution. They want their corporations to buy land in Africa at rock bottom prices, so they can hang on to it for a century. From Progress.org:

    Just what does a title justify?
    Africa, Indonesia, Cambodia -- land rent is fought over

    LAND PRICES PER HECTARE

    Sub-Saharan Africa - $800 to $1,000
    Argentina/Brazil - $5,000 - $6,000
    Poland - $6,000
    US - $7,000
    UK - $18,000
    Germany - $22,000

    "We only operate in counties where we can have clear land title. If we can't get this, or we don't have a 99-year lease from the government, then we won't operate in that country," investor Ms. Payne says.


    In other words, their talk of 'land title' is only for the purpose of recolonisation of Africa.

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  17. Another reason why this talk of land title reform is so prominent, and why everyone in Zambia must be vigilant against the selling out of the country's land by the political elite. Both China and the West need to be kept an eye on. If at some future date their populations go hungry, and their food comes from Africa (because Africa has all of the unused arable land), all bets are off. We need to fill our land with our own farmers, before someone else fills it with theirs. (And there is precedent for that.)

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    According to SEED.com, in April this year, "Globally, farmland is disappearing at an alarming rate. Approximately 50 million acres vanish each year to urbanization, population growth, and economic and industrial development", and BNE (BusinessNewEurope) said, "Adventurous foreign investors can find excellent business opportunities in Ukraine's agricultural sector ... Ukraine is undoubtedly one of the best places in the world for agricultural producers".

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    ReplyDelete

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