The approval of a R1.3 billion (US$93million) loan from the World Bank to South Africa’s Land Bank, is a significant boost for the country’s emerging farming sector.
The loan is noteworthy since it is a long-term loan spread over 25 years. It advances the country’s target to create 1 million new job opportunities in the agricultural sector by 2030.
Land Bank Chief Executive Officer, Bennie van Rooy, says the facility will also be available over a longer term and will enable the bank to finance local development projects that take longer to mature.
This is not possible with commercial financing where loans have to be paid back on shorter terms. Van Rooy says there are already projects in the pipeline, but no specific ones were announced.
Ivan Velev, acting director of the World Bank in South Africa, says the aim of the Land Bank Financial Intermediation Project is to enable Land Bank to provide sustainable finance to previously disadvantaged emerging farmers, through medium and longer term loans.
He notes that according to the National Development Plan (NDP), the South African agricultural industry will look to small scale and emerging farmers to create more than 35% of the 2030 target for job creation.
The new World Bank facility will also benefit small to medium scale agricultural businesses, says Velev.
According to a World Bank statement, one of the key deciding factors for the approval of the loan was that Land Bank is a key provider for agricultural financing, It is also a leading development finance institution in the rural and agricultural sector.
“The Land Bank is expected to play an important role in achieving the government’s land reform and agricultural targets as outlined in the NDP and contributing to poverty reduction and reducing income inequality, both in line with goals set out by the World Bank,” says Ratshitanga.
Gunhild Berg, a senior financial specialist at the World Bank, emphasized that until now Land Bank was dependant on short term financing sources to grant agricultural loans. The bank will now be able to optimise the management of its asset-liability sources and strengthen its role as third party.
It is the first time Land Bank has been able to secure this type of loan from the World Bank, and is the result of a yearlong administrative process.
BENEFITING EMERGING FARMERS
According to the statement Land Bank – through one of its business lines – provides financing to emerging farmers who don’t have collateral as security. This means farmers can later become commercially successful. By directly lending to emerging farmers, the bank can address challenges like farmers’ skills and financing gaps by sustainably integrating emerging farmers into established value chains.