While the Land Bank’s mandate is good in its current form, its funding model needs work if it is to provide adequate funding for black business in the agricultural sector, Land Bank strategy and communications executive manager Sydney Soundy said during a Black Business Council (BBC) roundtable discussion, on Tuesday.
The roundtable was aimed at engendering interaction between the BBC, business, civil society and the Land Bank on matters related to funding opportunities for black businesses operating within the commercial farming sector, as well as agribusinesses.
Moreover, the dialogue served as the start of a formal partnership between the Land Bank and the BBC and as a catalyst to take this partnership further.
The development finance institution (DFI) needed to change its dynamic, so that it could address the challenges of historically disadvantaged individuals and the effects of Apartheid, Soundy said, noting that the agricultural sector was racially skewed.
He asserted that the Land Bank had to fulfil a dual mandate – that of ensuring food security and agricultural development, while also addressing development and transformation of the sector.
The Land Bank, therefore, has five strategic development objectives – transforming the sector, growing the sector, providing employment quality, engendering food security and achieving sustainable development.
As a DFI, the organisation must close a specific gap created by the market, of providing funding to commercial farmers and agribusinesses that for-profit financial institutions would not cater to, and government did not have the capacity to support.
Soundy said that, within the sector, the Land Bank was focused on funding those crops that were useful for job creation, while simultaneously providing sector growth opportunities, especially in terms of export potential. These crops included cotton, sugarcane, olives and avocados.
However, Soundy noted that such crops needed about five to seven years before they started generating income and businesses would need a loan repayment moratorium until that point.
CHALLENGES AND SOLUTIONS
Soundy highlighted that while the Land Bank’s contribution to development and transformation in the sector had increased in recent years, this was considerably below expectations, especially given the DFI’s mandate.
This, he noted, was largely owing to the history of the country and the sector, and funding issues for the organisation.
The average conversion rate was poor for development and transformation clients relative to commercial clients, signalling the heavy costs and maintenance required to service this segment of the market, noted Soundy.
To successfully close market failures that hamper new entrants to the market, the Land Bank requires adjustment from its current lending-only banking model to a model that will allow it to source funds and provide fee-generating services (over and above funding purely from the capital and commercial markets).
To do this, an appropriate funding model is required.
Soundy indicated that while the organisation was seeking alternative funding to support development and transformation in the sector, government support remained a critical success factor while these alternative funding structures were being pursued.
A partnership between the BBC and Lank Bank could help to unlock funding from various other sources.
Also, the Land Bank had also approached the World Bank for appropriate funding, and in this vein, planned to provide a specific support mechanism.
Another structure being explored was intermediaries enabling development farmers support.
There is also the option of enabling transformation through corporate partnerships.
A blended finance structure is another option.
In terms of funding for women and youth, the Land Bank is currently mobilising a Youth and Women pilot project to enable access to technical support and business advisory, input supply and market access.