New tough rules for land loans
Dar es Salaam. Individuals and companies intending to use mortgage to secure loans from local or foreign banks for land development in Tanzania must declare the money shall be invested in the country, according to new land regulations.
The Land (Procedure for Mortgage of Land) Regulations, 2019 that were gazetted in April also introduces a string of new tough requirements for utilisation of mortgage money for development of land.
Tanzania amended the Land Act to introduce new sections, including the one requiring borrowers from local or foreign banks to submit a declaration to Commissioner for Lands that the money obtained from the mortgage is invested in Tanzania.
The new regulations also obliges borrowers to submit to the commissioner a report on the utilisation of the mortgage money within six months of the registration of a mortgage.
The report must state, among other things, the manner in which the money secured is utilised to develop the mortgaged land.
The new requirements comes in the wake of government discontent over the manner in which billions of shillings secured by mortgage for land development have been diverted to other businesses.
Sources in the lands ministry say the government has encountered legal challenges in revoking title deeds that have been used as collateral to secure loans from foreign banks and local banks.
Minister for lands William Lukuvi said there is considerable evidence some wealth businessmen have secured billions of shillings from foreign banks using Tanzanian land for agricultural development purposes but diverted the funds to other businesses.
“We have evidence, I know people who took large loans from foreign banks using our land but the money was not used to develop the farms in Tanzania.
“Someone has taken up to $20 million (Sh46bn) by mortgaging land in Tanzania but when we go to the field we find no any development on the said land. Where has that money gone while the land is mortgaged abroad?,” asked the minister.
According to Mr Lukuvi, land was a national security issue and it becomes even critical when the mortgage money is secured outside the country.
“I cannot name those who have mortgaged our land, they are many. Once they default, our land is put in jeopardy, the foreign bank can auction the land,” the minister pointed out.
The minister says there are multiple effect to ordinary Tanzanians and the nation at large when money secured for the purposes of land development is diverted.
He says the ‘cheating’ has denied local government authorities of billions of shillings in taxes and levies.
Apart from losing in terms of acquring new technology and capital, Mr Lukuvi said the trend has curtailed thousands of employment that could have been created if the money would have been invested in Tanzania and as intended.
Undeveloped and underdeveloped land
Section 120A (1) of the Land Act allows a person to mortgage any land for the purpose of obtaining money from local or foreign banks for developing his land or for any other investment.
In the cases where a developed mortgage land is used to obtain a loan from a local or foreign bank, the money can be utilised for further development of the land, for investment or for other purposes.
However, where the mortgaged land is undeveloped or underdeveloped, the law is clear that the mortgage money must be utilised to develop part or whole of the mortgaged land.
Experts speaks
Economists and land experts have hailed the new law, saying the new conditions were long overdue.
HakiArdhi, an NGO working for promotion and protection of land rights in Tanzania welcomed the new requirements, saying if well implemented, it will help people who genuinely want to take loans for land development in Tanzania to increase employment, generate income and improve the economy of the people.
“Many people have benefited by securing billion from banks using our land but have injected nothing in the farms. This law will help development of idle lands and create employment,” says HakiArdhi Seniour Programme Officer, Joseph Chiombola.
He said that the main challenge in the implementation of the law was in the area of monitoring. ”What mechanism will be used to make sure the money has been invested in a specific land? Here is where the problem starts,” he said.
Statistics show that only three per cent of land owners in Tanzania have tittle deeds. This means 97 per cent of land owners do not have rights of occupancy or uses customary rights which are hardly accepted by commercial bank in loan processing.
It is expected that the new law will phase out “bogus” investors in the land sector and pave the way for serious land developers to engage in agriculture.
“With the new law we are going to see only serious lenders in agriculture remain. It means if you hear that Sh10 billion has been set aside for investment in land, there is an assurance that the money will be injected in agriculture instead of real estate, for example” he says.
Dr Anna Temu of the Department of Agricultural Economics and Agri-business at the Sokoine University of Agriculture (SUA) says the new law was good in protection of national resources.
“I don’t think the regulations are bad. People have taken mortgage loans from foreign banks using our land, this means if they default the land is put in jeopardy,” she said.
Professor Ludovick Kazwala SUA says: “I think the law is good, it makes sure resources go where it is supposed to go.”
Like HakiArdhi, Pro Kazwala is concerned by the challenge of follow up to ensure the mortgage money is invested in stated projects.
“They will need to be strict in following up to ensure the money taken from banks for land development is used appropriately,” he said.
Professor of economics, Ibrahim Lipumba says it was unfortunate that individuals and institutions were allowed to use land in Tanzania to secure loans from foreign banks in disregard of national interest and security.
“I support the law. You can’t use Tanzanian land as security for loan yet you take the money and invest outside the country.
“People bought farms during privatisation and used their tittle deeds to get loans from local and foreign bank for agriculture but the money were diverted to businesses which had nothing to do with agriculture, economically this is unfair,” said Prof Lipumba who is also the chairman of the opposition, Civic United Front (Cuf).
Lukuvi tells more
The lands minister said there are multiple effects to the economy when people divert loans secured using right of occupancies.
“Diversion means you stifle employment, local council will not get tax. We gave hundreds of thousands of our land for agricultural development but government turnover is very small,” says Mr Lukuvi.
He vowed to revoke, without compromise, title deeds of farms which were used to secure loans in local and foreign banks but have not been developed.
“We’ll tell the banks to look for another guarantor. What convinced us to give him land their own write-ups—that they will create employment, pay taxes to local governments, bring in new technology but they have the don’t do all these. Banks are not doing anything so long as they furnish the loans,” he said.
Land conflicts
Mr Lukuvi said thousands of acres which are lying idle in the country but have been used to secure loans from commercial banks have contributed to land conflicts in villages.
You find someone holding 13 farms in Kilosa but has not developed them for the past twenty year and people want land for farming,” he said.
He said the law didn’t target any individual but it is meant to ensure proper use of land and protection of our natural resources.
