The study was carried out by Dr Wolfgang Werner and Charl-Tom Bayer from the Department, in conjunction with the Legal Assistance Centre. The study investigated the reasons for the low number of registered leaseholds and as well as the reasons for financial institutions rejecting long-term leaseholds over state land as collateral. The current policy and legal framework on small-scale farming in the communal and resettlement sectors do not regard the use of allocated land as collateral as an important mechanism to promote economic development.
“One of the challenges faced by small-scale farmers is that financial institutions do not accept registered leaseholds over state land as collateral because they are not allowed to sell a leasehold in case the borrower defaults,” said Dr Wolfgang.
“We found that without an active land market that allows the easy transfer of leases, leased land has no collateral value. A basic condition for any asset to be used as surety is that it must be able to be sold in case of loan defaulting,” he added.
The study also revealed that for a registered leasehold to serve as a guarantee, a legal land market must be allowed to develop. Such a market should be regulated to reduce the risk of compromising the objectives of the land reform programme.
Furthermore, the study indicates that the development of a legal land market will also have other positive impacts on resettlement. Legalising the sub-leasing of land allocated under the resettlement programme will provide protection for a practice that is already widespread. It will allow poor farmers to sub-lease their land and enjoy the benefits of resettlement without losing their homes, while allowing stronger beneficiaries to lease additional land in order to expand their operations.