What you need to know:
- Not so long ago, many commercial banks would not allow a Kibanja interest in land as security for a mortgage perhaps due to their inherent difficulty not only in confirmation of ownership but also the ease with which a borrower can place to multiple persons from money lender to banking institutions for access of credit.
In the recent years, commercial banks have widened categories of assets that are considered for secured lending perhaps due to improved measures of risk mitigation.
Of particular interest has been the Bibanja Interests on land which the commercial banks now accept as collateral for secured lending.
Not so long ago, many commercial banks would not allow a Kibanja interest in land as security for a mortgage perhaps due to their inherent difficulty not only in confirmation of ownership but also the ease with which a borrower can place to multiple persons from money lender to banking institutions for access of credit.
But perhaps due to competition for customers combined with the experience in managing such risk, now many of the commercial banks accept untitled land (Kibanja) as collateral for secured lending though with some capping and restrictions on sums that can be allowed to be borrowed.
However, the observations of the head of state on Mailo tenure while presiding over the National Heroes Day celebrations is something that could raise eyebrows particularly for secured lending.
The Daily Monitor of June 10 quotes the President declaring Mailo land tenure as “evil, not fair and very bad”. The rather many land evictions of Bibanja holders that seem to follow Mailo land tenure has been flagged as the main problem that requires attention.
The discussion for land evictions on Mailo land is a rather a long one and I wouldn’t want to go into it. I only want to highlight possible implications for commercial lenders and practitioners like valuers who are appraising such property as security for secured lending given the declarations of his excellence.
Should lenders place a higher risk premium on such property? Should they even continue to lend to them?
Should valuers review their approaches while appraising them for secured lending? Is it possible to understand how long a period it can take to deal with this “evil, not fair and very bad” Mailo tenure?
Certainly, the President’s remarks add a twist to an already complicated category of asset as far as secured lending is concerned something not good, especially for borrowers that use bibanja for secured borrowing.
Ministry of lands housing and urban development ought to start crafting detailed guidance for the general public and the financial economy in particular with regards the President’s concerns and aspirations on timelines if any of achieving the dismantling of this rather evil and not fair system.
For example would the dismantling involve compensating some interests such that lenders can be thought first in which case the risk attachment is reduced? What would the new tenure system after dismantling look like?
It appears the work for the new Minister of Lands Judith Nabakooba seems to be shaping on top of what she will be finding there already. As sector players, we will be closely following the minister and the President’s team on how these issues shape out.
Alozius Gonza, Land Economist Vice President of Institution of Surveyors of Uganda