Presentation on theme: "Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville"— Presentation transcript:
1 Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville The World Bank’s Experience with Redistributive Land Reform Projects: The Nuts & BoltsJorge A. Muñoz, Sophie Theis & Paul Gardner de Beville(The World Bank)March 24th, 2015
2 The World Bank’s Support to “Land Reform” 1) Land Administration projectsObjective: To reform legal, institutional, technical framework of land rights, tenure and their administrationHow: Through legal recognition, surveying, cadastre, conflict resolution, titling, registration, technical assistance2) Land Redistribution projectsObjective: To transfer land from large to small farmersHow: By putting beneficiaries in the driver’s seat and decentralizing the decision-making processes (land acquisition, investments and technical assistance)
3 The Case for Redistributive Land Reform Efficiency:Inverse farm size-productivity relationshipEquity:More equitable land distribution associated with higher economic growth and reduced povertySocial stability:Land property relations are inherently political
4 Traditional or Classical Land Reform Farm size limits by law, inefficiency penalizedCentralized government agency:Designates and expropriates large farmsSelects beneficiariesPlans settlements and farm activitiesFinances infrastructure, services, assistanceUsually only user rights issuedLandlords contest process, price leading to a lengthy and costly process
5 Beneficiary-Driven Land Reform Beneficiaries self-select themselvesBeneficiaries select farm, negotiate acquisitionLocal council verifies eligibility of beneficiaries, of farm (including its price), and investmentsGovernment provides subsidized loan for landGovernment provides matching grant to beneficiaries for investments and tech. assistanceBeneficiaries manage fundsLand is titled in name of beneficiary association
6 Intentions of the selection process What mix of beneficiary group, land, and investments will have the best chance of enabling successful farmers and productive farms?Beneficiaries should be:Eligible (income and land caps)Amongst the eligible landless population, the most committed and capablePart of a group with strong social capitalLand should be:High quality, fairly priced land with clear and legal tenure status, meeting beneficiaries’ preferencesInvestments should be:Feasible and viable, given land, skills, and market considerations
7 Community Associations Selection and verification process in BrazilIdentify, Prepare,Contract, Manage,Maintain, Co-finance investment subprojectCommunity AssociationsManages $Present project proposalProject AccountAnalyzeVerify eligibilityApproveSuperviseMunicipal CouncilsOperating AgreementProject Implementation AgreementAuthorizes release of $Supervises MCEvaluates ProjectMonitoring & EvaluationState Technical Units
8 Variations in the selection process Projects used different institutions to review beneficiary eligibility, choice of land, and productive investment proposals.Some important variations:Local-level councils (Brazil) vs. centralized institutions (Guatemala, Mexico) to verify beneficiaries’ eligibility and land priceMobilization of applicants (Honduras), sometimes at the expense of self-selection (Guatemala)Flexible/stringent beneficiary group requirementsGuidance/influence on investment proposals (India vs. Mexico)Review of investment proposals by private financial institutions (Honduras) vs. public institutions with budget incentives
9 The package of benefits shapes beneficiaries’ behavior Challenge:How to give beneficiaries autonomy to choose land, but make sure they negotiate a fair price and do not get excessively into debt?Two part solution:Give beneficiaries the means to become sufficiently profitable to repay the loanProvide incentives for beneficiaries to only take out the amount of credit that they can repay, and repay it!Key variation across projects:Financial package, specifically: how the loan and grant components were linkedCredit provision for land only worked if the projects effectively did two things: 1) gave beneficiaries the means to become sufficiently profitable to repay the loan used to purchase the land and 2) ensured beneficiaries had incentives to repay the loan.Beneficiaries do not have access to credit from traditional lenders, so projects assume this risk and provide concessional loans
10 Financial Package in Brazil: Loan-Grant Link Loan is only used for land purchaseTotal Financial PackageGrant is used for investments and technical assistanceDouble-incentive: the more you bargain down the price, the less in debt you are and the more grant you have for other uses.In contrast to GuatemalaAny part of the financial package not used for the land purchase loan can be used, instead, as a grant.
11 Project OutcomesProjectsNumber of families settledTotal number of farmsTotal area distributed (ha)Average landsize perfamily(ha)Family Income IncreaseBrazil55,3692,7231,230,33420.7From RS$ 1,656 to RS$ 4,064Guatemala15,48718671,3614.6No dataHonduras9911812,4002.4From $630/yr to $1,430/yrIndia5,3031,8400.3From $488/yr to $1,132/yrMalawi15,14266633,4002.2From MKw 4,530/mth to MKw 30,500/mthMexico10,740 trained4,526 acquired landVery different scales (Significant scale in BrazilVery significant increase in beneficiary incomeReminders:Exchange rates (ICR): US$1= Mkw 163India: 124% from 2004 (baseline) to 2009
12 Projects Costs and Debt to Asset Ratios Average Cost of Land per HectareAverage Cost of Land per BeneficiaryFinancial Package per BeneficiaryCost of Land (% of the Financial Package)Debt to Asset ratioBrazil$195$4,058$8,04750.4%1:2.0Guatemala$1,017$4,686$7,52262.3%1:1.6Honduras$1,150$2,780$7,480 37.1%1:2.7India$3,479$1,194$7,45716.0%1:6.2Malawi$143$315$1,050 (grant) 30.0%n/aMexico$1,272$9,361$18,000 to $33,00052.0% -28.4%1:1.9 1:3.5Costs of land reform takes $7,000-8,000 per family.Variation as to how much was given to land vs. on-farm investments (difference in debt to asset ratios)
13 Credit Conditions & Repayment rates ProjectsLoan AmountInterest RateMaturity PeriodRepayment RateBrazil$4,0586%20 years97.6%Guatemala$4,6865%, after 4 year grace periodunknown< 35%Honduras$2,780Market6 to 10 years97.3%India$1,194≤ 15 years88.27%Malawin/aMexico$9,361Under FIFONAFE ( ), 5% (a third of market rates)5 years average (Financiera Rural)< 50%BoliviaConcessional loans (i.e. long grace period) w/ varying terms and fairly long repayment periodsHighest repayment rates in Brazil and Honduras
14 The devil is in the details What have we learned?The devil is in the detailsIncentives really, really matter3 dimensions:Beneficiary self-selectionAccess to landProductive Subproject investmentsAll three dimensions are individually important to achieve successful outcomes in land redistribution projects. But more important even is their relation to each other.It is FUNDAMENTALLY different to set the requirements for project entry and have someone select beneficiaries VS. setting the requirements, divulgating them across communities, and letting people who meet those requirements come forward.The fact that these people “jump the hoops” means that not only are they eligible (they meet the requirements), but more importantly they are willing to participate and take on the challenge of acquiring land and making productive use of it.This is what is known to work, and it’s what will MAKE or BREAK a project.