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The World Bank’s Experience with Redistributive Land Reform Projects: The Nuts & Bolts Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville (The World.

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Presentation on theme: "The World Bank’s Experience with Redistributive Land Reform Projects: The Nuts & Bolts Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville (The World."— Presentation transcript:

1 The World Bank’s Experience with Redistributive Land Reform Projects: The Nuts & Bolts Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville (The World Bank) March 24 th, 2015

2 The World Bank’s Support to “Land Reform” 1) Land Administration projects  Objective: To reform legal, institutional, technical framework of land rights, tenure and their administration  How: Through legal recognition, surveying, cadastre, conflict resolution, titling, registration, technical assistance 2) Land Redistribution projects  Objective: To transfer land from large to small farmers  How: 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 relationship  Equity:  More equitable land distribution associated with higher economic growth and reduced poverty  Social stability:  Land property relations are inherently political

4 Traditional or Classical Land Reform  Farm size limits by law, inefficiency penalized  Centralized government agency:  Designates and expropriates large farms  Selects beneficiaries  Plans settlements and farm activities  Finances infrastructure, services, assistance  Usually only user rights issued  Landlords contest process, price leading to a lengthy and costly process

5 Beneficiary-Driven Land Reform  Beneficiaries self-select themselves  Beneficiaries select farm, negotiate acquisition  Local council verifies eligibility of beneficiaries, of farm (including its price), and investments  Government provides subsidized loan for land  Government provides matching grant to beneficiaries for investments and tech. assistance  Beneficiaries manage funds  Land 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 capable  Part of a group with strong social capital  Land should be:  High quality, fairly priced land with clear and legal tenure status, meeting beneficiaries’ preferences  Investments should be:  Feasible and viable, given land, skills, and market considerations

7 Community Associations Identify, Prepare, Contract, Manage, Maintain, Co-finance investment subproject Present project proposal Municipal Councils State Technical Units Project Account Supervises MC Evaluates Project Monitoring & Evaluation Authorizes release of $ Analyze Verify eligibility Approve Supervise Manages $ Project Implementation Agreement Operating Agreement Selection and verification process in Brazil

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 price  Mobilization of applicants (Honduras), sometimes at the expense of self-selection (Guatemala)  Flexible/stringent beneficiary group requirements  Guidance/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 loan  Provide 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 linked

10 Financial Package in Brazil: Loan-Grant Link Total Financial Package Grant Loan Loan is only used for land purchase Grant is used for investments and technical assistance Any part of the financial package not used for the land purchase loan can be used, instead, as a grant.

11 Project Outcomes Projects Number of families settled Total number of farms Total area distributed (ha) Average land size per family (ha) Family Income Increase Brazil 55,3692,7231,230,33420.7 From RS$ 1,656 to RS$ 4,064 Guatemala 15,48718671,3614.6No data Honduras 9911812,4002.4 From $630/yr to $1,430/yr India 5,303 1,8400.3 From $488/yr to $1,132/yr Malawi 15,14266633,4002.2 From MKw 4,530/mth to MKw 30,500/mth Mexico 10,740 trained No data 4,526 acquired land

12 Projects Costs and Debt to Asset Ratios Projects Average Cost of Land per Hectare Average Cost of Land per Beneficiary Financial Package per Beneficiary Cost of Land (% of the Financial Package) Debt to Asset ratio Brazil $195$4,058$8,04750.4%1:2.0 Guatemala $1,017$4,686$7,52262.3%1:1.6 Honduras $1,150$2,780$7,480 37.1%1:2.7 India $3,479$1,194$7,45716.0%1:6.2 Malawi $143$315 $1,050 (grant) 30.0%n/a Mexico $1,272$9,361$18,000 to $33,000 52.0% - 28.4% 1:1.9 1:3.5

13 Credit Conditions & Repayment rates Projects Loan Amount Interest Rate Maturity Period Repayment Rate Brazil $4,0586%20 years97.6% Guatemala $4,686 5%, after 4 year grace period unknown < 35% Honduras $2,780Market6 to 10 years97.3% India $1,194Market≤ 15 years88.27% Malawi n/a Mexico $9,361 Under FIFONAFE (2004-2006), 5% (a third of market rates) 5 years average (Financiera Rural) < 50% Bolivia n/a

14 What have we learned?  Incentives really, really matter  3 dimensions: Beneficiary self-selection Access to land Productive Subproject investments The devil is in the details


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