The former minister of agriculture, Derek Hanekom, summarised this role nicely in his foreword to the bank’s 1997 annual report:
Its funding model and its narrow mandate meant that, for decades, it was a stable institution. But critical mistakes have been made over the past 25 years that have compromised its critical role as a development finance institution in the agricultural sector. We believe the problems can be solved and that the bank can play its role as a financier of land reform and provide the same preferential finance terms to aspirant black farmers as their white counterparts enjoyed between 1912 and 1996. Based on our experience in the sector, and drawing lessons from its early years of success, our proposed solution is simple: get back to basics.
With this mix of funds, its cost of capital was far below the prime rate. Even adding an interest margin to cover operational costs, the bank was able to on-lend to farmers below commercial prime lending rate and at very favourable terms . This was not something the commercial banks could do. Since 2010 the bank’s main source of funds has been the money market, with maturity within one year. These funds are expensive. It is also impossible for farmers to start a business with interest rates above the prime lending rate.
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