Ethiopia: Use of Land Titles as Collateral to Obtain Credit in Rural Areas

In Ethiopia, the land belongs by law to the state and its inhabitants. In the countryside, farmers thus have a lifelong right to use their land, can lease it out and give it away, but not sell it. This situation, among other reasons, has in the past led farmers to invest little in improving agricultural productivity through long-term measures such as irrigation, planting tree crops or terracing slopes. Another reason for a lack of willingness to invest is often the lack of capital. In the past, it was possible to take out group loans – mainly through the local cooperatives, but also through microfinance institutions – but individual loans were not granted. Also, the network of financial service providers in rural areas was and is not very dense. The almost complete land title registration in the Ethiopian highlands has recently made it possible to use a land title as collateral for taking out a loan in rural areas as well. This measure, which was launched by DFID as a pilot programme, has been well received in rural regions by banks and other financial service providers as well as by smallholder families and is currently being continued by GIZ as part of the S2RAI project. The present study investigated the potentials and risks of mortgaging land titles using the example of the Kersa Malima Woreda (district) in the Oromia Region in Ethiopia. The farmers see the link between land title and loan as predominantly positive, among other things because if the loan is not repaid, the land title does not go to the bank, but the use of the mortgaged fields only has to be suspended for three years.