The module 5 corresponds to the Fiscal, Financial and Economic Analysis (FFEA) of LAPs which contains elements of the three main modules.

Module 5: Fiscal Financial and Economic Analysis (FFEA)

Conceptual basis for the economic analysis

Increase in investment
The increase in security of tenure arises from the appreciation of the owner or possessor that his or her rights to land (access, use, possession, alienation, succession) are permanent and inalienable. The perception of insecurity can therefore arise from a change in the national or local context which creates risks (real or perceived) in relation to the recognition of tenure by neighbours, external players or the state; security of tenure is likewise affected when one of the benefits related to property (irrigation capability, housing, profits, inheritance, etc.) is not considered lasting and sustainable over time. In the case of rural properties, for example, it is unlikely that farmers with weak security of tenure will make long-term or lasting investments on the property, such as planting tree crops, installing fixed irrigation systems, adopting conservation measures to protect the productivity of the land (such as contours), or constructing buildings for production or housing. At an urban level, insecurity of tenure can also reduce options for investing in improvements in housing. All these investments would allow an improvement in living conditions, an increase in the capital gain of the property and an increase in options for production, sale and/or renting the property.

In the case of rural properties, it can be deduced that when security of tenure is uncertain, agricultural productivity and farmers’ incomes would be lower than they would have been if long-term investments had been made. In other words, insecurity of tenure will not allow a property to achieve its optimum use and generate economic benefits as a result. Conversely, when security of tenure increases, property tends towards the activity that represents its best use, increasing the potential for generating economic benefits. Furthermore, an improvement in the perception of tenure in agricultural parcels can result in the more sustainable use of natural resources by boosting investments that improve or protect the productivity of the land in the long term1. These investments can be in reforestation, conservation of water sources, the use of efficient irrigation systems, land movement for soil conservation, etc.

In the case of urban property, an increase in security of tenure will boost investment in housing, achieving better use of it and gaining greater satisfaction and/or a greater level of income (if it is rented out). These last points can also result in an increase in the value of the property.

Better access to finance
For farmers, incentives related to security of tenure are not the only factor that will influence effective investment; this will also depend on the capacity for and access to financial resources and services supplementary to production. Access to credit generally represents the source of finance for farmers. Access to credit can in turn facilitate an increase in production in the short term, providing capital to the producer for more intensive production for a set production cycle, by increasing the use and/or quality of production inputs.

However, in many countries there is very little credit provided in the rural setting and/or for agricultural activities. The reasons for this deficiency depend on the individual context, but the problem normally lies with a lack of knowledge of agricultural activities among financial institutions, which prevents them evaluating the risk of loans in this sector appropriately. In many countries credit in rural areas is provided mainly according to the collateral that borrowers can offer to support their debt and according to the feasibility of the production activity to be financed. Given its great value in relation to its immovability, land is an ideal collateral for financial institutions. Furthermore, for peasant populations and farmers, land is in many cases the only asset that can serve as collateral.

It can then be observed that the causal chain between title deed and access to credit should not be assumed but evaluated from the point of view of both the supply and demand for credit. From the point of view of supply, in cases where poor debt repayment exists, public financial institutions can find themselves short of capital and private financial institutions might have no incentive to participate in the rural funding sector. From the point of view of demand, producers with access to credit might not apply for it so as not to put their property at risk, as in many cases it may be their main and sole asset, or for fear of not being able to deal with adverse conditions outside their control, such as currency devaluations, climate change, armed conflicts, etc. In the case of rural property, this is of particular relevance in areas characterized by high variability of returns on agricultural investments, such as areas prone to drought, flooding, landslides, etc. Similarly, in cases where the transaction costs required by financial institutions are too high, small-scale2 agricultural producers or residents of marginal urban areas may not be able to bear these costs.

More dynamic land markets
RCT processes can improve the dynamism of land markets. The increase in security of tenure and legal certainty of tenure facilitates buying/selling or rental transactions by reducing the risk of direct players and other agents. This greater market dynamism can contribute to the more efficient use of the land resource, owing to which players with the potential for generating greater income from property will be prepared to pay a larger amount for it than other players with a smaller capacity for generating economic benefits from it. As a result, land will have a tendency to change owners until it reaches the owner who can use it most efficiently, i.e. the one who would be prepared to pay most for it. It should be noted that more dynamic land markets in contexts where there is no special support for small-scale production may generate contrasting benefits.

Increase in property value
In economic terms, the value of an asset is equal to the present value of the flow of expected net benefits during its useful life less maintenance and operating costs. This formulation also applies to land. Consequently, if the flow of expected net benefits of a parcel increases as a result of the availability of greater investment opportunities, the value of the land will increase. In other words, the potential to achieve greater economic benefits from property is expressed by the increase in its value.


1 Pagiola, S. (1999).
2 Idem.