The lack of access to agricultural credit is a constraint to the development of the small-scale
segment of the agricultural sector. The challenge for formal financial institutions is to provide
agricultural credit that meets the unique demands of the entire agricultural sector (both
commercial and emerging sectors). Although small-scale farmers face a number of
challenges, lack of capital for investment contributes significantly to the lowering of smallscale
farmers’ productivity levels. The challenge of access to agricultural credit from formal
financial institutions is longstanding. Although some improvements have been made, a large
proportion of small-scale farmers are yet to be reached by these institutions. One of the ways
in which formal institutions can promote access to credit for small-scale farmers is to adopt
best practices in lending. The study sought to establish whether formal finance institutions in
South Africa adhere to best practices in their agricultural lending operations for small-scale
farmers.
A review of literature indicates that there are countries whose formal financial institutions
have achieved some success in improving access to finance for small-scale farmers. Hence, it
is important to find out what these institutions have done, particularly the best practices they
have adopted in this regard. Best practices in agricultural finance are the innovative
methods/techniques/and procedures that address the supply- and demand-side constraints and
challenges (from both the finance and agricultural sectors’ perspectives) and thus improve the
levels of access to agricultural finance. The response of formal finance institutions to the risks and uncertainties inherent in the sector is to enforce stringent collateral requirements
that are restrictive for small-scale farmers.
The study adopted a qualitative approach that utilised primary and secondary information
obtained from reports, manuals and other relevant documents in the public domain as well indepth
interviews with key role-players from the major formal finance institutions.
The results of the study revealed that formal financial institutions in South Africa have not
found appropriate delivery modalities that encourage and support agricultural finance
accessibility among small-scale farmers. There have been considerable developments in
terms of product type and product design in order to meet the demands of small and medium
enterprises as well as agricultural clients. However, there still seems to remain gaps in terms
of the different categories of emerging farmers that can be adequately financed by formal
finance institutions. The loan appraisal process in formal finance institutions is based on the
bankability of the farm enterprise and there is a heavy reliance on ‘traditional’ collateral
requirement. There are few examples of collateral alternatives and substitutes that are used in
practice and are usually of lesser value but also burdensome on the part of formal financial
institutions (thus, a need for equity contributions remains necessary). Given the nature of the
formal finance institutions considered in the study viz. commercial banks and the Land Bank;
with their highly competitive and sophisticated corporate environment, and operations
underpinned by a strictly business approach – there is little room left for a developmental
agenda in terms of their lending practices.
Though private sector institutions play a significant role in theSouth African economy, the
role of the state remains quite large with regard to the ambitionof a developmental state. It is
within this dynamism that the public-private dichotomy of agricultural finance arises. There
is also a gap in terms of providing the much needed non-financial support, such as access to
markets, technical skills, or collateral alternatives. The environment within which formal
finance institutions provide agricultural credit has changed, and agricultural lenders need to
identify the arising opportunities in small-scale farmer development. The current status quo
in small-scale agricultural lending best practices in South Africa leaves much room for
development. / Dissertation (MInst(Agrar))--University of Pretoria, 2014. / lk2014 / Agricultural Economics, Extension and Rural Development / MInst(Agrar) / Unrestricted
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:up/oai:repository.up.ac.za:2263/43227 |
| Date | January 2014 |
| Creators | Qwabe, Nontobeko P. |
| Contributors | Machethe, Charles Lepepeule, nontobeko.qwabe@yahoo.com |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Dissertation |
| Rights | © 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. |
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