A diagnosis of rural agricultural credit markets in South Africa: empirical evidence from North West and Mpumalanga province.

Abstract

Access to credit by smallholder farmers in South Africa still remains a confounding problem. The aim of this paper is to identify the major sources of credit for smallholder farmers. A total of 362 smallholder farmers were surveyed in Mpumalanga and North West provinces. A multi-stage sampling technique was used and the data analyzed using de-scriptive statistics, Analysis of Variance (ANOVA) and the Ordinary Least Squares multiple regression statistical tech-nique. Results show that commercial banks give larger loans but to fewer smallholder farmers than nonbank lenders. The coefficients for commercial banks were positive and significant. It has also been observed that fewer smallholder farmers demand credit from commercial banks than informal lenders (savings clubs, friends, cooperatives, family, Government) because of high interest rates, long and difficult application procedures, fear of losing collaterized assets and high transaction costs. The study has policy implications in the areas of investment in information gathering, re-duction of information asymmetry and an increase in the number and value of loans accessed by smallholder farmers from commercial banks. Further research is therefore, recommended on measures to alleviate credit rationing of small-holder farmers by commercial banks.