IMPROVING ACCESS TO AGRICULTURAL FINANCE FOR EMERGING FARMERS 
IN SOUTH AFRICA'S NORTH-WEST PROVINCE 
Monei Seleho 
21966109 
Mini-dissertation submitted in partial fulfilment of the requirements for the degree 
Masters in Business Administration at the North-West University Mafikeng 
Campus 
LIBRARY 
MAF tKENG CAMPUS 
Call Ne.: 
2015 -09- 1 0 
Acc. No.: \5' D\ .., 
ORTH-WEST UNIVERSITY 
Supervisor: Prof Collins Miruka 
Date: October 2013 
DECLARATION 
I, Monei Seleho hereby declare that this dissertation entitled "Improving access to 
agricultural finance for emerging farmers in South Africa's North-West Province" is an 
original piece of work produced by myself. All sources have been accurately reported 
and acknowledged. This document has not previously, in its entirety or in part, been 
submitted to any University in order to obtain an academic qualification. 
Monei Seleho Date: October 2013 
ABSTRACT 
The aim of the study was to determine factors hindering access to financial 
services by emerging farmers in North-West Province of South Africa . 
Inadequate access to finance may have a negative impact on the economic 
growth of the country, employment creation and food security. 
The literature review was conducted to include the concept of emerging 
farmers and how they can contribute to the economy of South Africa. The 
role of financial institutions in agriculture was also studied . Constraints facing 
emerging farmers, in relation to access to finance were discussed . Various 
approaches to be used in providing access to finance of emerging farmers 
were studied which ranges from those in the Public and Private Sectors and 
those that are neither related to the Public nor Private Sector. 
A quantitative research method and data gathering techniques were used. 
Data that was gathered through a Likert scale questionnaire from the 
emerging farmers within the NWP was analysed and interpreted. A Pearson 
Chi Square with its p value and degree of freedom were utilised to derive a 
relationship between variables. 
Constraints facing emerging farmers in relation to access to finance were 
discussed as well as various approaches to be used in providing access to 
finance. Recommendations were made and areas for future research were 
provided. 
1 
ACKNOWLEDGEMENTS 
This study was inspired by my involvement in the banking industry where I 
observed how it was cumbersome and exorbitant for emerging farmers to 
access agricultural finance. I was moved by the situation and encouraged to 
study improvement of agricultural finance to emerging farmers . 
The research project was made successful by contribution and support of a 
number of people who are my family, friends and work colleagues. I would 
like to express my sincere appreciations to all those who have contributed to 
the completion of this research. I'm thankful to all and obliged to mention a 
few by names. 
First, I'm thankful to God for His divine presence in my life. It's been a tough 
one but I made it. I also wish to thank my Supervisor Professor Collins Miruka 
who continued to provide guidance. I'm equally thankful to 
Mr Thoane Sengfeng, who provided encouragement and comments were 
important for the final output of this research. Dineo, I wish to register my 
appreciation for your remarkable moral support and most of all believing in 
me. Many thanks to all those who facilitated access of data and information 
facilitated interviews and compiled data. Thank you to all my MBA colleagues 
who made learning most enjoyable. 
To each and every respondent who took time to complete and return the 
questionnaires, thank you very much. I would like to express my gratitude 
particularly to my dearest mother, Segomotsi Seleho, my sisters, brother, 
family and friends for their sacrifices, understanding and patience during the 
research and writing as they missed the love of their dear sister. 
Thanks a lot to my parents who have groomed me to be what I am today. 
This report is dedicated to my late father, Letebele Boy Seleho. 
11 
LIST OF TABLES 
Table 2.2: Agricultural debt by banks on selected years in percentages .... ... ..... 11 
Table 3.1: Age of respondents ......... .. ....... .. ... .......... ..... .. ........ .... ... .... ...... 31 
Table 3.2: Gender of respondents ..... ....... ....... ... .. ............. ..... ....... .... ....... 31 
Table 3.3: Race of respondents ... ... .............. ...... ....... .. .. ....... ..... .. .. .. ........ 32 
Table 3.4: Fann Size ................ .... .... .. .... .... .. .............. ....... ........... .... ...... 32 
Table 3.5: The following bank has previously financed your farming 
operation ....... ...... ..... .... .. .. ... .... .. ... .... ... ......... .. ... .. ...... ... ......... 32 
Table 3.6: Does government provide training for farmers .... ....... ........ .... ... ... .3 3 
Table 3.7: The nearest financial service provider .... ....... .. ... ........ ... .. .. ......... .3 4 
Table 3.8 Collateral is always required when you apply for a loan .................. 35 
Table 3.9 Relationship between age and credit access ... ............... .. .... ......... 36 
Table 3.10 Relationship between gender and credit access ...... ...... .... ... .... ... 36 
Table 3.11 Relationship between race and credit access ....... ........... .. .. .... .. ... 36 
Table 3.12 Relationship between credit access and nearest financial institution .37 
Table 3.13 Relationship between credit access and farm size. ... . .. .. .. ...... ... .. . 37 
LIST OF FIGURES 
Figure 2.1 Provincial Agricultural activity .... ... ..... .. ... .. . ....... ...... ........... ..... 10 
11 l 
LIST OF ACRONYMS 
GDP - Gross Domestic Product 
NWP - North West Province 
MAFISA- Micro Agricultural Financial Institution 
CASP- Comprehensive Agricultural Support Programme 
SLAG- Settlement Land Acquisition Grant 
IV 
TABLE OF CONTENTS 
ABSTRACT ....... .... ....... .... ....... .... ... .. .......... .... ... ........ ....... ........ .... ..... ...... ... i 
ACKNOWLEDGEMENTS .... ..... .. ......... ... ....... ....... ..... ...... ... .... ....... ... ...... .. ... .i i 
LIST OF TABLES ... .... .. .... ....... .. ......... ... .. .... .... ...... .. .. ..... .. .......... ... ...... ... .... iii 
LIST OF FIGURES ..... .. .. ......... .... .... .. ....... ........ .... .. . .. ....... .. ....................... iii 
LIST OF ACRONYMS ........ ........... .. ..... ..... ... ................... .... .... .. ............. ... ..i v 
CHAPTER ONE: NATURE AND SCOPE OF THE STUDY ... . ........ ......... .... .. ....... 1 
1.1 INTRODUCTION AND BACKGROUND ........... ..... ....... ....... ... .... ..... ... ... .. 1 
1.2 PROBLEM ST A TEMENT. ..... .. .. ... ....... .... ... ............ ...... .... ..... ... .... .. .. .. . .4 
1.3 RESEARCH OBJECTIVES .. .. ....... ...... ..... ..... ... ... .. ..... ....... ...... .. .. ..... ... .5  
1.3.1 Main objective ... .. ......... ... .... .... .. ...... .. ... ..... ....... .. ... ... ..... ....... .... .. ... ..... 5 
1.3.2 Secondary objectives ....... ....... ... .. ..... ...... .. ..... ........ .. .... ............ ........... 5 
1.4 RESEARCH METHODOLOGY ........ ..... .. .... .... ... .... .... .... ... ..... . .. ....... .. .. .6  
1.4.1 Literature review .. .... ............. .. .. .... ... .. .. ... .......... ....... ...... ... .... ......... ... .6  
1.4.2 Empirical study ....... . .. ........ ... .... ... ..... .. .. ......... .... ..... ... .. ...................... 7 
1.5 STUDY LIMITATIONS .............. ................ ..... ... .......... ........ ...... ..... .. .... ? 
1.6 LAYOUT OF THE STUDY ................... .... .. ................ .. .. . .. .... .......... ....... 7 
CHAPTER TWO: LITERATURE REVIEW ..... ....................... . ......... .. ............... 8 
2.1 INTRODUCTION ......... .. ...... ..... ... .. .... .... .. ...... ..................... ...... .... .. .... 8 
2.2 THE CONCEPT OF EMERGING FARMERS ................ ........................... 8 
2.3 AGRICULTURE IN SOUTH AFRICA .. .. .. .................... ......... ................... 9 
2.3.1 Role of Agriculture in Economy ... ......... ....... ... ... .. ... ......... .... .......... ..... .. ..9  
V 
2.4 CONSTARINTS FACING EMERGING FARMES ... .. ... . ......................... 12 
2.5 FACTORS HINDERING ACCESS TO FINANCE BY EMERGING 
FARMERS ............ ..... ...... ........ .. ......... .. ........... ..... ... .... .... .......... .. .. . 13 
2.5.1 . Structure of financing products ... .... ........ .... ... ....... .......... .... ......... ...... 13 
2.5.2 High Transaction Cost ..... ............ ........... ... ... .......... .................... ... .... 13 
2.5.3 Higher credit risks ... ..... .. ........... .. .. ..... ..... ... ................ ....... ..... ..... ... ... 14 
2.5.4 High rates of illeteracy .................. .............. .. .... .. ......... ... .. ..... ........ .. .. . 14 
2.5.5 Marketing constraints .... ...... ................... ..... .. ......... ..... .. .... .. ........... ... 15 
2.5.6 Allocative constraints .. ....... .. .... .. ...... .......... ......... ...... ...... . .. .. ... .. .. ... ... 16 
2.5.7  Loan repayment history ..... ... .... .... ...... .... .... ........ ......... ...................... 17 
2.6 PUBLIC SECTOR APPROACHES TOWARDS PROVIDING ACCESS TO 
FINANCE BY EMERGING FARMERS IN SOUTH AFRICA ........ .. ... .. ..... ... 18 
2.6.1 Nationalisation of Commercial Banks ..... ..... ....... ... .... ... ... ...................... 18 
2.6.2 Outreach Programmes .......................................... ... .......... .... ....... ... .2 0 
2.6.3 Government loans and Grants ...... ..................... .............. ........... ... .... .. 21 
2.6.4 Access to training ... ................ .... ... ...... .. ..... ..... ..... ...... .. ............ ... .. .. 22 
2.6.5 Subsidised interest rates .......... .. ...... .. .. ......... .. .. ... ... .. ... ....... ............. .2 3 
2.7 PRIVATE SECTOR APPROACH TOWARDS PROVIDING ACCESS TO 
FINANCE BY EMERGING FARMERS IN SOUTH AFRICA. .......... ....... ..... 23 
2.7.1 Activities of commercial bank in cred it extension .... ...... ..... .. ................. 23 
2.7.2 Moneylenders ....... .... ........... ..... ... ..... .. ...... .... .. ........ ... . ..................... 24 
2.8 OTHER APPROCHES TOWARDS PROVIDING ACCESS TO FINANCE BY 
EMERGING FARMERS IN SOUTH AFRICA .......... .. ..... ......... ... .... .. ... .. 25 
2.8.1 Co-operative movement in South Africa ...... ... ........ .. .... ............. ..... .. .. .. .2 5 
VI 
2.8.2 Rotating credit and savings associations .. .... .. .................................. ... 26 
2.9 Conclusion .. .. .. . . ......... ... .. ... .. .. ....... . .... . .............. .. ... .. ... . ...... .. ...... ..... 27 
CHAPTER THREE:RESEACH METHODOLOGY .... ... ......... ........ ....................... 29 
3.1 INTRODUCTION ....... . .. ...... .... ....... . .... . .. .. .... ... ... .. ..... .. ........ . ... ... ..... ..2 9 
3.2 RESEARCH PARADIGMS .. .. .... ...... ... .. ..... .. ......... .. ..... . ............. ..... .. ... 29 
3.3 QUANTITATIVE APPROACH .... .. .......................... .... ........................ .. 30 
3.3.1 Sampling methods .. .. ... ..... .. .. ........ .... .. ... . ...... .. .. .... ........... ...... . .. ... . .... 30 
3.3.2 Population and sample ........ .. ..... ........ .. ...... ... .... .. ...... .. .. ........ ... ......... 31 
3.4 ANALYSIS OF RESULTS ...... ..... ... .... .. ... .... .... . ...... .......... .... ..... . ... .. .. .. 31 
3.5 RELATIONSHIP BETWEEN VARIABLES ............... ... ............ ........ ...... .3 5 
3.6 CONCLUSION ..... ..... . ...... ..... ............... . .. .. .. ... .. . ... ... ..... ... ... . .. ...... ..... 38 
CHAPTER 4: INTERPRETATION, RECOMMENDATIONS AND CONCLUSION.39 
4.1 INTRODUCTION ...... .. ............. ..... .. ... ............. ...... .. . ...... ........... ... ..... 39 
4.2 RESEARCH OBJECTIVES .... ... .. ... .. .. ...... . .. ... .. . . ...... ....... . . ..... . ... .... .. ... 39 
4.2.1 Findings .......... .... .. .... ......... .. .. ........ ......... ....... ... ... ..... . .. ......... .. .... . .. 39 
4.3 RECOMMENDATIONS .... ... . ... ...... ............ .. .................... ..... ...... ... .... .41 
4.4 CONCLUSIONS AND AREAS FOR FUTURE RESEARCH ....... .... ........... .42 
4.4.1 Conclusions .......... ...... .. . ....... ... ... ..... . .. .... ... ....... ....... .... ... ........ ........ .42 
4.2.2 Areas for future research ......... ..... ..... . .. ..... ......... .... .. ..... ................. ... .44 
LIST OF REFERENCES .. .... .......... .. .. .... . ... ... ....... .... .. .. ..... .... . .............. . ..... .45 
Vil 
CHAPTER ONE 
NATURE AND SCOPE OF THE STUDY 
1.1 Introduction and background 
Many black farmers, smallholders and part-time farmers still have limited 
access to financial services. Major factors that contribute to the limited finance 
to emerging farmers are stringent requirements by the commercial banks, 
such as prohibitive collateral, high interest rates as well as lack of access to 
land , poor prices of the yield and lack of support from government 
(Agriculture, 1995: 13). 
Improving access to credit is often regarded as one of the key elements in 
increasing the agricultural productivity. The establishment of parastatal 
institutions with a mandate to channel credit to smallholder farmers is one of 
the approaches used by governments in developing countries to promote 
smallholder agricultural development. In South Africa, such parastatals were 
established in the former homelands. On the other, the Land and Agricultural 
Bank (Land Bank) and the defunct Agricultural Credit Board were established 
to address the credit needs for commercial farmers (Machete, 2004:7) . 
In accordance to the Strauss Commission (1996:1) , the White Paper on 
Agriculture of 1995 directed that the Public Financial sector be reassessed 
and that the Land Bank identify the needs of different groups of farmers, their 
characteristics and needs of rural financial markets. Credit to emerging black 
farmers was to be readily available through the transformation of the Land 
Bank. 
In accordance to Mayo (2002:8) the Land Bank, the State and other 
institutions should act in support of the market. At the same time, it is 
acknowledged that there are inherent weaknesses in the existing institutional 
fabric , noting that these institutions would not be able to contribute to the aims 
of rural reconstruction on a national basis without appropriate and active 
support. The Legislation governing agriculture, banking and land in force in 
different areas of South Africa was to be harmonised as soon as possible. 
A role identified for the state was to faci litate as well as co-ordinate the 
provision of financial services with special attention to the needs of women 
Strauss Commission (1996: 13). The commission also argued that the state 
should acknowledge the current gap in rural finance delivery and an overlap in 
the prospective policy briefs of the state-funded development finance 
institutions. International experience pointed out to the success of multi 
sector financial institutions at a retail level and a rich discussion exists on 
apex institutions internationally. 
Strauss Commission (1996:73) acknowledged that the responsibil ity of the 
Department of Agriculture was to promote agricultural development. The 
commission , however, recommended that the department terminate the 
Agricultural Cred it Board and suspend its policy. Female farm workers, male 
farm workers, landless, unemployed rural poor; pensioners, small -holders, 
contract farmers , rural businesswomen , rural businessmen and small - and 
large-scale rural employers, including commercial farmers were identified as 
those requiring special support measures to gain access to financia l services . 
In its final report, the Strauss Commission (1996:73) emphasised that the 
Land Bank should merely focus on agricu lture. The Land Bank's wholesale 
function was to be geared to foster, nurture support and co-ordinate local and 
provincial level rural financial institutions, by the NGOs, development finance 
institutions, co-operatives, commercial bank branches , local authorities or any 
other kind of institution seeking to render agricultural and agriculturally-related 
fi nancial services . 
Fundamentally, the Land Bank's wholesale function should reach those 
retailers who seek to serve the individual and small group agrarian needs of 
people in the deep rural areas, eg small-scale individual farmers , groups of 
female vegetable gardeners and small-scale poultry producers who are far 
2 
away from the relatively limited retail branch network (Strauss Commission , 
1996:73). 
Agriculture remains an important sector in the South African economy. It 
includes all economic activities from provisioning of farming inputs to farming 
and value adding . Although primary agriculture is declining , in economic 
significance it still accounts for 3.9% of the Gross Domestic Product (GDP) , 
while the larger agro-food complexes account for another 9%. Because of 
globalization, South Africa is affected by whatever is happening elsewhere in 
the world , whether it is drought, floods , wars , the oil price, subsidies to 
farmers , etc. each happening sends a ripple effect into the total environment 
(Terblanche, 2008:59) 
Lekunze et al. (2011 :502) maintains that the primary agriculture is an 
important sector in the South African economy despite its relatively small 
share of the total GDP. It remains a significant provider of employment, 
especially in the rural areas and a major earner of foreign exchange . In the 
North-West province (NWP) agricu lture remains a major source of income for 
the livelihood of approximately 65% of the rural population . 
NWP is home to about 3.9 million people. This province is also known as the 
Platinum Province and it is centrally located on the subcontinent with direct 
road and rail links to all Southern African countries. Agriculture is of extreme 
importance to the North- West. About 64 000 people (1.7% of North-West 
population) are working in the agricultural sector which in turn contributed 
about 2.6% through value added for the economy in 2006 (Jacobs et al. 
2009:1 ). 
Tshuma (2012:4018) uphold the view that with poverty having so many faces , 
enabling the rural population to produce their own food is a good strategy but 
on its own , it is not enough to completely eradicate this problem. Increasing 
access to rural finance for emerging farmers has the potential to improve 
agricultural productivity, food security as well as reduce poverty and , 
subsequently contribute meaningfully to the economy of South Africa. 
3 
1.2 Problem Statement 
Access to finance that the market provides through the four commercial 
Banks being the ABSA, Standard Bank, First National Bank and Nedbank is 
limited due to a number of reasons. Since their motive is profiting , bank 
branches are not located in remote rural areas as they try to avoid high costs 
of operations. Emerging farmers find it costly to travel to urban areas to 
branches and struggle to meet the minimum requirements set by the banks 
(Maumbe, 2006:73). 
Further obstacles to financial deepening are the lack of enabling policies that 
the commercial banks face. These obstacles include financial , legal , 
regulatory and macro-economic policies of government. These policies are 
rigid and make it difficult for emerging farmers to access finance. In turn , 
these obstacles faced by the banks are passed through to the emerging 
farmers and ultimately hinder thei r access to finance (Pederson, 2003:6). 
Small-scale farmers need access to capital to finance operations and make 
necessary purchases. If a small-scale farmer does not have sufficient equity 
capital , he has to borrow money and go into debt. For a small-scale farmer to 
acquire a loan from a traditional lending institution, such as a bank, he must 
have good a credit record or substantial collateral. Since most small-scale 
farmers in South Africa have limited resources and no credit history either, 
they have problems accessing formal finance (Mayo, 2002:189). 
Inadequate access to finance may have a negative impact on the economic 
growth of the country, employment creation and food security. Th is study 
seeks to investigate access to funding by emerging farmers with the 
possibilities of improving accessibility to finance. The following research 
questions will thus be explored: 
4 
• What are the factors that have an impact on access to f inance for 
emerging farmers in the North-West Province? 
• Are there any outreach programmes aimed at provision of f inance for 
emerging farmers , are those outreach programmes effective? 
• Are there any institutional factors that inhibit access to credit by 
emerging farmers? 
• How can access to finance for emerging farmers be improved? 
1.3 Research objectives 
1.3.1 Main objective 
The main objective of the study was to investigate accessibi lity to agricultural 
fi nance by the emerging farmers in the NWP. 
1.3.2 Secondary objectives 
A literature review was conducted to study: 
• Emerging farmers as a concept 
• Various financing structures 
• Agricultural finance 
• Factors having an impact on agricultural finance to emerging farmers 
5 
An empirical study was conducted to : 
• Identify factors having an impact on agricultural finance to emerg ing 
farmers in the NWP 
• Identify correlation between emerging farmers with such factors 
• Perform a statistical analysis of data 
• Interpret the results of a statistical analysis 
• Make recommendations and conclusions 
• Identify areas for future research 
1.4 Research methodology 
1.4.1 Literature review 
The literature review was performed through the study of academic journals 
that are published and peer reviewed , books and magazines sourced from the 
Internet and the library. A study covered literature on key concepts being 
emerging farmers , financing structures, agricultural finance , pol icy and 
institutional factors having an impact on agricultural finance as well as factors 
inhibiting access to agricultural finance by emerging farmers . 
1.4.2 Empirical study 
NWP comprise of four main District Municipalities which are Ngaka Modiri 
Molema (previously known as Central District) , Dr Ruth Segomotsi Mompati 
(previously known as Bophirima District) , Dr Kenneth Kaunda (previously 
Southern District) and Bojanala Platinum . 
6 
The target population of the study is emerging farmers in the NWP selected 
on a random. The research was conducted in a quantitative form using a 
Likert's scale questionnaire that incorporated all the important aspects relating 
to emerging farmers and accessibility to finance. Collected data was 
populated and analysed using statistical analysis tools and the results 
presented. The Chi Square statistical analysis , together with its p-value and 
the degree of freedom were used to test the statistical significance between 
the variables. Results were used to derive conclusions from which a set of 
recommendations and conclusions were made . 
1.5 Study limitations 
The study is limited to investigating access to finance by the emerging farmers 
based in the four district of the NWP. While these farmers may be 
experiencing the same challenges as other emerging farmers across South 
Africa, caution is taken not to generalise the findings. 
1.6 Layout of the study 
Chapter one consists of the nature and scope of the study, including the 
introduction , research problem and limitations of the study. Chapter two 
consists of the literature review which covers the literature on the key 
concepts. Chapter three consists of the research methodology and the 
statistics. Chapter four consists of data interpretation, conclusions and 
recommendations . 
7 
CHAPTER TWO 
LITERATURE REVIEW 
2.1 Introduction 
This chapter will review literature that explores various factors affecting the 
accessibility of finance by emerging farmers . The role of agriculture and 
emerging farmers in the economy will be discussed first , followed by 
constraints facing the emerging farmers in South Africa. The focus will shift to 
the viable options, such as the co-operative model , private sector model , and 
the public sector model of financing emerging farmers. 
This will provide a clear rationale of why financial service providers should 
penetrate previously untapped market in rural areas and to enable them to 
participate in the main stream economy. The whole agricultural sector 
comprises of various role players being ; emerging farmers , agricultural 
unions, government (National Department of Agriculture, provincial 
department of agriculture and Department of Agriculture at district level) , 
private sector and financial institutions. 
2.2 The concept of emerging farmers 
In accordance to Moloi (2008:2) the word emerging farmer attracts a variety of 
definitions such as resource poor, previously disadvantaged, subsistence, 
emerging , developing, small-scale and black farmers. 
Moloi (2008:3) further defines the emerging farmer as a farmer who is a 
beneficiary of one of the Government's land reform programmes or a farmer 
who is mainly dependent on the state and semi -state organisation for support 
and finance or as a farmer who consumes and sells some portion of the 
harvest. 
8 
2.3 Agriculture in South Africa 
2.3.1 Role of Agriculture in Economy 
The agricultural sector is a backbone of the economy and its strategic 
importance lies in its forward and backward integration with the rest of the 
economy, the establishment and maintenance of food security, the economic 
welfare of rural areas and stabilisation capabilities in relation to the balance of 
payments. In developing countries, rural development plays a crucial role in 
economic development and the alleviation of poverty (Meyer et al.2009: 1) . 
Meijerink and Roza (2007:4) affirm that agriculture constitutes the main 
source of employment to the majority of the world 's poor. The total share of 
agricultural employment in developing countries constituted 53% of the total 
workforce in 2004. In Sub-Saharan Africa 60% of the economically active 
population works in the agricultural sector. 
According to Meyer et al. (2009:5) , agriculture's contribution to Gross 
Domestic Product (GDP) in South Africa at current factor cost has increased 
from R190 million in 1946 to R41 935 million in 2005. The economy grew at 
an average annual rate of 3.8% between 1946 and 2005. The value added by 
the agricultural sector grew by only 2.4% during this period , averaging a 
growth rate of 0.4% from 1996 to 2005. This was mostly affected by climatic 
conditions leading to volatile agricultural output growth , with negative growth 
rates recorded for several consecutive years, as opposed to a more steady 
growth experience by the overall economy. 
The economy of the NWP is relatively small , having been valued at R103 
billion in 2006, thus making the province the third smallest contributor towards 
the GDP with 6.4%. The NWP reported a real GDP growth rate of 4.4 % in 
2007, compared to the slightly lower real GDP growth rate of 4.3% in 2006. 
Despite the 0.1 % increase in the GDP growth from 2006 to 2007, the growth 
9 
remained lower than the rate of 4.9 % in 2005. The NWP's GDP followed a 
similar trend as that experienced nationally; however, the GDP growth in the 
province of 4.3% remained slightly below the national GDP growth of 5.1 % in 
2007 (Cloete et al. 2011 :4847). 
Figure 2.1: 
Provincial Agricultural activity 
Limpopo 
7 .1% 
Mpumalanga 
8.8% 
Gauteng 
5.5% 
North -West 
6.8% 
Eastern Ca pe 
6.5% 
lllo1t hern Ca pe 
5.6% 
7 .6% 
Source: Department of Finance, 2010:11 
Figure 2.1 shows the estimated distribution of agricultural activity across all 
nine provinces of the country for 2009. The bulk of economic activity within 
agriculture stems from KwaZulu-Natal (28.8%) and the Western Cape 
(23.4%), with NWP making up 6.8% of the share. 
2.3.2 The role of financial institutions in agricultural development 
Credit is considered a major aspect of financial services which is fundamental 
in all production units. There has been a general awareness of the importance 
of credit as a tool for agricu ltural development. In view of this , the need to 
provide farmers with credit is inevitable due to its importance in fostering 
10 
agricultural development and also ensuring efficiency in the production 
process. Credit also acts as a catalyst for rural development by motivating 
latent potential or making under used capacities functional (Kuwornu et al. 
2013:354). 
The Land Bank was established in 1912 in order to offer tailor made financial 
services to established and emerging farmers . The mission of the Land Bank 
is to become the financial institution that supports economic growth through 
the provision of retail , wholesale, project and micro-financial services to 
agriculture and related rural services (Calvin & Coetzee, 2010:68) . 
The table below shows assistance the bank has been providing within the 
agricultural sector since 1974 to 2009 
Table2.2: 
Agricultural debt by banks on selected years in percentages 
As at Land Commercial Agricultural Department Private Other Other Total 
31 Bank Banks Cooperative of Person Financial Debt 
Dec Agriculture institutions 
% 
1974 21 .8 21.5 11 .1 8.3 16.4 17.4 3 .5 100 
1984 20.3 31 .3 23 .5 4 .7 7.6 10.5 2 .2 100 
1994 23 .5 31 .3 21.5 8 .1 8.6 2.3 4 .7 100 
2000 32.2 37.3 15.1 2 .9 6.7 2 3 .7 100 
2009 6 .2 68.8 13.9 0 .5 5 .7 1.7 3.2 100 
Adapted from: Department of Finance, 2010:20 
The debt of the Land Bank declined from a high of 32% in 2000 to 6.2% in 
2009. This can be attributed to the transfer of more than 70% of debts from 
the Land Bank to commercial institutions. The rate at which agricultural debt 
grew in the Land Bank, Agriculture Co-operatives and Department of 
Agriculture was higher than in other institutions. The reason for the high debt 
is that the mandate for the enlisted institutions is to provide finance to farmers 
11 
and agribusiness in order to guarantee food security in the country 
(Department of Finance, 2010:20) . 
2.4 Constraints facing emerging farmers in SA 
A decade after independence, questions are still being asked about how to 
improve access to banking by marginalised communities. Without paying 
serious attention to these concerns, most of the black population will continue 
to face difficulties accessing financial capital and their participation in the 
mainstream economy will remain peripheral (Maumbe, 2006:72). 
In accordance to Antwi (2010:46) , there is a need for credit to support 
development of agriculture-based livelihoods, particularly as a justification for 
the state and donor supported subsidised credit programmes of the 1950s-
1970s. However, the rural economy is financially very fragile. Lack of credit 
is a significant and sometimes a binding constraint limiting investment in 
productivity-enhancing technology and inputs. Finance is also required for 
commodity marketing, sometimes through inventory-backed financing , which 
offers rural producers, traders and processors the opportunity to improve 
household income through adopting better produce marketing and raw 
material procurement strategies. 
In accordance to Kuwornu et al. (2013:355) the problems of agricultural credit 
to farmers arise from the source availability and use. There is inadequate or 
complete absence of financial projections and planning, and also high level of 
illiteracy among farmers and lack of relevant information as to how, when and 
where to obtain credit. There is also lack of skilled personnel in the credit 
institutions to monitor and manage loan packages, and diversion of credit to 
non-agricultural purposes by farmers. 
12 
Macleod et al. (2008:77) notes that problems facing the emerging farmers 
include lack of secure title to the land, lack of investment and working capital 
and limited access to credit, poor veld cond itions, highly variable climate , 
insufficient farm size, inadequate or damaged infrastructure, poor access to 
extension officers who , in turn , are often overcommitted and under-resourced , 
poor knowledge of pasture and animal management and a highly competitive 
industry context. Many of these problems can be resolved only by government 
but problems of pasture , animal , financial and property management can be 
addressed by training and support. 
2.5 Factors Hindering access to finance by Emerging Farmers 
2.5.1 Structure of financing products 
Maumbe (2006:73) state that the exclusion of poor communities in f inancing 
arrangements is a common observable fact throughout Africa, instead, the 
urban elite or the more affluent and large businesses have tended to 
dominate most of the share of financial resources from commercial banks. 
Moyo (2002:190) further stresses that lack of access to finance by small -scale 
farmers is partly due to the inappropriate design of traditional financial service 
products. Commercial financial institutions have traditionally attempted to 
serve this market with their existing instruments, ignoring the real needs of 
this potential group of clients and not taking the initiative to engage these 
cl ients in an attempt to establish their real needs. The need to develop new 
products emanates from the need to respond to the demand and preferences 
of customers. 
2.5.2 High transaction cost 
Provision of financial services in rural areas is associated with high unit costs 
both for institutions and for their clients. Th is is due to the fact that 
infrastructure for transport, communication and information technology is less 
13 
developed in rural areas as well as to the remoteness of these areas. Clients 
frequently have to travel long distances to deposit savings or repay a loan. 
This cost them the entire day because they usually travel on foot. Rural 
financial institutions face additional costs for ensuring security and managing 
liquidity. High unit costs are usually passed on to the clients , with the result 
that users in rural areas frequently pay higher interest rates than people in 
urban areas (Schlaufer, 2008:5). 
2.5.3 Higher credit risks 
Credit risk is higher in rural areas both for borrowers and for rural financial 
institutions. The revenues of rural households, whose incomes mostly depend 
on seasonal agricultural and livestock production , are volatile due to 
fluctuating weather conditions and pests or diseases. In addition , price 
fluctuations are high in the agricultural sector. Generally, rural households 
depend on one or two sources of income only, increasing the risk of credit 
default. Many households either entirely lack collateral or do not have a legal 
title to their house or land. Financial institutions thus have no means of 
securing credit against defaulting clients that tend to run high default risks. 
The financial institutions typically impose punitive interest rates for delayed 
payments and might even confiscate assets of defaulting clients (Schlaufer, 
2008:5) . 
2.5.4 High rates of illiteracy 
In developing countries illiteracy rates are particularly high in rural areas. 
Poorly educated people face an additional challenge in accessing financial 
services as it is difficult for them to analyse credit risks and the profitability of 
a loan or savings scheme, to provide all documents and information (such as 
a business plan) required to apply for a loan and to understand conditions and 
contracts. Some institutions fail to communicate interest rates and 
commissions in a transparent manner and small prints in contracts can 
14 
contain additional costs for borrowers. On the other hand, financial institutions 
that wants to expand into rural areas experience difficulties in finding , hiring 
and keeping well trained staff that is willing to work in a rural region. Lack of 
experienced staff, in turn , leads to poor institutional capacity among rural 
financial institutions (Schlaufer, 2008:5). 
2.5.5 Marketing constraints 
In accordance to Antwi and Seahlodi (2011 :37) the limited contributions to the 
economy by emerging farmers arise due to the constraints faced by farmers 
which are many and varied to include marketing, financial , technical , 
economic, land, social and cultural aspects. 
Antwi and Seahlodi (2011 :37) further state that other marketing factors 
include: 
• distance from the markets which tends to influence transaction costs 
• high feed costs and competition 
• lack of appropriate and affordable means of transport poor quality of 
products lack of storage facilities ,adverse effects of culture and socio-
economic factors as well as low educational levels of small and emerging 
farmers 
• agricultural marketing policies imposed 
• poor agricultural extension services and lack of financial support 
Mmbengwa et al. (2011 :41) alluded that market availability for any commod ity 
is crucial for the success of any business, regardless of its type and size . 
Market availability is one of the key determinants and emerging farmers in 
South Africa require reliable markets to succeed. 
Coetzee et al. (2005:84) agree with the above that marketing should play a 
vitally important role in the process of transforming small -scale farmers into 
15 
commercial producers. The market is the institution that should provide the 
necessary incentives for farmers to increase their income. 
The growth of the supermarkets and food retail sector has changed the 
sourcing and procurement practices of supermarkets and others in the food 
retail sector. Consumer preference and demands as well as high health 
requirements have meant that supermarkets and agro-processing companies 
have had to develop sophisticated logistical systems and have moved from 
wholesale procurement to a system of purchasing from few preferred 
customers who can meet the stringent health and quality demands as well as 
providing consistent supply. They also prefer suppliers who have the 
technology and expertise to be able to adjust their product to consumers 
changing tastes and needs (Lauw et al. 2008:288). 
2.5.6 Allocative constraints 
These are aspects which directly affect the farmer and over which the farmer 
has little control and are as follows: 
• Poor Access Roads 
Poor road conditions, high transport costs and distant markets have been 
identified as factors that hamper improved market access for emerging 
farmers in South Africa. Amongst other factors , the ability of farmers to access 
services depends on the state of the road , the transport systems and the 
distances from the villages to the nearest towns (Chaminuka et al. 2008:365). 
According to Coetzee et al. (2005:88) infrastructure involves both the physical 
(communication , transport and roads) and institutional infrastructure (market 
information, security and animal disease control) . Small-scale farmers are 
mostly found in areas remote from market places , where there is a serious 
lack of the aforementioned facilities . Furthermore, distance between the area 
16 
of production and well-established markets necessitate the transportation of 
livestock. 
Infrastructure is the capital stock that can help to provide goods and services 
to the public. Such infrastructure services in agriculture are categorized into 
soft and hard infrastructure. The soft infrastructure includes transportation 
services, finance services, animal husbandry, input distribution and marketing . 
This can either improve or hinder agricultural development. Roads , 
telecommunications, electrification and irrigation are termed 'hard 
infrastructure (Chaminuka et al. 2008: 366) . 
• Lack of access to Land 
Whitebread et al (2011 :443) notes that despite the best intentions of some of 
the emerging farmers to make the transition to a commercial farmer status, 
many new farms are too small to be economically viable. For example, 
livestock farms with carrying capacities below 400 livestock units 
(LSU - animal with a weight of 450 kg) struggle to survive. Many new farms 
have an effective carrying capacity of less than 150 LSU, largely due to their 
small in itial area. Farmers are further constrained by poor land cond itions 
because of bush encroachment. Such farms cannot support the needs of the 
household and farmers typically have to seek employment in other reg ions . 
This further compromises the ability to implement sound farm management. 
Norris et al. (2011 :51) , suggest that access to land , particularly in rural areas, 
has the potential to result in improved and stable access to income and food . 
That will ensure that South Africa 's rural poor people have access to 
productive land in order to farm for subsistence and income purposes . 
2.5.7 Loan repayment history 
Loan repayment history is mainly used by financial institutions to assess the 
risk category of both individuals and enterprises that have qualified for cred it 
(Mmbengwa et al. 2011 :43) . 
17 
However, agricultural lending is a risky enterprise because repayment of 
loans can seldom be fully guaranteed. Generally, in spite of the importance of 
loan in agricultural production , its acquisition and repayment are fraught with a 
number of problems especially in the small holder farming (Akwasi & ldowu, 
2011:11) 
Akwasi and ldowu (2011 :12) confirm that most of the defaults arose from poor 
management procedures, loan diversion and unwillingness to repay loans. 
For this reason , lenders devise various institutional mechanisms aimed at 
reducing the risk of loan default (pledging of collateral, third -party credit 
guarantee, use of credit rating and collection agencies) . In the context of 
providing credit to the rural asset-poor, what is required is institutional 
innovation that combines prudent and sustainable banking principles with 
effective screening and monitoring strategies that are not based on physical 
collateral such as land. 
2.6 Public Sector approaches towards providing access to finance by 
emerging farmers in South Africa 
The following initiatives are carried out by the National Government with an 
aim of providing financial and related support to the emerging farmers . 
2.6.1 Nationalisation of Commercial Banks 
According to Nagarajan and Meyer (2005:13), many specialized agricultural 
development banks were set up in developing countries, especially during the 
1960s and 1970 as part of the expansion of agricultural credit under the old 
paradigm. Like most state-owned banks, these agricultural nationalised 
development banks generally performed poorly, although there have been 
important exceptions. Many have been privatised or closed , especially in 
Africa and Latin America. Others are technically bankrupt but continue to limp 
along but unable to attract substantial new funding. The loss of rural banking 
outlets that occur with closure plus a few successful cases of reform have 
18 
contributed to a renewed debate about the appropriate strategy for dealing 
with failing institutions. 
Tshabalala (2011) argues that there are two reasons why nationalisation will 
not work, firstly that South Africa usually runs an external deficit and the 
country rely on savers from the rest of the world to lend money to fund new 
enterprises and new infrastructure. If the banks are nationalised, lending 
would dry up and South Africans would have no choice but to invest and 
consume less, shrinking the economy and destroying jobs. 
Tshabalala (2011) , furthers alludes that experience from all over the world 
shows that nationalised banks and state-run banking systems usually turn out 
to be expensive precisely because they are not managed properly. In the 
years following African independence, many governments believed that the 
existing private banks were being run to benefit 'foreign shareholders' rather 
than in the interests of indigenous business and national development. The 
solution was often to nationalise banks and to direct them to offer loans at 
preferential interest rates to favoured firms and sectors. 
These banks were handicapped from the start by their confused mandates; 
governments did not make it clear whether these state banks were to be 
cautious, profit-making commercial banks or highly risk-tolerant development 
institutions with unequivocal fiscal support in the event of losses. Worse, an 
expectation was created that the government would shield its banks from the 
consequences of making bad loans. Both of these problems were bad enough 
for the nationalised bank's efficiency. But what really doomed the state banks 
were continual pressure to lend to politically favoured individuals and 
'connected' firms. In almost all cases, Africa's state banks were in deep 
trouble within a decade and bankrupt within 20 years {Tshabalala, 2011 ). 
19 
2.6.2 Outreach Programmes 
Government continues to face challenges in terms of ensuring that the 
available resources and services are spread amongst citizens . Evidence from 
across the world 's main reg ions confirms that a close link exists between land 
policy and economic growth, as well as between poverty reduct ion and 
empowerment (Deinenger, 2003:3). 
One of the most critical elements in sustaining food production is to improve 
the living conditions of rural communities by assisting small farmers in 
enhancing agricultural productivity and their incomes and to provide access to 
land. In order to achieve this , Micro Agricultural Financial Institutions of South 
Africa (MAFISA) was launched and contributed to the government's overa ll 
commitments towards the social up-lifting of people in their communities by 
benefiting both farm and non-farm beneficiaries such as farm workers, 
household producers, small -scale land owners , food garden producers, rural 
and micro-entrepreneurs (Twala, 2012:217) . 
Furthermore, the farmer support programme provided support to promote 
economic and market development to sustain adequate on -farm incomes 
which promoted stability, competitiveness, growth and transformation in the 
agricultural sector. This initiative had been augmented with the 
Comprehensive Agricultural Support Programme (CASP) which was a 
conditional grant raised by the central government to supplement the 
provincial funding to ensure accelerated delivery of support services to 
farming communities. In addition to providing farmer support, the Settlement 
Land Acquisition Grant (SLAG) provided grant through which poor landless 
black South Africans could form a group to apply, buy and develop land. By 
the end of the year 2000, the Ministry of Agriculture and Land Affairs had 
approved 484 projects , transferring 780 407 hectares of land to 55 383 
people, with 14% headed by women . The above process was not sustainable 
because SLAG ended in 2000 having achieved the goal of improving 
emerging farmer's access to land by managing a total of 542 projects and 
assisting 89 000 beneficiaries, and sustained participation in agriculture by 
20 
establishing 84 agricultural co-operatives in the 9 provinces of South Africa 
(Twala,2012:217) . 
2.6.3 Government Loans and Grants 
Sebopetji and Belete (2009:718) indicated that generally, developing 
countries established parastatal institutions with the aim of channelling cred it 
to small scale farmers. Similarly, in South Africa, Land Bank and the 
Agricultural Credit Board were established to serve commercial farmers with 
small-scale farmers served by parastatals in the former homelands. The 
collapse of such parastatals left small-scale farmers without access to credit 
services. 
Over the last 40 years, policy makers identified a host of problems in rural 
financial markets. There was an attempt to resolve these problems through 
targeting , providing subsidies and applying governmental controls . It was 
hoped that those measures will reduce rural poverty, however, government 
involvement in the management and implementation of rural financial systems 
has proven expensive and inefficient. Subsidised credit programmes which 
are part of state intervention in rural financial markets undermine the 
institutional sustainability of financial institutions, distort rural financial markets 
and discourage savings mobilisation and fail to develop market driven sources 
of funding . Such credit programmes do not include repayment capacity as 
part of loan analysis and end up impoverish their borrowers and destroy the 
lending operations of the institutions (Satish, 2004:132) . 
To date, the Land Bank has had limited success in offering financial 
assistance to black farmers. According to the Credit Risk Monitoring Report of 
31 August 2012, the development loan book amounted to R874 million , with a 
very high percentage of non-performing loans. This is partly because the bank 
was restricted to supporting white farmers before 1993, so it had little 
understanding of the needs of the black farming population when the political 
tide turned. Since then , the Bank has made progress and improved its 
21 
understanding of emerging farmer's needs, but there is still much work to be 
done. Between 1994 and 2012, the Land Bank has written off debt close to 
RS billion that was given to emerging farmers (Land Bank, 2012: 103). 
2.6.4 Access to Training 
Training is essential to curb poor production planning, managerial ability, 
coordination, technology, low level of technical knowledge and wastages 
businesses run by poorly trained personnel are not immune from 
unsustainable practices and often collapse without fulfilling their objectives 
(Mmbengwa et. a/.,2011 :39) 
Agricultural education, extension, and advisory services are a critical means 
of addressing rural poverty, as government have a mandate to transfer 
technology, support learning, assist farmers in problem solving, and enable 
farmers to become more actively embedded in the agricultural knowledge and 
information system (Christoplos & Kidd , 2000: 11). 
In accordance to Mmbengwa (2009:97) small-scale farmers in rural areas are 
often highly illiterate. These farmers have to cope with all the problems related 
to their limited resource base, their limited experience with farming , their very 
often lower levels of schooling and their lack of association and contact with 
the various institutions serving modern commercial agriculture . 
Commercial farmers are relatively well educated and have acquired 
appropriate skills for their operations compared to small-scale farmers . The 
challenge for both the national and provincial departments of agriculture is to 
create a well-trained and motivated extension service that can advise and 
assist smallholders with regards to agricultural production and farm and 
financial management issues. Mentoring of emerging farmers by commercial 
farmers could also be an effective approach to training emerging farmers who 
have acquired redistributed land (Ortmann, 2005:305) . 
22 
2.6.5 Subsidised Interest Rates 
Past government and donor support programmes in South Africa that 
provided subsidized credit to small-scale farmers , emerging agribusinesses 
and micro-entrepreneurs to try and reduce poverty and stimulate economic 
growth have had limited success. Similar to international experience, the 
programmes suffered from limited investment in productive inputs, high 
default rates (up to 40%), lack of savings mobilisation , and limited client 
coverage (Kuhn et al.2000 : 77 ) . 
It has been argued that since access to cheap subsidised credit is partly what 
kept successive generations of white farmers on the land, agricultural cred it 
policies should be used as a redistributive mechanism and to correct some of 
the imbalances created by previous political policies in South Africa . This 
argument is, however, not reflected in credit policies drafted in the late 1990s 
(Weideman, 2004:130). 
2.6.5 Private Sector approaches towards providing access to finance by 
emerging farmers in South Africa 
2.7.1 Activities of commercial banks in credit extension 
According to Schoombee (2004:5) , commercial banks traditionally do not 
serve low income earners, micro-entrepreneurs and the poor (collectively 
referred to as unbanked) mainly because of high costs involved. It is only 
since the early 1990's that they have given serious thought to entering the 
market segment, in no small way influenced by the changes in the political 
landscape. 
South African commercial banks have come to share in the corporate 
reconceptual ization of the poor that has taken place over the past decade. 
Whereas the poor used to be framed as a risky market because the poor were 
viewed as bad financial managers and terrible savers, the poor are now 
23 
lauded or romanticized as great savers and responsible . Moreover banks 
have discovered that billions of Rands flow through informal savings clubs in 
urban townships and they are eager to profit through the capturing of these 
informal monies by the formal banking system (Krige, 2012:3) . 
While commercial banks have been reluctant to 'enter' the 'unbanked' market 
because of the 'risk' it entails and the expense of administering accounts, and 
while they have publicly protested the state's efforts to cajole them into 
providing affordable savings products, it is also increasingly in their interest to 
try and capture some of the large pools of money which continue to circulate 
outside the formal banking system. The four large commercial banks are 
known for incredible high banking costs, and the monopolistic behaviour of 
the banking and political elites have thus latched onto the mutual aid societies 
such as burial societies and stokvels as 'indigenous' African mechanisms 
(Krige ,2012:3) . 
Commercial banks tend to be unwilling to embark on rural credit programmes 
because of the particular difficulties encountered in rural financial markets. 
These include the difficulty of serving clients who are widely dispersed , 
administrating a large number of relatively small transactions and operating in 
an agricultural industry that experiences unanticipated changes in prices, 
incomes and yields. Other problems, particularly in developing countries 
include poorly developed legal systems and information infrastructure, high 
transaction costs, lack of or poor credit and financial records of potential 
borrowers and collateral that is not secure (Weideman, 2004:119) . 
2.7.2 Moneylenders 
Moneylenders are able to disburse short-term loans (at high interest rates) 
significantly faster than institutions do. Moneylenders are generally 
considered to be an important source of finance for the rural poor. Empirical 
evidence indicates that moneylenders are only used as a last resort largely 
because of their high interest rates. In cases where individuals opt for loans 
24 
from moneylenders, it is often for consumption and/or distress purposes and 
not for productive purposes (Weideman, 2004: 117). 
Mariwah (2012: 152) assert that the interest rates charged by different informal 
lenders vary considerably between 50% and 100%. But, it is unclear how 
moneylenders determine interest rates, and that their rates are not negotiable. 
Meanwhile, moneylenders have been criticized for charging rather high 
interest rates and thereby hindering the well-being of the rural and semi-urban 
populace by limiting their access to credit. Moreover, they are indifferent to 
the purpose of the borrowing and by lending for consumption activities, like 
burial ceremonies they put the poor in more future problems. 
2.8 Other approaches towards providing access to finance by emerging 
farmers in South Africa 
2.8.1 Co-operative movement 
Stevens and Terblanche (2004:40) maintain that farmer groups have become 
very popular in agricultural related activities in both developed and developing 
countries. These have been both formal (e.g. Cooperatives) and informal in 
nature. Many factors are motivating the formation of farmer groups, including 
an efficient means for communicating and transmitting information, sharing 
information (e.g. study groups, focus groups) ; identifying and evaluation of 
group techniques; improving on-farm and off-farm linkages and the 
encouragement and empowering of farmers . 
Agricultural cooperatives are often viewed as appropriate vehicles to facilitate 
vertical coordination with or horizontal integration between , small farmers who 
would otherwise be excluded from value-adding opportunities and discerning 
markets. In South Africa, renewed interest in development-oriented 
cooperatives saw the introduction of Cooperatives Act (Act 14 of 2005) along 
with support measures dedicated to 'emerging' cooperatives (Lyne & Collins, 
2008:180) . 
25 
Roets (2004:214) also contends that cooperatives are a culturally acceptable 
business form to small-scale farmers because they work on similar principles 
as "stokvels" and burial societies with which these farmers are already 
familiar. 
Ortmann and King (2006:62) recommend that small-scale farmers in South 
Africa should exploit the wave of support for cooperatives even though 
future growth of their enterprise may be constrained by institutional 
deficiencies inherent in traditional cooperatives . 
2.8.2 Rotating credit and savings associations 
Lack of access to financial services by the poor households makes them to 
look for alternative sources of finance and heavily depend on the financial 
services of their local informal moneylenders who are regarded as responsive 
to their financial needs. In view of the problems of inaccessibility of fi nancial 
services and their vulnerability of not knowing or understanding how the 
micro-lenders operate or the rules and regulation governing such micro-
lenders, the poor households resort to the informal means of finance in order 
to survive . The households access finance through various forms of informal 
savings and lending which are mostly used in the poor black communities . 
These include, among others , rotating credit and savings associations known 
as stokvels (Mashigo, 2006: 11) . 
Verhoef (2001 :520) defines a stokvel as the umbrella term used for informal 
savings organisations in the African community in South Africa for survival. In 
most cases, the contributed amounts are saved and also made available as 
loans to the stokvel members. These stokvels assist the households to 
provide for their basic needs for entertainment, household utensils and 
groceries, education , and funding for predictable expensive events such as 
marriages and most importantly, unpredictable ones like illnesses and 
funerals . The households themselves decide on how the stokvels should 
operate by stipulating own rules and regulations in the form of the constitution . 
26 
The households manage the finances themselves and exert peer pressure on 
one another to repay the loans for the purpose of sustaining the stokvels. 
Since members of associations tend to know each other, these associations 
are not plagued by the same risks related to information constraints as 
commercial banks. Records are simple and understandable and an efficient 
source of finance for the poor. 
Although membership in rotating savings and credit associations have clear 
economic and social benefits, these associations are not likely to address 
problems such as structurally entrenched poverty or transform economic 
power relations in rural societies . These associations are affected by severe 
capacity constraints and can only provide limited resources and , as such, are 
"coping mechanisms" rather than "permanent solutions" to poverty 
0N eideman , 2004: 117). 
2.9 Conclusion 
The literature review was conducted to include the concept of emerging 
farmers and how they can contribute to the economy of South Africa. The 
role of financial institutions in agriculture was also studied. 
Constraints facing emerging farmers , in relation to access to finance were 
discussed. Various approaches to be used in providing access to finance of 
emerging farmers were studied which ranges from those in the Publ ic and 
Private Sectors and those that are neither related to the Public nor Private 
Sector. 
In South Africa, whilst there has been an initiative to assist emerging farmers 
in a nationalised approach in the form of the Land Bank, it seems a lot of 
farmers still need to the reached. 
27 
While co-operative approaches have been very successful in developed and 
developing countries, including sub-Saharan Africa, it has not been the case 
in South Africa as co-operatives have mainly benefited commercial farmers. 
Models such as rotating financing and stokvels are already in place thus 
providing the needed infrastructure for the germination of co -operatives 
among emerging farmers. 
28 
CHAPTER THREE 
RESEARCH METHODOLOGY 
3.1 Introduction 
Research is about asking and beginning to answer questions, seeking 
knowledge and understanding of the world and its processes, and testing 
assumptions and beliefs. Research is based on enquiry methods, questioning 
and hypothesis or assumptions that you need to question and test 
(Wisker, 2008:51 ). 
In accordance to Welman et al. (2010:23) , research is a process which 
involves application of various methods and techniques in order to create 
scientifically obtained knowledge by using objective methods and procedures 
the purpose of which research is in three folds, as follows : 
• To describe how things are, that is define the nature of the study 
objective 
• To explain why things are the way they are 
• To predict phenomena 
The purpose of this chapter is therefore to discuss the research paradigms; 
instruments used and interpret the results of the empirical study conducted . 
The study focused on improving access to agricultural finance to emerging 
farmers in NWP. 
3.2 Research paradigms 
A research paradigm or perspective is the underlying set of beliefs about how 
the elements of research area fit together and how we can enquire of it and 
make meaning of our discoveries (Wisker, 2008:78). There are two main 
approaches to research , being the positivist approach which is based on the 
philosophical approach known as logical positivism. The positivist approach 
29 
underlies the natural-scientific method in human behavioural research and 
holds that research should be limited to what can be observed and measured 
objectively that is , that wh ich exist independently of the feelings and opinions 
of individuals (Welman et al.2010:6) . 
The positivist approach is opposed by the anti -positivist approach which share 
resistance to upholding of the natural scientific approach as the norm in 
human behavioural research . According to the anti-positivist approach , it is 
inappropriate to follow strict natural scientific approach which is believed to 
have been designed to study molecules and organisms and is therefore not 
relevant to human phenomena being studied in the human behavioural 
sciences (Welman et al. 2010:6) . 
3.3 Quantitative approach 
According to Welman et al. (2010:6) , the positivist approach to research is 
also known as the quantitative approach. The positivists define their approach 
as the study of observable human behaviour. 
The purpose of quantitative research design is thus to evaluate objective data 
consisting of numbers, which involves the use of a process of analysis that is 
based on complex structured methods to confirm or disprove hypotheses 
(Welman et al. 2010: 8). 
3.3.1 Sampling Method 
A random selection method was used and farmers were randomly selected in 
four districts of the NWP. Questionnaires were distributed , completed by the 
farmers and returned . 
30 
3.3.2 Population and sample 
The population consists of emerging farmers from the four districts in the 
NWP being Dr Kenneth Kaunda District, Dr Ruth Segomotsi Mompati , Ngaka 
Modiri Molema and Bojanala Platinum District Municipalities. Out of the total 
number of eighty (80) farmers selected in the NWP, only fourty (40) 
questionnaires were returned resulting in a 50% response rate. 
3.4 Analysis of Results 
3.4.1 Bibliographic details of sample 
Table 3.1: Age of respondents 
Age Frequency Percent 
1.0 Below 25 0 
2.0 25-35 3 7.5 
3.0 36-45 16 40 
4.0 46 + 21 52.5 
Table 3.1 indicates that 52.5 per cent of respondents are over 46 years and 
older, whilst 40 per cent is made up of respondents between 36 and 45 years 
of age. 7.5 per cent represent respondents that are between 25 and 35 years 
of age . 
Table 3.2 Gender of respondents 
Gender Frequency Percent 
1.0 Male 27 67.5 
2.0 Female 13 32.5 
Male respondents make up 67.5 per cent of respondent while females makes 
up 32.5 per cent of the total respondents. 
31 
Table 3.3 Race of respondents 
Race Frequency Percent 
1.0 African 35 87.5 
2.0 White 0 
3.0 Coloured 5 12.5 
4.0 Indian 0 
A total of 87 .5 per cent of respondents are Africans and 12.5 per cent are 
Coloureds. 
Table 3.4 Farm size 
Farm size Frequency Percent 
(hectares) 
1.0 0- 100 6 15 
2.0 100- 500 11 27.5 
3.0 600- 1000 17 42.5 
4.0 1100- 2000 4 10 
5.0 2100 + 2 5 
Table 3.4 indicates that 15 per cent of respondends have access to land 
between 0 to 100 hectares, 27.5 per cent of respondent have access to land 
between 100 to 500 hectares, 42.5 per cent of respondent have access to 
land between 600 to 1000 hectares, when 10  per cent of respondent have 
accees to land between 1000 to 2000 hectares whilst only 5 per cent have got 
access to land of 2100 hectares and more. 
3.4.2 Financier of agricultural enterprises 
The objective of this question is to determine the level of financial support 
from different financial service providers to emerging farmers. 
32 
Table 3.5: The following Bank has previously financed your farming 
operation? 
Type of bank Frequency Percent 
1.0 FNB 3 7.5 
2.0 Absa 3 7.5 
3.0 Standard Bank 2 5 
4.0 Nedbank 0 0 
5.0 Land Bank 16 40 
6.0 Other 2 5 
7.0 N/A 14 35 
Table 3.5 indicates that 7.5 per cent of respondents were provided credit from 
First National Bank and ABSA. 5 per cent of the respondents were provided 
credit by the Standard bank, none of the respondents were provided credit by 
the Nedbank. Majority of the respondents, making up 40 per cent were 
provided credit from Landbank, whilst 35 per cent indicated that they did not 
receive any finance from the Banks. 
3.4.3 Government training for farmers 
Objective of this question is to determine the level of government support in 
terms of capacity building , provision of training and technical assistance to the 
emerging farmers . 
Table 3.6: Does government provide training for farmers? 
Training of employees Frequency Percent 
1.0 Strongly disagree 3 7.5 
2.0 Disagree 4 10 
3.0 Neutral 8 20 
4.0 Agree 19 47.5 
5.0 Strongly agree 6 15 
33 
Table 3.6 indicates that 7.5 per cent of the respondents strongly disagreed, 10 
per cent disagreed that they were offered training by government, 20 per cent 
are neutral , 47.5 per cent agreed, whilst 16 per cent strongly agree that were 
provided training by the government. 
3.4.4 The nearest location for a financial institution for credit access 
The objective of this question is to test the accessibility of financial service 
providers within the proximity where farmers are carrying on trade. 
Table 3.7: How far is the nearest financial service provider? 
Nearest financial Frequency Percent 
service provider 
1.0 Less than 10 km 6 15 
2.0 20 -100 km 26 65 
3.0 110-250 km 6 15 
4.0 260 - more 2 5 
Table 3. 7 indicates that 15 per cent of the respondents travel a distance 
between 1 to 10 kilometer to the nearest financial institution , 65 per cent travel 
a distance between 50 to 100 kilometers, 15  per cent travel a distance 
between 100 to 250 kilometers when 5 per cent travel a distance of 260 
kilometers and more. 
3.4.5 Loans without collateral for emerging farmers 
The objective of this question is to test if emerging farmers are provided 
unsecured loans by any financial service provider 
34 
Table 3.8: Is Collateral always required when you in apply for a loan? 
Collateral required Frequency Percent 
1.0 Strongly agree 22 55 
2.0 Agree 6 15 
3.0 Neutral 4 10 
4.0 Disagree 7 17.5 
5.0 Strongly disagree 2.5 
Table 3.8 indicates that 55 per cent of respondents strongly agreed that the 
Bank required collateral when applying for a loan , 15 per cent agreed, 10 per 
cent are neutral, when 17.5 per cent disagreed and 2.5 per cent strongly 
disagreed. 
3.5 Relationship between variables 
In accordance to Lussier (2011 :352) , the Chi Square statistic is a measure of 
difference between the two values. The higher the value is, the greater the 
difference is between the two frequencies. Burns and Burns (2008:334) 
further indicate that a Chi Square for the independence of categorical 
variables can be utilised to examine a relationship between two variables. 
A statistical analysis was thus conducted using a Chi Square tests to examine 
the relationship between various variables. The Chi Square was interpreted 
together with its p-value and degree of freedom. A p value of less than 0.05 
was considered statistically significant. 
35 
3.5.1 Table 3.9: Relationship between age and credit access 
Credit Access 
1.0 2.0 3.0 4.0 TOTAL 
Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp 
1 0.7 1.2 1 0.7 0 0.5 3 3.0 
3 3.6 8 6.4 5 3.6 0 2.4 16 16.0 
5 4.7 7 8.4 3 4.7 6 3.2 21 21 .0 
9 9.0 16 16.0 9 9.0 6 6.0 40 40.0 
The p-value is 0.261 and a Pearson 's Chi square stastic of 7.698 and a 
degree of freedom of 6 was obtained . 
3.5.2 Table 3.10: Relationship between gender and credit access 
1.0 2.0 3.0 4.0 TOTAL 
Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp 
1.0 6 6.1 10 10.8 6 6.1 5 4.1 27 27.0 
2.0 3 2.9 6 5.2 3 2.9 1 2.0 13 13.0 
TOTAL 9 9.0 16 16.0 9 9.0 6 6.0 40 40.0 
The p value is of 0.832 and a Pearson's Chi Square statistic of 0.874 and a 
degree of freedom of 3 was obtained . 
3.5.3 Table 3.11 Relationship between race and credit access 
-
Credit Access 
1.0 2.0 3.0 4.0 TOTAL 
Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp 
1.0 9 7.9 13 14.0 8 7.9 5 5.3 35 35.0 
3.0 0 1.1 3 2.0 1 1 .1 1 0.8 5 5.0 
TOTAL 9 9.0 16 16.0 9 9.0 6 6.0 40 40.0 
36 
A p value of 0.579 and a Pearson 's Chi square statistic of 1.968 were derived . 
A degree of freedom of 3 was obtained . 
3.5.4 Table 3.12 Relationship between credit access and nearest finacial 
institution 
1.0 2.0 3.0 4.0 TOTAL 
Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp 
1.0 0 1.4 7 5.9 2 1.4 0 0.5 9 9.0 
2.0 3 2.4 10 10.4 2 2.4 0.8 16 16.0 
3.0 1 1.4 5 5.9 2 1.4 1 0.5 9 9.0 
4.0 2 0.9 4 3.9 0 0.9 0 0.3 6 6.0 
TOTAL 6 6.0 26 26.0 6 6.0 2 2.0 40 40.0 
A p value of 0.703 and a Pearson's Chi square statistic of 6.368 were derived. 
A degree of freedom of 9 was obtained . 
3.5.5 Table 3.13: Relationship between credit access and farm size 
1.0 2.0 3.0 4.0 5 .0 TOTAL 
Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp Obs Exp 
1.0 3 1.4 3 2.5 1 3.8 1 0.9 1 0.5 9 9.0 
2.0 2 2.4 4 4.4 8 6.8 1 1.6 1 0.8 16 16.0 
3.0 1 1.4 2 2.5 4 3.8 2 0.9 0 0.5 9 9.0 
4.0 0 0.9 2 1.7 4 2.6 0 0.6 0 0.3 6 6.0 
TOTAL 6 6.0 11 11 .0 17 17.0 4 4.0 2 2.0 40 40.0 
A P value of 0.601 and a Pearson's Chi square statistic of 10.171 were 
derived. A degree of freedom of 12 was obtained. 
37 
3.6 Conclusion 
This chapter placed a focus on the empirical study and presentation of results . 
A quantitative research method and data gathering techniques were used. 
Data that was gathered through a Likert scale questionnaire from the 
emerging farmers within the NWP was analysed and interpreted. A Pearson 
Chi Square with its p value and degree of freedom were utilised to derive a 
relationship between variables. 
38 
CHAPTER FOUR 
INTERPRETATION, RECOMMENDATIONS AND CONCLUSION 
4.1 Introduction 
The objective of gathering data was to obtain information on the possible 
challenges facing emerging farmers in NWP pertaining to access to 
agricultural finance, aspects of institutional structure in rural areas that can 
improve access to finance and determine the financial support extended to 
emerging farmers by government. 
Data discussed in terms of the demographics should reflect how the 
developing farmers , agricultural Unions, government (National Department of 
Agriculture, Provincial Department of Agriculture and Department of 
Agriculture at District level) , Private Sector and Bank will improve in shifting 
the viable options , such as the co-operative model , private sector model , self-
financing and the public sector model of financing emerging farmers in the 
province. 
4.2 Research objectives 
The main objective of the study was to investigate accessibility to agricultural 
fi nance by the emerging farmers in the NWP. This research objective was 
addressed through the literature review that was done in Chapter two, and the 
empirical study that was conducted in Chapter three. 
4.2.1 Findings 
With the exception of limited response from respondents , the research 
objectives have been met and the the following research findings were made: 
The results as indicated in table 3.1, provide that there is a clear indication 
that farming is mostly dominated by older farmers. This might possibly lead to 
skills gap if the youth are not attracted to the agricultural field . Table 3.9 
39 
indicates that there is no statistical difference between credit access and age. 
As a result , age is not a factor when it terms of credit access . 
Farming so far seems to have failed to attract female population. The 
reflection of lack of participation of women in the agricultural sector might also 
be an observable demonstration of their lack of expertise in the field . 
Although there are policies targeted at empowerment of women in the 
agricultural sector, they should be implemented aggressively. There is no 
statistical significance between gender and credit accessibility as indicated on 
table 3., 0. Therefore, gender is not a factor when it comes to access to cred it. 
Table 3.3 clealry indicates that with 87.5 percent of respondents where 
African and 12.5 percent where Coloured. Its evident that emerging black 
farmers are now participating into the agricultural main stream. 
Land Bank continues to play a significant role in financing emerging farmers 
whilst other banks also play a role in financing ermerging farmers. As 
reflected on Table 3.5 indicates that most of the farmers were fi nancially 
assisted by Land Bank. It was reflected through literature that Banks such as 
Land Bank are fraught with inefficiencies under mandates for developmenet 
and this might be an institutional impediment in providing access to emerging 
farmers. 
Despite the fact that skills development through training is cru icial for 
emerging farmers , the Governement's role in training was found to be minimal 
as reflected on Table 3.6. 
Majority of respondents travel a distance to reach financial institutions for 
credit access or banking as reflected on Table 3.7. There is no statistical 
difference between location of financial institution and credit access, as a 
result , location of nearest financial institution is not a factor when it comes to 
credit accessibility. However, spatial accessibility to financial institutions is sti ll 
40 
a problem . Despite the fact that emerging farmers do not have bankable 
assets, most financial institutions needed collateral to facilitate access to 
agricultural finance as shown in table 3.8. 
4.3 Recommendations 
The recommendations are as follows: 
• Access to agricultural finance need to be enhanced as a socio -
economic imperative to counter unemployment especially among 
youth. Agriculture is a key contributor to the South African GDP and 
can be utilized as a vehicle to create employment opportunities through 
involvement of the younger generation which is currently low. This 
could be due to the labour intensity of the agricultural sector thus being 
unattractive to the youth . It is therefore recommended that programs 
aimed at attracting youth to the agricultural sector be enhanced . 
• Participation of women in the agricultural sector appears to be minimal. 
This might be due to limited access to credit, land and training . It is 
therefore recommended that policies aimed at supporting women in 
farming be implemented aggressively. 
• It is a normal banking process that collateral for funding of farmers be 
sought. Most emerging farmers do not have secure title to land, are 
without investments and bankable assets. Contributing collateral to the 
loan is an impediment to most start-up businesses and for the majority 
of emerging farmers . There is a need to improve the business model 
for funding that would ultimately benefit emerging farmers. 
• There has been a substantial increase in competition of rates amongst 
the financial institutions. This creates an opportunity for emerging 
41 
farmers to be banked. Involvement of national department of 
agriculture together with private sector is needed to come up with more 
innovative ways of providing services to farmers. 
• There seems to be a need for capacity building within the agricultural 
sector particularly among the emerging farmers who face an additional 
challenge of understanding financial issues and legal aspects of 
accessing financial services. It is difficult for them to analyse credit 
risks , profitability of loans and/or savings schemes. Provision of all 
documents and information such as a business plans, cash flows , 
financial statements when required to apply for a loan is a challenge. 
Understanding conditions and contractual obligations of credit access 
is also difficult. Government need to work together with full time 
mentors to assist farmers in acquiring the necessary financial and legal 
skills. 
• Participating farmers in associations need to have access to finance as 
an item of priority in their deliberations. Means of engaging the 
government and financial services sector on how to devise credit 
packages for farmers need to be created through farmer associations. 
• Although there is an increased efficiency in provision of financial 
services, the gains are not realised due to spatial planning. Financial 
services should thus be aggressively extended to areas where there is 
lack of access and those that are currently unserviced. 
• The developmental mandate of the Land Bank needs to be further 
clarified to enhance a much more wide access to agricultural finance 
by emerging farmers. 
42 
4.4 Conclusion and areas of future research 
4.4.1 Conclusion 
• It can thus be concluded that access to agricultural finance by the 
emerging farmers in the NWP is still a challenge. 
The above conclusion can further be solidified by the following factors: 
• Through the empirical study, spatial planning, lack of access to 
agricultural land, capacity to understand financial and contractual 
aspects of credit access, lack of knowledge of financial management 
and collateral are the factors that inhibit emerging farmers to obtain 
access to agricultural finance. 
• Literature has confirmed that there are a number of outreach 
programmes by the National government aimed at assisting emerging 
farmers in obtaining access to finance such as the MAFISA programme 
and CASP. Empirical analysis has proven that those Government 
interventions have not been effective in provision of access to finance 
by emerging farmers . 
• There are a number of initiatives by the Private and the Public Sector 
that are available to provide agricultural finance. Institutional factors 
such as high lending rates, financial models used by banks, structure 
of financing products and high transaction costs are inhibitive in 
emerging farmers obtaining access to agricultural finance. 
• Land Bank has been established by the National Government to 
provide credit access to farmers, however, it seems that through 
inefficiencies of nationalised banks and lack of understanding of the 
mandate of the Land Bank has left a lot of finance needy emerging 
farmers un-reached. 
43 
• Access to finance of emerging farmers can be improved through 
configuration of banking models and processes to specifically cater for 
emerging farmers. 
4.4.2 Areas of future research 
The following areas for future research are therefore identified: 
• The study has shown that majority of emerging farmers obtained 
finance from Land Bank. Studies need to be performed to determine 
the difference between funding models of Land Bank and those of 
commercial banks. 
• The extent to which policies on land reform affect access to credit by 
the emerging farmers needs to be studied to derive policy proposals 
that would foster access to finance. 
44 
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50 
Appendix A: Questionnaire 
FOR OFFICE USE ONLY: Respondent Code: ______  
VOLUNTARY QUESTIONNAIRE FOR ACCESS TO AGRICULTURAL FINANCE FOR EMERGING FARMERS IN SOUTH AFRICA' 
"IMPROVING ACCESS TO AGRICULTURAL FINANCE FOR EMERGING FARMERS IN SOUTH AFRICA'S NORTH-WEST 
PROVINCE" 
Graduate School : NWU 
University of South Africa 
Researcher: M. Seleho 
Prof Collins Miruka 
Note to the respondent 
• We need your help to understand and invest igate how the government can improve Financial Access and Training to 
South African farmers effectively. 
• Although we would like you to help us, you do not have to take part in this survey. 
• If you do not want to take part, just hand in the blank questionnaire at the end of the survey session. 
• What you say in th is quest ionnaire will remain private and confidential. No one will be able to trace your opinions 
back to you as a person . 
The quest ionnaire has four parts: 
Part 1 asks permission to use your responses for academic resea rch. 
Part 2 asks general personal particulars like your age, gender and home language. 
Part 3 to 6 asks about farming activities, finance access/ markets and training for farmers. 
How to complete the questionnaire 
1. Please answer the quest ions as truthfully as you can . Also, please be sure to read and follow the directions for each 
part. If you do not follow the directions, it w ill make it ha rder for us to do our project. 
2. We are only asking you about things that you and your fel low researchers should feel comfortable telling us about. 
If you don' t feel comfortable answering a question, you can indicate that you do not want to answer it. For those 
questions that you do answer, your responses will be kept confidential. 
3. You can mark each response by making a tick or a cross, or encircling each appropr iate response with a PEN (not a 
penci l), or by filling in the required words or numbers. 
Thank you very much for filling in this questionnaire. 
Part 1: Permission to use my responses for academic research 
I hereby give permission that my responses may be used for research purposes provided that my identity is not 
revealed in the published records of the research. 
Initials and surname _ ________________ Postal address: ________  
_ _ __________________ _ _____ Postal code: _ _ ____  
Contact numbers: Home: _________C ell : ______ _ 
51 
No. PART 2: GENERAL PERSONAL PARTICULARS 8. Collateral is not always required when you apply for a 
Please tell us a little about yourself loan? 
Please mark only ONE option per question below. C Strong ly Disagree 
C Disagree 
C Neutral 
C Agree 
c Stronoly Aoree 
1. lam years old. 9. It's easy to access credit from any fi nancial service 
D 18-25 provider for farming? 
'7 26-35 C Strongly Disagree 
□ 36-45 □ Disagree 
□ 46+ C Neutral 
□ I do not want to answer this question C Agree 
□ Stronoly Aoree 
2. I am a: 10. C 0-5 
□ Male Li 6-10 
□ Female . 0 11-15 
C16-20 
c.J +20 
3. I am 
□ African 
r White 
□ Coloured 
□ Indian 
Oriental 
□ I do not want to answer this question 
4. Which of the fol lowing best describes the size of your 
farm? 
0 0-100 ha 
0 100-500 ha 
0 600-1 000 ha 
D 1100- 2000ha 
□2 1 00ha + 
5. Which of the Banks has previously financed you for 
your farming operation? 
D FNB 
D ABSA 
□ Standard Bank 
D Nedbank 
□ Land Bank 
fil other 
ON/A 
PART 3: Farming Act ivit ies 
Please mark only ONE option per question below 
6. Government provide training to farmers? 
□ Strongly Disagree 
Disagree 
□ Neutral 
7 Agree 
□ Strongly Agree 
7. How far is the nearest Bank / financial servi ce 
provider from you? 
□ less than 10  km's 
C 20-100 km's 
r 110-250 km's 
□ +260km's 
52