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Factors Influencing Credit Default Among Smallholder Farmers

In: Social Issues

Submitted By Msandi
Words 2987
Pages 12
1.0 Introduction
Agricultural credit of late has become very scarce for smallholder farmers owing to a number of reasons. Credit institutions argue that smallholder farmers involve only themselves and are never willing to work collectively which limits the success of their business to where their skills and knowledge end. The nature of agribusiness itself leaves a lot to be desired as far as agricultural credit is concerned. Most agribusinesses have slow response to price changes, long-term production cycles, seasonality of production and are further susceptible to climate changes which culminate in cash flow problems and low long-term profitability hence posing high risk of default in payment of credit. On another note, though there are numerous credit institutions in Swaziland, loan processing is slow. Business enterprises in the country at times have to wait for months before their loans are approved (Dlamini 2001 in Ngcamphalala 2005). Although, there is an outcry of the scarcity of farm credit for smallholder farmers, other farmers do obtain funding from institutions that offer farm credit either in cash or in kind through the value chain finance instruments. Through some instruments, funds are advanced to farmers to be repaid usually in kind at harvest time yet through some instruments agricultural inputs are advanced to farmers or others in the value chain for repayment at harvest or other time with the cost of credit usually embedded into the price. Still through other instruments sales agreements between farmers and creditors are made to buy or sell an asset at a set price and at a specific point in time in the future and allows hedging of price risk which can also act as collateral for obtaining credit.

1.1Background Information
The Swaziland Cotton Board (SCB) is an administrative board of cotton farmers in Swaziland. It is responsible for...

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