Financing agricultural small- and medium-scale enterprises in Namibia

Amadhila, Elina Muuwike (2016-12)

Thesis (DPhil)--Stellenbosch University, 2016.

Thesis

ENGLISH SUMMURY : While agriculture remains a key economic activity in Africa, employing about 55% of the population, only approximately 1% of bank lending goes to the agricultural sector. This phenomenological case study explored the financing of small- and medium-scale farmers in Namibia. Farmers on the demand side and financial institutions on the supply side constituted the population from which the researcher drew the study sample. Multiple methods of data collection were used, including conducting interviews, secondary data and document analysis. The results of the study were compiled into four different but thematically connected research essays. The first essay investigates the constraints to financing agriculture in Namibia from the perspectives of small- and medium-scale farmers and the Agricultural Bank of Namibia (Agribank). The findings on the supply side (Agribank) reveal constraints such as a lack of collateral and poor loan recovery from farmers while on the demand side, insufficient capital, bureaucracy and a lack of collateral are among some of the constraints preventing farmers from successfully financing their agricultural activities. Finance is found to be a binding constraint. The second essay identifies financing options for agricultural SMEs (apart from Agribank). The essay indicates that only about 33% of formal financial institutions are providing finance to agricultural SMEs, with lack of expertise and perception of risk in financing agriculture cited as top reasons why formal financial institutions find it hard to provide finance to agricultural SMEs. On the demand side, the majority of non- Green Scheme farmers indicated that they were unaware of financing options in the country while those in Green Scheme projects pointed to Agribank as the only bank that they knew. The third essay assesses the agricultural SME finance gap. The estimated agricultural finance gap stands at N$63 520 512, with demand more than supply. On the demand side, problems causing the finance gap within Green Scheme farming projects include loan default and thus denial of further loans and lack of financial institutions in the country. On the supply side, loan default and dishonesty by farmers limit Agribank’s supply of loans, especially to small-scale communal farmers. The fourth essay asks what we can learn from successful nations in agricultural finance, such as Brazil and Indonesia, as compared to Namibia, given the above findings. The findings show that Agribank-supported Green Scheme projects in Namibia mark government’s effort in promoting agricultural productivity and access to finance by small- and medium-scale farmers. However, Namibia lacks agricultural financing expertise and farmers have poor access to markets, making it difficult to improve their farming practices. Brazil has adopted structured demand to promote access to markets and flexible repayment terms matched to production cycles. Indonesia addresses market failure in the agricultural industry through investing heavily in irrigation and improved provision of formal sector credit. As compared to previous studies, this study contributes to the body of knowledge relating to SMEs in the agricultural sector by focusing on the financial aspect both from the supply and the demand side using primary data.

AFRIKAANSE OPSOMMING : Hoewel landbou een van die vernaamste ekonomiese aktiwiteite in Afrika is en sowat 55% van die bevolking van werk voorsien, word slegs ongeveer 1% van banklenings aan die landbousektor toegestaan. Dié fenomenologiese gevallestudie ondersoek die finansiering van klein- en middelskaalboere in Namibië. Boere van verskeie persele aan die vraagkant en finansiële instellings op die aanbodkant saamgestel die populasie waaruit die navorser het die studie monster. Veelvuldige metodes van data-insameling gebruik, insluitend onderhoude , sekondêre data en dokument analise. Die studieresultate word in vier verskillende dog tematies verbandhoudende navorsingsopstelle aangebied. Die eerste opstel ondersoek die beperkings op die finansiering van landbou in Namibië uit die onderskeie oogpunte van klein- en middelskaalboere en die Landboubank van Namibië (Agribank). Die bevindinge aan die aanbodkant (Agribank) dui op beperkings soos ’n gebrek aan aanvullende sekuriteit en swak terugbetaling deur boere; aan die vraagkant verhinder onvoldoende kapitaal, burokrasie en ’n gebrek aan aanvullende sekuriteit dat boere hulle landboubedrywighede suksesvol finansier. Finansiering blyk ’n bindende beperking te wees, Die tweede opstel bepaal die ander beskikbare finansieringsmoontlikhede (benewens Agribank). Die studie toon dat slegs ongeveer 33% van formele finansiële instellings finansiering aan KMO’s op landbougebied voorsien. Die hoofredes waarom formele finansiële instellings dit moeilik vind om hierdie KMO’s te finansier, is oënskynlik ’n gebrek aan kundigheid en die algemene oortuiging dat landboufinansiering riskant is. Aan die vraagkant is nie-kontrakboere merendeels onbewus van finansieringsmoontlikhede in die land, terwyl dié wat kontrakboerdery in groenskemas beoefen slegs van Agribank weet. Die derde opstel assesseer die landbou se klein en medium ondernemings se finansiele gaping. Die beraamde landbou finansiele gaping staan op N$63 520 512, met vraag meer as aanbod. Op die vraag kant, word probleme veroorsaak deur the finansiele gaping binne die groenskemaprojek wat insluit wanbetaling van lenings en daarom die afkeer van addisionele lenings en gebrek aan finansiele instansies in die land. Op die aanbod kant, lenings wanbetaling en oneerlikheid by die boere beperk die Agribank se toekenning van lenings, veral vir die klein-skaal gemeenskaps boere. Laastens ondersoek die vierde opstel wat ons op grond van bogenoemde bevindinge kan leer uit ’n vergelyking tussen Namibië en suksesvolle landbounasies soos Brasilië en Indonesië. Daar word bevind dat die groenskemaprojek wat deur die Agribank van Namibië ondersteun word, ’n teken is van die regering se pogings om landbouproduktiwiteit en toegang tot finansiering vir klein- en middelskaalboere te bevorder. Tog kom Namibië landboufinansieringskundigheid kort, sowel as beter toegang tot markte sodat boere hulle landboupraktyke kan verbeter. Brasilië volg byvoorbeeld ’n strategie van gestruktureerde finansiering om marktoegang te bevorder, sowel as buigsame terugbetalingsvoorwaardes in pas met produksiesiklusse. Op sy beurt gebruik Indonesië grootskaalse belegging in besproeiing sowel as verbeterde kredietvoorsiening deur die formele sektor om markgebrek in die landboubedryf teë te werk. In vergelyking met voerige studies, dra die studie by tot the liggaam van kennis in verband met die klein en medium ondernemings in die lanbou sektor deur te fokus op die finansiele aspek van beide die aandbod en die vraag kant deur primere data te gebruik.

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