Profiling credit risk for smallholder farmers
Farayi Dyirakumunda Correspondent
Lending to small-holder Zimbabwean farmers is important for food security, household income and economic growth. Agriculture has traditionally been the largest employer of the Zimbabwean economy and the importance of financing small-scale and communal farmers is evident so as to reposition the country as the breadbasket of Southern Africa. The 2012 Census showed that the highest proportion of employed people, including self-employed, in the country had their occupations in agriculture. This is more or less the same proportion, considering the mid-1980s when agriculture employed about 53 percent of the population.
Agriculture occupied a central place in the Zimbabwean economy, contributing 15 to 18 percent of Gross Domestic Product (GDP). It contributed over 40 percent of national export earnings and 60 percent of manufacturers are dependent on agriculture for raw materials or as a market for inputs. This shows that agriculture has been and will remain the backbone of this economy and therefore deserves great attention.
It is essential to complement the growing number of farmers with a growth in terms of output, productivity and quality as the performance of the agricultural sector determines the overall level of people’s living standards and development of the local economy.
By analysing closely our agricultural sector, large commercial farmers are very important. However, there is a group, perhaps a large group, of farmers that though individuals may seem insignificant but are the greatest asset to this sector. This is your small-scale and communal farmer. The challenges these small-scale farmers face include lack of skills, lack of market information and market infrastructure but significant challenge is the limited access to finance including credit lines. Small-scale farmers heavily rely on third parties for access to inputs, equipment and technical know-how.
The agricultural sector has been constrained greatly in terms of financing and this motivated the current drive by Expert Decision Systems (XDS) Credit Bureau to tailor make credit profiling and assessment solutions that assist the private sector and development agencies to commit financial resources to smallholder and communal farmers under commercially viable terms and conditions.
On this point, my strong assertion is that private sector and financial institutions must play a much more active role in agro-credit as there is a viable business case for this.
There are clear drivers that should be achieved which include promotion of contract farming and facilitation of bank funding which seem to be key. As financial institutions are mostly compelled by return, it is important that lending to this sector be made a lucrative investment.
Small-scale farmers are in most cases refused access to credit as they are assumed high risk borrowers.
The inability of the farmers to provide collateral for any financing provided has rendered them unable to utilise the land that was allocated to them. Therefore, it is to the best of the industry that we assist these farmers to create sound profiles that can assist them to be less risky borrowers and be able to compete better in the market for finance. Use of a sound credit bureau system will enable creation of farmer profiles, though built over time, but will eventually enable small-scale farmers to have a comprehensive track record that can assist in accessing finance.
XDS Credit Bureau products, not only promote creation of scorecards, but assist in enabling that unexposed farmers are granted better terms with regard to credit and easily access these lines.
All credit providers to the agricultural sector need to ensure that rigorous risk management solutions are engaged and this goes for all contractors, micro-finance institutions, input and equipment suppliers and finance institutions. As these solutions are being put to use, this will also stop the unrelenting cycle of side marketers, and defaulters.
As more and more institutions realise the importance of risk management, the more our economy will be revived. To that end, XDS will host an agriculture conference bringing together all service providers to the agriculture sector and will be centred on how agriculture can be enhanced through the use of relevant technology such as the Agro Axcess application developed by XDS and sound credit management tools.
The success of the all productive sectors and thus this economy is dependent on agriculture and it is in our hands to ensure that we revamp this sector.
Farayi Dyirakumunda is a director at XDS Zimbabwe, a credit reference bureau and risk management company. He can be contacted on [email protected] / www.xds.co.zw