Investigating smallholder farmers’ exclusion from credit markets in South Africa

Abstract

Access to credit by smallholder farmers in South Africa has been empirically observed to be characterised by a variety constraints. This paper examines the demographic, financial and economic characteristics of smallholder farmers in order to gain a better understanding of why smallholder farmers are excluded from formal credit markets. The paper uses survey data collected from 362 smallholder farmers randomly selected from Mpumalanga and North West Provinces of South Africa. Using descriptive analysis, the paper observes that smallholder farmers have low annual turnover, low demand for credit and often with a family culture not to borrow. The paper concludes that smallholder farmers in South Africa are still financially excluded, particularly from the formal banking systems. Results of this paper demonstrate a need for a review of financial policies in favour of increasing the supply of financial services, particularly credit to smallholder farmers if South Africa is to achieve its Millenium Development Goals of employment creation and poverty alleviation.