The value of credit to smallholder farmers in the Belas community in Manicaland Province of Mozambique

Abstract

Smallholder farmers across the world, including Mozambique, are often faced with limited growth potential. This could mainly be attributed to an inability to purchase sufficient inputs to produce more and better-quality crops and to cultivate more land. This, in turn, is directly related to the fact that many of them do not qualify for credit, or put in another way, they are financially excluded. Smallholder farmers are known to have little or no assets to offer as collateral against loans. However, the question to be asked is, does this matter? This study proves that credit does make a difference in the community of Belas, Manica Province, Mozambique, despite the perceived high costs thereof. If given access to credit, these smallholder farmers will continuously make use of this opportunity, which in turn will lead to an increase in the procurement of inputs. Data obtained from a group of 142 smallholder farmers in the Belas community in Mozambique, and stored in a cloud-based data system, was used to analyse and graphically depict the uptake of loans, repayment records and the increase in the procurement of inputs. The number of new loans taken over time is used as a measurement of the initial demand for loans, while the repayment rate acts as the repayment ability of the farmers, further the continuous uptake of consecutive loans is used to further measure whether the farmers find value in taking up loans. The repayment rate and uptake are also measured in respect of gender, age and financial inclusion to establish whether these factors cause any deviations from the mean. The data made it evident that, once loans are made available to these farmers, they do make use of the opportunity, and once they repay their first loan, they are likely to take up a new, larger loan to further increase the procurement of inputs, and at a later stage, also increase the use of equipment like tractors. The sample group of farmers was initially slow at repaying their first loans, but the repayment rate of the farmers increased once they moved to their second and third consecutive loans. This could be attributed to the continuous training they received once they started to qualify for loans. The uptake of credit was also affected by the age of farmers, where farmers between the ages of 41 and 50 were more likely to take up loans and furthermore to repay their loans and take up consecutive loans. With respect to the repayment ability of a farmer, it was found that a longer-term relationship between the financier and the farmer resulted in a better repayment ability by the latter. Women were found to repay their loans marginally faster than men did. In conclusion, this study found that farmers do see the value of credit, despite the perceived high costs, and that the uptake of loans leads to an increase in the procurement of inputs. It is recommended that microcredit be accompanied by training, to ensure the effective production of their products and therefore the repayment of their credit. MFIs need to operate in a competitive environment to ensure that no one company can inflate the costs of lending, this means that policies need to accommodate easy access to this market.