Determinants of agricultural loan repayments: the case of MAFISA funded farmers in uMkanyakude, KwaZulu-Natal province, South Africa

Ramashia, Nkhangweleni

Determinants of agricultural loan repayments: the case of MAFISA funded farmers in uMkanyakude, KwaZulu-Natal province, South Africa

Master Thesis

2019

Abstract

The Micro Agricultural Financial Institutions of South Africa (MAFISA) was established by the South African government in 2005 to provide production loans to smallholder farmers in all nine provinces of South Africa. This study examined the socio-economic and loan factors that influence loan repayment of MAFISA-funded farmers in umKanyakude district municipality. Using data from 191 selected loans granted by Peulwana Agricultural Financial Services (PAFS), the study employed a logit model to identify the explanatory for loan default. The study found that age, gender and education were not significant in determining loan repayment. On the other hand, land size, loan cycle and loan amount were significant in influencing loan repayment. The results of the empirical analysis have three main policy implications for the government and the microfinance institutions. Firstly, smallholder farmers should be supported to increase their ownership of land size so that they can plant more crops and increase their sales. This will enable them to improve their repayment rate. Secondly, smallholder farmers should be provided with smaller loan amounts at first as it leads to good repayment. Thirdly microfinance institutions should provide more loans to lenders on a second or more cycle as this leads to good repayment.

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