Agricultural financing in Zimbabwe has evolved over the years, from pre-independence models to the current state of affairs. However, farmers face considerable pain to access appropriate financing that meets their needs.
Sometimes it actually feels as if the country has regressed in the development of agricultural financing models.
In the past, the Government has financed agriculture through the Agricultural Finance Corporation (AFC).
The Corporation was, however, turned into a commercial bank and now applies normal banking credit requirements compared to the past when it offered subsidised and often unsecured facilities.
Several other financial related institutions have provided finance for agriculture over the years. Commercial banks have been giving assistance to commercial farmers.
Microfinance institutions have largely targeted communal farmers. Developmental organisations, often working through microfinance institutions have also provided assistance.
On the surface, it would appear that there should now be several financing options available, however, season after season, farmers continue to suffer palpable pain. But what brings about the pain to the farmers?
1.Lack of self appreciation
As basic as this seems, one of the biggest causes of pain to farmers in seeking financing is an utmost disregard for who they are and what they want. Are you a risk taker or risk averse? Are you a control freak or a free spirit? What is your temperament in general?
This has a bearing on the kind of finance you should seek as different financing options accept different levels of risk, and control of the funds. There is no financier who will give you what you want in the form you want. You will have to know what you are willing to accept and what you cannot accept.
It is within your right to accept or not to accept funding if it does not bode well with you and what you want to achieve in the manner you want to achieve.
- Lack of understanding of the risks involved in
It is not always obvious what risks are involved in a business venture even the seemingly simple ones. It is, however, good for you to understand what the key risks are and how you intend to mitigate against them.
All prudent financiers like to deal with businesses that are aware of the possible problems they may confront and show a preparedness to deal with them.
Any costs involved in the mitigation need to be highlighted so that you get a full picture of the business management costs, which are sometimes part of your financing costs. These include insurance costs.
- Lack of understanding of the requirements to access finance
Most farmers tend to follow the herd when it comes to getting funding. Very often, there is no understanding of the requirements set by financiers. This then leads to pain and conflict at the time of project implementation and repayment. Farmers seem to be content to receive inputs anyhow without due consideration of the contract they are entering into.
- Lack of collateral
Farmers are unable and sometimes unwilling to provide collateral for funding. This means that they end up finding facilities that are unsecured. However, very often, such facilities come at a premium in terms of costs. Processes also tend to be cumbersome and labourious. The farmer often does not have control over their produce in such instances.
Farmers often do not understand the technical jargon used by financiers and lock themselves into unfavourable contracts because of lack of financial literacy. Financiers do not make it any easier by having voluminous facility agreements which the farmers sign without due and proper understanding.
- Poor timing
Agriculture is seasonal and timing is key to the success or failure of financing models. Often, however, both financier and farmer are ill prepared for the season.
The farmer wants to start running around seeking inputs and funding only when the rains have fallen. Financiers will often be hard nosed about their processes and procedures even if time consuming which impacts negatively on the farmers.
- Poor agronomic practises
Farmers will undertake inappropriate programmes at the inappropriate time in their ecological zones. This is usually driven by the contracts available and the farmer’s lack of knowledge and expertise.
These pains can, however, be cured by undertaking the following
(i) Seek information timeously. Good planning requires ensuring that you have all your inputs on time and ready according to crop and season. This entails getting the right information at the right time and applying it correctly.
Information includes what the various financing options available for your programme e.g. contract farming, bank financing, microfinance, or self-funding. One should be aware of the technical support available to help both for financing and agronomy.
(ii) Seek information from the experts in the industry or programme. Don’t look for information from inappropriate sources such as social media which are often wrong. There are specialists in almost every area of your enterprise. The farmer should go directly to the experts to get the information.
If it is agronomic information, go to the agronomist, if financing, go to the financier, if contracting, go to the contractor. A lot of misinformation exists and one may be misled if information is obtained from the wrong source.
(iii) Read your contracts independently. Give yourself at least 24 hours cooling period before signing. Go through the fine print and ask questions where you do not understand.
Good client protection principles dictate that the financier must provide the information to you. Be wary of anything that you are pressured into signing without going through it thoroughly first.
(iv) Know and understand all costs in your contracts. Be sure to check for everything that you will be required to pay for to execute the financing arrangements.
Ask about arrangement fees, insurance fees, security registration costs, penalty fees, etc. All these add to the interest costs and should be known before you make a final decision on borrowing.
(v) Seek appropriate guidance in terms of good agronomic practises. Agricultural practises are continuously evolving. To remain up to date, seek guidance from the specialists in the crops.
(vi) Choose your financing options wisely and understand what you can control and what you cannot.
Be aware of the terms and conditions of the financing options. A lot of the options include caveats that the financier would want to be followed to the letter. These include who you deliver the crop to, when you can access the funding, whether in part or whole.
Shadreck Chinembiri is head of agribusiness at CBZ Bank Limited. This article was first published in Maricho Magazine www.agricnexus.co.zw