Case studies of modern agricultural credit evaluation methods for different credit providers in South Africa

Thesis (MCom)--Stellenbosch University, 2019.ENGLISH SUMMARY : Agriculture has several aspects influencing its overall productivity as it is a complex socio-economical and physical-biological system. South African agriculture in the past 10 years have experienced many factors that have had a negative influence on the profitability of farming. These include inconsistent policy reforms relating to land insecurity, an unstable political environment relating to, among others, State Capture, technical recessions as well as critical droughts in many parts of South Africa, from which some areas still need to recover. Throughout the periods of uncertainty farmers needs access to finance in order to keep-up production and in extension enable food security in South Africa. The landscape of finance in South Africa had changed in 2005 with the introduction of the National Credit Act (NCA) No. 34 of 2005 that replaced the Acts and customs that previously governed finance and credit activities in South Africa. These include the Usury Act No. 73 of 1968, the Credit Agreements Act No. 74 of 1980 and the exemption notices, 1992 and 1999. The introduction of the NCA has evidently had a large impact on the access to credit and finance in South African agriculture. The NCA is been put forth as a restrictive aspect when it comes to helping farmers in need of additional credit when they need it most. Many of the research previously conducted in this study area had been done from the farmers’ perspectives and had not included the actual relevance of the NCA. What makes this study different is that it uses four different case studies as real-farm financial enterprises’ applications to be considered by three different credit providers, including two commercial banks and one agricultural credit provider. Furthermore, it also studies the influence of the NCA which led to the formation of the following main research statement namely; to assess the accessibility of agricultural credit for South African primary commercial agricultural producers over various enterprises in various production areas after the introduction of the New Credit Act in 2006. Firstly, by studying the NCA in more depth and gaining an understanding of the necessity of why previous customs and laws had to change as well as the applicability of the NCA, it is also found that not all credit consumers in agriculture is protected by the NCA. Also, by studying credit applications from, the credit providers’ perspective, different evaluation techniques are considered and compared. Some credit providers use more traditional financial indicators, in the form of financial ratios, based on balance sheet attributes while others are using financial rations that is based on income statement attributes. It is also found that many attributes not relating to the financial positions of the enterprise, such the farmer`s characteristics play a role in whether the application will be successful or not. Agricultural producers and credit applicants should consider credit access from different perspectives in order to gain access to the correct and best possible credit instruments for their individual needs.AFRIKAANSE OPSOMMING : Landbou is ‘n komplekse sosio-ekonomiese en fisiese-biologiese sisteem, en as gevolg daarvan is daar verskeie aspekte wat die oorhoofse produktiwiteit van landbou in Suid-Afrika beïnvloed. In die afgelop 10 jaar het baie faktore ‘n negatiewe invloed op die winsgewendheid van landbou gehad. Dit sluit in die wisselvallige beleidsveranderinge in terme van grondhervorming, ‘n onstabiele politieke-omgewing wat Staatskaping en tegniese resessies tot gevolg het, asook kritieke droogtes in baie dele van Suid-Afrika, waarvan verskeie geddeltes nog moet herstel. Te idde van hierdie onseker tye benodig boere steeds toegang tot finansiering om te kan aanhou produseer sodat voedselsekeriteit in stand gehou kan word. Die landskap van finasiering het sedert 2005 verander met die instelling Nationale Kredietwet (NCA) nr. 34 van 2005. Die NCA het alle ander wetgewing vervang wat insluit die Usury Act nr. 73 van 1978, die Credit Agreements Act nr. 74 van 1980 en al die vrystellingskennisgewings van 1992 en 1999. Die instelling van die genoemde NCA het duidelik ‘n groot impak gehad op die toegang tot finansiering in Suid-Afrika. Die NCA het ‘n beperkende invloed op die hulpverlening aan boere waar bykomende fiansiering benodig word wanneer dit die nodigste is. In die verlede is navorsing hoofsaaklik uit die boer/aansoeker se oogpunt gedoen en het nie die werklike relevansie van die NCA ingesluit nie. Hierdie studie is anders omdat dit die aansoek vanaf die fiansierders se oogpunt benader. Die finansierders waarna verwys word sluit in twee handelsbanke en een Agri-besigheid wat ook landbou-krediet verskaf. Dit bespreek die invloed van die NCA en die evalueering van die toeganklikheid ten opsigte van die landbou-krediet vir pimêre landbouprodusente in verskillende produksie-areas ná die NCA in 2006 inwerking gestel is. Hierdie ondersoek het daartoe gelei dat daar begrip is waarom vorige gebruikte wetgewing verander het asook om die NCA se toepaslikheid te verstaan. Verder het dit duidelik geword dat nie alle entiteite wat krediet gebruik beskerm word deur die NCA nie. Verskillende tegnieke en evaluasie-metodes word bestudeer en vergelyk soos wat dit op verskillende gevallestudies getoets word. Sekere kredietverskaffers gebruik tradisionele aanwyssers in die vorm van fiansiële-verhoudingsgetalle wat op die balansstaat gebaseer is, terwyl ander finansiële-aanwyssers gebruik wat op die inkomstestaat gebaseer is. Daar is verder gekyk na ander eienaskappe wat die aansoek mag beïnvloed wat nie fiansieël van aard is nie. Landbouers word aangeraai om verskillende kredietverskaffers te vergelyk sodat die beste kredietinstrumente moontlik vir die korrekte behoeftes aangewend word.Master