Author(s): Joseph Chisasa
Access to bank credit by smallholder farmers remains a confounding problem. A grasp of the importance of financial soundness by smallholder farmers as a precondition for access to finance will improve the probability of approvals of applications for bank credit holding other factors constant. The purpose of this paper was to examine the factors that influence access to bank credit by smallholder farmers. Cross-sectional data obtained from a survey of 362 smallholder farmers selected from Mpumalanga and North West provinces was applied for this study. Data was analysed using descriptive statistics, bivariate correlation analysis and multiple regression. The coefficients for the capital structure of the farmer, family networth and household income were observed to positively and significantly influence the farmer’s access to bank credit. However, the coefficient for collateral was found to be negative albeit insignificant. The analysis of variance (ANOVA) confirmed that the model had a good fit to the data. The results of this study have policy implications for lenders and borrowers. This article is the first to examine the nexus between the capital structure of smallholder farmers and access to bank credit in South Africa. Previous studies have focused on other sectors. Thus, this paper has demonstrated that smallholder farmers need to be financially sound in order to improve their chances of accessing bank credit.