Modern agriculture is heavily dependent on debt which is normally provided in the form of credit. Credit permits farmers to assume new investments and technology allowing farmers to increase their productivity and efficiency in agricultural businesses. Financial capital has the ability to improve standards of living, expand capital investment, and provide a social service to farmers. Lending in the agricultural sector has several unique characteristics that influence the financial requirements in the sector The agricultural sector is regarded as the highest degree of credit risk compared to other sectors in the economy One of the aspects in the agricultural sector that needs to be considered is the length of production cycles which has an impact on the frequency that payment on loans can be made that could pose as a risk factor for financial institutions. Other reasons for the high risks include various factors such as the seasonal nature of agriculture, climate change, modernized technology, excessive division of agricultural land, perishable nature of agricultural products, fluctuation in demand, and prices for products Another aspect that plays an important role in the South African agricultural role is the fact that most subsidies in the agricultural sector has been abolished that existed during the apartheid era of the country. These subsidies that, during the apartheid era, assisted in modernizing the agricultural sector are no longer available and farmers, commercial farmers, cannot rely on such assistance The impact of these factors ultimately affects the repayment ability of borrowers hence implying increased risk to credit providers.

As agricultural experts as much as we want to help develop agriculture. Some factors are to be considered before giving out Loans to Small holder farmers and Retails.

Collateral– Small farmers normally have no collateral to pledge against loans. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. Even though the word collateral sometimes seems harsh, farmers also need to understand the risk associated with investment, collateral should not be viewed as a bad thing but should be as drive for success it lets us know what we lose if our aim is not achieved and then pushes us for more success, sometimes we take free things for granted. In the aspect of collateral, it will push us for more success. The role of the government is to ensure smooth transactions and back up plans to support farmers and support banks by making collateral a little lesser.

Credit history– A credit history is the record of how a person has managed his or her credit in the past, including total debt load, number of credit lines, and timeliness of payment. Lenders look at a potential customer’s credit history to decide whether or not to offer a new line of credit, and to help set the terms of the loan. Before giving out loans the credit history must be well checked because so many don’t have the idea of what they are going into they just keep getting loans from different places and investing in multiple businesses without any aim or goal, In as much we want to help and give out loans, previous businesses must be well checked.

Production costs refer to the costs incurred from a product or providing a service that generates revenue for the company. We need to consider the production cost of the farmer if it’s actually profitable, some go into the right business at the wrong time, we as agricultural specialist must have ideas of times and seasons of each products. So as to give advises to farmers on which business to engage in and also bring about productivity. Government role in this is by organizing trainings for farmers before loans are given to know the right time for right agricultural business.

So many other factors are also considered, Internal rate of returns IRR, Annuity, etc.

This little enlightenment is just to help in successful agricultural loans and increased productivity

To know more about our agricultural services and products, kindly send a mail to us at agric&finance@sterling.ng or swayagfin@sterling.ng