Factors Affecting Credit Risk of Commercial Farmers in South Africa: A Case of the Midlands Area of KwaZulu-Natal
Keywords:
Credit risk, commercial farming, agricultural lending, agricultural finance, debt repayment capacityAbstract
The burden of contributing towards the South African economy rests upon a diminishing number of commercial farming units. It is, therefore, important that these farming units remain commercially viable and an examination of commercial farmers’ creditworthiness in terms of their ability to service and repay debt is particularly relevant. The aim of this research is to analyse the determinants of credit risk of commercial farmers in a diverse farming area of KwaZulu-Natal (KZN). To achieve this aim, a survey questionnaire was administered to a sample of 50 commercial farmers, and data was analysed using descriptive and regression analyses. The participants were grouped into three credit risk categories: high-, medium- and low-risk, and the results revealed that most of these farmers fall under the low- and medium-risk categories. The key determinants of credit risk were found to be the farmer’s commitment to farming activities (part-time vs full-time), the proximity of the farm to the nearest urban centre, reliance on non-farm income to maintain the participant’s standard of living, and the funding institution utilised.
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