Analysing the Role of Structured Finance on Productivity and Livelihoods of Small Scale Farmers in Zimbabwe

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  European Journal of Business and Management ISSN 2222-1905 !aper ISSN 2222-2#$9 %nline &ol.'( No.20( 201) 12 Analysing the Role of Structured Finance on Productivity and Livelihoods of Small Scale Farmers in Zimbabwe Munodawafa N*o+o ,orresponding autor epartment of Mar/eting Management( Midlands State ni+ersit !. Bag 9055 weru ( 3im4a4we E-mail  n*o+om6msu.a,.7w Ma/a,a 8arolin epartment of ourism and :ospitalit Management( Midlands State ni+ersit !. Bag 9055 weru( 3im4a4we E-mail ma/a,a,6msu.a,.7w Abstract e+eloping ,ountries; e,onomies are at a ,riti,al de+elopment pase and 3im4a4we is not an e<,eption. =o,us is on uplifting te small s,ale farmers wo fa,e a mriad of ,allenges in o4taining wor/ing ,apital. >or/ing ,apital a+aila4ilit is ,onsidered ,riti,al for affe,ting farm produ,ti+it and li+elioods. 8onser+ati+e finan,ial institutions a+e not 4een ,oming to te res,ue of small s,ale farmers owing to la,/ of ,ollateral and sound  4alan,e seets. e stud sougt to esta4lis weter stru,tured finan,e affe,ted produ,ti+it and li+elioods of small s,ale farmers. e findings of te stud were tat ,apital a+aila4ilit affe,ted produ,ti+it. It was owe+er esta4lised tat for stru,tured finan,e to 4e a su,,ess it was not to 4e applied in e<,lusi+it. ere were an,illar issues su, as infrastru,ture( training and information pro+ision wi, ad to 4e ta/en into a,,ount. Keywords:  Stru,tured finan,e( !rodu,ti+it( ?i+elioods( small s,ale farmer   1!ntroduction @gri,ulture plas a ,entral role in te well 4eing of de+eloping ,ountriesA e,onomies and teir people. :anmer and Boot 2001 state tat in de+eloping ,ountries ( an a+erage of 50 per ,ent of people ma/e teir li+ing from farming and agri,ulture and in some ,ountries ( tis figure rises to #0 per ,ent. ere is an intimate relationsip 4etween po+ert and agri,ulture. ree uarters of te 1.2 4illion people wo li+e on less tan a dollar S a da ( wor/ and li+e in rural areas Eastwood and ?ipton( 2001 . e arguments terefore ,onfirm te findings of earlier studies wi, indi,ate tat agri,ulture is /e in te figt against po+ert and must o4+iousl pla a ,entral role in a,ie+ing te millennium de+elopment goals-M !olas/i(200' . @gri,ulture is instrumental to future po+ert redu,tion( N8@( 200C . rowt in te agri,ultural se,tor as a singularl more powerful impa,t on po+ert redu,tion tan an oter e,onomi, se,tor .:anmer and Boot 2001 support te same notion 4 indi,ating tat a one per,ent growt in agri,ultural produ,ti+it redu,es te num4er of people li+ing on less tan a S D1 a da 4 up to 1.2 per ,ent. e issues igligted elp 4ring to te fore te reasons surrounding te land reform program in 3im4a4we wi, gatered momentum around te ear 2000. :a+ing gi+en people land ( te go+ernment put in pla,e +arious pa,/ages to aid and or assist operations on farms. Most people wo 4enefited from te land reform  program are su4sisten,e farmers wo appre,iate little on te aspe,t of ,ommer,iali7ation. It is e<tremel diffi,ult for small s,ale farmers to enter mar/ets and it is a widel sared +iew tat mar/et entr is a fun,tion of 4ot te ,ompetiti+eness of te produ,er and te ,ara,teristi,s of te suppl ,ains. It is worrisome to note tat te small s,ale farmers remain engra+ed in po+ert. o+ernment inter+ention as terefore not made te small older farmer 4etter off. =inan,e is e<tended to farmers troug go+ernment agen,ies ,omprising FB3( @gri-Ban/ and MB. %ter organi7ations a+e 4een seen to 4e plaing a part in a wa. ese in,lude 8%8%( IMB and :eifer !ro*e,t International. e finan,e so e<tended is stru,tured in a wa. e moti+es of te pro+iders of stru,tured finan,e are uestiona4le. It is diffi,ult to tell weter te finan,e so e<tended is meant to alle+iate te pligt of small s,ale farmers or is meant to un*ustl enri, te Gselfis ,ompaniesH. It is te aforementioned analog wi, ,orro4orates te o4ser+ations 4 %numa( a+ies ( lei and !ro,tor 200C tat agri,ultural mar/eting sstems a+e ,anged and ,ontinue to ,ange as a result of glo4ali7ation and li4erali7ation as well as demograpi,al fa,tors ( parti,ularl ur4ani7ation. ese ,anges( argue %numa et al 200C a+e led to te emergen,e of new mar/et opportunities 4ut a+e also e<posed  produ,ers to in,reased ris/s in terms of un,ertain a,,ess to mar/ets ( pri,e insta4ilit and te ris/ of ,ounter-part nonperforman,e. =or instan,e ( glo4ali7ation as led to te a,,umulation of massi+e 4uing  power 4 a limited num4er of ,ompanies ( espe,iall te international supermar/et ,ains wit asso,iated narrowing of te suppl 4ase .@s a result( large and integrated agri-4usiness firms are edging out small famil  European Journal of Business and Management ISSN 2222-1905 !aper ISSN 2222-2#$9 %nline &ol.'( No.20( 201) 1$ farms Montemaor( 200C . e in+ol+ement of go+ernment and oter organi7ations is indi,ati+e of pro4lems affe,ting smallolder farmers. !rior to te late 19C0s to earl 19#0s( agri,ultural mar/eting sstems in most de+eloping ,ountries were ,ara,teri7ed 4 per+asi+e go+ernment inter+entions intended to minimi7e te ris/ of famine and food sortages as well as to assure foreign e<,ange earnings and ta< re+enues from strategi, agri,ultural e<port ,ommodities  @/iama( Baffes and &arangis(2001 .e dominant role of te state in mar/eting of agri,ultural inputs and outputs was also *ustified 4 te need to se,ure parti,ipation of small s,ale farmers and teir in+ol+ement in ,as ,rop produ,tion. &arangis and S,rei4er 2001 (suggest tat te institutional +ei,les and poli, framewor/ emploed 4 most go+ernments in de+eloping ,ountries in promoting te produ,tion and mar/eting of strategi, food staples and e<port ,rops in,luded te following    !an territorial and pan-seasonal pri,ing poli,ies( regardless of te ,ost of assem4ling produ,e from  parti,ular regions.    Suppression of te pri+ate se,tor.    Enfor,ement of formal ,ommodit standards for most of te ,rops mar/eted 4 small s,ale farmers.    Sole distri4ution 4 te state of su4sidi7ed inputs to produ,ers.    !romotion of ,ooperati+es as intermediaries in te mar/eting ,ain ( distri4uting inputs ( 4ul/ing  produ,e and mar/eting to te 4oards. @/iama et al 2001 furter state tat Gmar/eting sstems were inerited ( in most ,ases from ,olonial administrations and su4seuentl reinfor,ed as part of te state led de+elopment strateg and so,ial planning framewor/ as influen,ed 4 te So+iet e+elopment Model SM . :u44ard 200$ ,laims tat te 4eginning of te 19#0s saw mounting empiri,al e+iden,e indi,ating glo4al failure of te SM. e inter+entions ( argues :u44ard 200$ 4e,ame an unsustaina4le fis,al 4urden ( wi, ga+e rise to de,lining produ,er pri,es as small s,ale farmers 4ore te ,ost of su, programs and failed to produ,e an signifi,ant uantities in 4ot food and ,as ,rops. e in+ol+ement of go+ernment o+er time in te farming ,ir,les is indi,ati+e of pro4lems and ,omple<ities surrounding small s,ale farmers. ere as not 4een a ,learl wor/a4le inter+ention poli, 4 eiter go+ernment or organi7ations 4ot in te 4usiness se,tor and donor ,ommunities. Small s,ale farmers in 3im4a4we and elsewere do not a+e a,,ess to 4an/ loans( espe,iall term loans( neiter ,an te a,,ess mi,ro-finan,e N8@( 200) . is is 4e,ause 4an/s are +er ,onser+ati+e in teir lending pra,ti,es( often re,entl a+ing emerged from a 4lea/ period of near insol+en,. Small s,ale farmers often do not a+e good 4alan,e seets ( ,ollateral or e+en mu, of a ,redit istor . o ,ompensate for tis( te go+ernment ran su4sidi7ed ,redit s,emes troug agri,ultural pro*e,ts and de+elopment 4an/s often wit te support of donors. ?oans were offered to farmers at less tan mar/et rates of interest. E<perien,e wit tis tpe of lending was unfa+oura4le sin,e 4orrowers were relu,tant to repa loans. =armers need finan,ing for wor/ing ,apital ( in+estment in new euipment and sstems tat upgrade  pro,esses to fa,ilitate in,reased suppl to international and lo,al mar/etsN8@(2001 . =ailure 4 small s,ale farmers to pursue su, in+estments as resulted in teir marginali7ation( parti,ularl in international mar/ets. Smallolder farmers in 3im4a4we are una4le to trade effe,ti+el wit large 4uers and users 4e,ause te do not a+e suffi,ient ,apital to pro+ide deferred pament terms on teir own a,,ount as reuired 4 tese users. ?a,/ of in+estment ( a,,ording to N8@ 2001 ( leads to ig losses and te ina4ilit to meet standards . >itout wor/ing ,apital( farmers are for,ed to sell at ar+est time wen pri,es are low. It is tus diffi,ult to 4rea/ te ,,le of po+ert sin,e la,/ of ,apital leads to low in,ome ( wi, ,ontri4utes to la,/ of ,apital. @s a result of failure to a,,ess finan,e ( small s,ale farmers a+e fa,ed a multitude of ,allenges . :u44ard 200$ lists tese ,allenges as    !rodu,er margins a+e 4een suee7ed 4e,ause of longer suppl ,ains in+ol+ing large num4ers of small s,ale traders as assem4lers and te transfer to produ,ers of te in,reased ,ost of assem4ling due to  poor rural infrastru,ture.    !rodu,e ualit as 4e,ome more +aria4le due to a num4er of fa,tors ( in,luding s,aled down e<tension ser+i,es ( la,/ of inputs and wea/ enfor,ement of ,ommodit standards 4 assem4lers trading in +olumes rater tan ualit . e ,onseuent loss of ualit premiums often implies lower ouseold in,ome.    @,,ess to mar/et is un,ertain partl 4e,ause te assem4lers are se+erel under,apitali7ed and una4le to a4sor4 large +olumes at te pea/ of te ar+est( tus depressing farm-gate pri,es o4+iousl to te detriment of te small s,ale farmer.    e a4olition of state guaranteed pan-territorial  pan-seasonal pri,ing implies farmers fa,e ig pri,e ris/s 4ut la,/ a,,ess to mitigation me,anism.  European Journal of Business and Management ISSN 2222-1905 !aper ISSN 2222-2#$9 %nline &ol.'( No.20( 201) 1) It is te aforementioned 4rief wi, ga+e rise to te need to e<plore te impa,t of stru,tured finan,e as alternati+e inter+ention me,anism on te produ,ti+it and li+elioods of te marginali7ed smallolder farmer. is was done ,ogni7ant of te fa,t tat ,ertain me,anisms a+e 4een tried ( often ielding results wa 4elow  points wi, ualif to 4e rated as su,,esses. Literature review 2.1.Definition of terms      Small scale farmer - a farmer wo deri+es li+eliood from a olding of less tan 2.5 e,tares and around 10-20 eads of li+esto,/ irtle( ?in and !iesse( 200$ . @lternati+e definitions identif small s,ale farmers as resour,e poor persons. =or e<ample( te produ,ti+it of a small pie,e of irrigated land would pro4a4l mat, tat of a mu, larger pie,e of rain fed or degraded land. Small s,ale farmers ,an also 4e defined from te la4our angle( ta/ing into a,,ount weter te famil pro+ides te ma*orit of la4our and weter te farm pro+ides te  prin,ipal sour,e of ouseold la4our in,ome Naraanan and ulati( 2002 .    Productivity - output per unit area put under produ,tion ,ropping or return on a unit of ,urren, in+ested in ,rop produ,tion. i*ne (uong( Bennet(Bouman and %weis 200$ define produ,ti+it as te ratio of +ulnera4le output to input( te effi,ien, and effe,ti+eness wit wi, resour,es (personnel ( ma,ines ( materials( fa,ilities (,apital and time are utili7ed to produ,e +alua4le output . It empasi7es tat te output sould 4e +alua4le to a ,ertain person or group.    Livelihood - a li+eliood is defined as ,omprising te ,apa4ilities( assets and a,ti+ities reuired for a means of Gli+ing G. @ sustaina4le li+eliood is a,ie+ed wen a li+eliood ,an ,ope wit and re,o+er from stresses and so,/s and maintain or enan,e its ,apa4ilities and assets 4ot now and in te future( wile not undermining te natural resour,e 4ase 8arne( 199# . ?i+elioods are saped 4 a multitude of e,onomi, (politi,al and so,ial for,es and fa,tors and te +ar 4etween e,onomi, ne,essit on te one and and ,oi,es on te oter and a4eer and @ng(2000 Kolan(2002K Ellies( 199#K Be44ington (1999 . ?i+eliood options are mediated 4 a num4er of e<ternal fa,tors. e are also ,onditioned 4 te ,omposition and internal dnami,s of te ouseolds pton( 200) . #1 $efining structured finance In 2002 as mu, as C5 per ,ent of te ,rop was lost and all )1000 +illages were de,lared drougt stri,/en in India;s state of Fa*astan N8@( 2005 . =armers wo needed to 4u seeds for te ne<t ar+est season ad to approa, mone lenders( sin,e man of tem( 4eing landless( ad no ,ollateral or tird part guarantees. N8@ 2005 indi,ates tat finan,e was a+aila4le( 4ut at an interest rate of o+er 10 per ,ent per mont( a figure wi, was unafforda4le 4 man. Su, ,redit ,onstraints ,an lo,/ farmers into +i,ious ,,les of po+ert. =ortunatel for tese farmers( a few Indian 4an/s and agro-industrial firms a+e de+eloped new finan,ing s,emes wi, reuire neiter land ,ollateral nor tird part guarantees. >ile mi,ro-finan,e te standard approa,es of wi, are not +er suita4le for agri,ultural lending depends on te strengt of so,ial relationsips rater tan on indi+idual 4orrowers( tese new finan,ing s,emes depend on te strengt of ,ommodit suppl ,ains. is form of finan,e is termed stru,tured finan,e in western 4an/s N8@( 20051$ . itman 19#2 defines it as te art of transferring ris/s in finan,e from parties less a4le to 4ear tose ris/s to tose more euipped to  4ear tem in a manner tat ensures automati, reim4ursement of ad+an,es from te underling assets. =I 200' ad+an,es te fa,t tat 4an/s in de+eloped ,ountries a+e used tis finan,ing me,anism sin,e te late 19#0s as a wa to ,ontinue pro+iding finan,e to de+eloping ,ountries( despite te per,eption of in,reasing ris/s. e me,anism indi,ates N8@ 200) as pro+ed to 4e resilient e+en in times of se+ere e,onomi, ,risis. 8ollier 199C states tat tere are assets important to ensure te fun,tionalit of stru,tured finan,e( namel in+entor and e<port re,ei+a4les. Essentiall terefore( stru,tured finan,e mitigates ris/s asso,iated wit transa,tions troug te in,orporation of predi,ta4le ,as flows in te stru,ture. itman 19#2 supports tis 4  pro,laiming tat stru,tured finan,e aims at pro+iding wor/ing ,apital in diffi,ult en+ironments 4 mitigating te ris/s asso,iated wit e<posure troug mortgaging te produ,e. e e+iden,e presented ,onfirms te findings of earlier studies tat ,ommodities tat farmers produ,e are used 4 de+eloping ,ountries A 4an/s as ,ollateral and su, ,ollaterali7ed lending ,an a+e tree ,omponents ( tat ,an 4e used separatel or as a ,om4ination ,rops in te field as ,ollateral ,rops alread produ,ed as ,ollateral and ,rop sales as ,ollateral Blo,/ and :irt (1992 . 8ontra,t farming is anoter dimension of stru,tured finan,e wi, is widel used. 8ompanies are pro+iding  produ,t ser+i,e offerings to farmers tat in,lude an optimi7ed set of fertili7er( seed and ,emi,als. e finan,ing to a,uire tis optimi7ed input 4undle ( a ris/ management program in,luding produ,t warranties ( options and forward ,ontra,ting arrangements ( and insuran,e produ,ts and finall a ,ontra,t or oter arrangement to 4u te finised produ,t from te produ,er. In tis arrangement( te produ,t flow relationsip is dominant and is used as a ,arrier to pro+ide te inputs and finan,ial ser+i,e ,omponents of te pa,/age( Boel*e( :ofing and S,roeder( 1999 . Boel*e et al 1999 state tat ,ontra,t farming pro+ides man opportunities to 4ot ,ompanies and small  European Journal of Business and Management ISSN 2222-1905 !aper ISSN 2222-2#$9 %nline &ol.'( No.20( 201) 15 s,ale farmers 4ut one pro4lem tat ma arise is a relation of e<,essi+e dependen,e. Su,,essful implementation of ,ontra,t farming reuires an adeuate legal framewor/ tat ensures ,ontra,t ,omplian,e 4 all parties. #   %y&es of structured finance N8@ 200$, ,ites tree tpes of stru,tured finan,e( tat is e<port re,ei+a4les 4a,/ed finan,ing( in+entor finan,ing and prepaments. E<port re,ei+a4les 4a,/ed finan,ing reuires te assignment of sale pro,eeds to te pro+ider of finan,e N8@ 200$d . e importer under tis arrangement ma/es pament to es,row a,,ount wi, is ,ontrolled 4 te 4an/. e loan is repaid from te es,row a,,ount and te e<,ess after agreed dedu,tions is paid to te e<porter( N8@ 200$, . is tpe of stru,tured finan,e does not owe+er 4e,ome useful wen small s,ale farmers are put into perspe,ti+e. is +iew is sared 4 itman 19#2 wo states tat e<port re,ei+a4les 4a,/ed finan,ing is mainl targeted at e<porters and ,ompanies wi, are well esta4lised. In+entor finan,ing is made wit re,ourse to te produ,er were4 te se,urit is pro+ided 4 an assignment of te ,ommodit stored in a wareouse and te repament ,omes from e<port pro,eeds paid 4 future 4uers dire,tl to te lender N8@ 200$, . In te a4sen,e of a 4uer a+ing 4een identified( it is te onl stru,tured finan,e solution N8@ 200$d . ?i/e e<port re,ei+a4les finan,ing( te 4uer pas sale pro,eeds into es,row a,,ount and te pro+ider of finan,e is paid from tis a,,ount. e e<,ess is released to te produ,er small s,ale farmer. In a prepament( a loan is made witout re,ourse to te 4uer for prepament of te ,ommodit sold 4 te  produ,er were4 te se,urit is pro+ided 4 an assignment of te prepaid sales ,ontra,t and 4 an assignment of te ,ommodit stored. ese tree tpes of stru,tured finan,e are grossl simplified and witout modifi,ations will not assist te small s,ale farmer( argue 8ollier 199C . ##   Advantages of structured finance over other forms of finance ?oo/ing at te pro4lems surrounding ,ertain a+enues relating to te operations of forms of finan,e oter tan stru,tured( it ,an 4e dedu,ed tat stru,tured finan,e remains an option reuiring furter e<ploration. Stru,tured finan,e elps impro+e te parti,ipation of te most +ulnera4le a,tors in te suppl ,ain. It supports e,onomi, de+elopment and po+ert redu,tion N8@( 2005 . e most 4asi, ad+antage of stru,tured finan,e( adds te N8@ 2005 is to 4oost mar/et effi,ien, troug redu,ing transa,tion ,osts 4 ,on,entrating trade in one  pla,e. Buers and sellers sa+e time and resour,es tat would oterwise a+e 4een e<pended sear,ing for suita4le ,ounterparties. e N8@ 2005 furter argues tat an e<,ange fa,ilitated troug stru,tured finan,e ,an a,t as an Gisland of e<,ellen,eH in an oterwise disordered mar/etpla,e( e<tending ig le+els of performan,e and integrit a,ross te suppl ,ain and imposing dis,ipline on te psi,al mar/et. B defining standards for te a,,eptan,e of te produ,ts to 4e deli+ered to te e<,ange and appling a rigorous grading pro,edure( te e<,ange en,ourages produ,ers to meet te reuirements of te end users of te traded ,ommodities. Stru,tured finan,e ,an also 4e an important me,anism for o+er,oming new 4arriers to trade su, as in,reasingl stringent sanitar and pto-sanitar reuirements. 8ollier 199C 4elie+es tat gi+en te diffi,ult( if not te impossi4ilit( of sol+ing te pro4lem of pri,e insta4ilit for ,ommodities( te management of ris/ 4e,omes a /e goal of stru,tured finan,e. Stru,tured finan,e ma/es it possi4le for farmers to a,ie+e pri,e predi,ta4ilit and se,urit( despite te +olatilit( o+er a ,rop ,,le.!ri,e ris/ undermines li+elioods( not *ust troug dire,t loss of seasonal in,ome 4ut also 4 lo,/ing  produ,ers into a ,,le of low in+estment and low returns. >it greater ,ertaint o+er te planting ,,le( farmers ,an ,ommit temsel+es to in+estments tat ield longer term gains N8@( 200$, . It is furter argued tat farmers ,an ,ommit temsel+es to in+estments tat ield longer term gains( and te ,an in+est in planting iger ris/ 4ut iger re+enue ,rops. Stru,tured finan,e essentiall as a multitude of ad+antages o+er oter forms of finan,e. It is for tis reason tat attention is 4eing fo,used on stru,tured finan,e as te possi4le remed to deal wit po+ert tat engulfs small s,ale farmers. ' (hy financiers use structured finance for small scale farmers  e ma*orit of populations in @fri,a li+es in rural areas and depends on small s,ale agri,ulture for food and in,ome o+ere( Jane and Noro( 1999 . e autors add tat smallolder agri,ulture remains te ma*or engine of rural growt and li+eliood impro+ement. Meeting te ,allenge of impro+ing rural in,omes in @fri,a will reuire some form of transformation out of te su4sisten,e( low input( and low produ,ti+it farming sstems tat ,urrentl ,ara,teri7e mu, of @fri,a. e o4ser+ations 4 o+ere et al 1999 ( as 4road as te are( put 3im4a4we into perspe,ti+e. In man areas of 3im4a4we( input intensifi,ation was promoted on food ,rops. For4a, 19## o4ser+es te emergen,e of state led programs ,ara,teri7ed 4 su4sidi7ed and interlin/ed ,redit-input-output mar/eting arrangements implemented 4 mar/eting 4oards. e same analog is sared 4 Belee and Ei,er 199C wo see te arrangements as 4eing ,ontra,t farming in nature. e state led approa,es drained te fis,us and 4e,ame +irtuall unsustaina4le. is led to partial state witdrawal from input mar/eting( lea+ing te same small s,ale farmer e<posed to te +agaries of te Grule of te *ungleH. Man writers maintain tat tis penomenon
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