Nerpo business planning


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Nerpo business planning

  1. 1. UNIVERSITY OF PRETORIA Financial literacy, components of a business plan & marketing plan  BY: Christopher Fakudze 1
  2. 2. Outline• Reflect on agribusiness plan (the business plan)• Problem statement – Known & unknown• Research objectives and hypothesis• Theoretical and conceptual frameworks• Methods and procedures• Contribution of study• Expected results & output• Proposed plan and budget 2
  3. 3. The general problem: background with stylizedfacts• Owing to challenges hindering smallholder farming i.e. cost of production generally limiting• Access to credit dominates rural development & research agendas• Dating as far back as 1950s,conventional wisdom favoured government targeted credit intervention• However, poor record of subsidised/targeted credit leading to liberalisation• Emphasis on less targeting of loans; reduction of transaction costs; and improving viability of market 3
  4. 4. Cont’• Paradigm shift: microcredit-microfinance & commercialisation >>1990s; microfinance-financial inclusion >>2000s• Access to credit for smallholder farmers in SA is crucial• Urgency motivated by a trio of long-standing circumstances 4
  5. 5. The general problem cont’ -a need to lead the poor out of poverty -interventions introduced 5
  6. 6. Interventions implemented • Micro-finance Apex fund • Micro Agricultural Finance Schemes of South Africa (MAFISA) – MAFISA piloted (Limpopo, Kwazulu Natal & Eastern Cape)• Comprehensive Agricultural Support Programme (CASP) under the Department of Agriculture, Forestry and Fisheries (DAFF)• Small Enterprise Foundation (SEF) – revived Tshomisano credit programme (TCP) and microcredit programme MCP (SEF, 2012) – Helps poorerst in Limpopo to start income generating businesses 6
  7. 7. Policy direction becomes… 7
  8. 8. Problem statement• General acceptance: smallholder farmers are credit constrained – But size & significance of these constraints unknown• True whether looking at number without or size of gap between demand for & supply of formal credit• Unknown how demand & supply vary according to type of credit• Even more important, little is known about contribution of programmes and policies in narrowing gap – assessment of effectiveness & efficiency of government programmes on credit receiving less attention• CASP & MAFISA Evaluation studies reveal systematic weakness but, no empirical – Specific programme coverage; efficiency & effectiveness unknown 8
  9. 9. Problem statement cont’• Paucity of information/knowledge on problem significance & variation means: – Those interested to improve access, do not know how much help – Difficulty in focusing effort to improve access to specific credit type• Focusing on specific types of credit to ensure formal credit has greatest impact on smallholder agriculture growth 9
  10. 10. Research Questions• What is the size of the gap between demand for & supply of different types of formal credit for smallholder farmers?• Which type of formal credit is in more demand?• What is the proportion of credit constrained smallholder farmers?• What is the coverage of the programmes implemented to improve access to formal credit for smallholder farmers in SA?• Are these programmes, policies and strategies efficient and effective? 10
  11. 11. What do we know about the problem?• Debate whether government targeted and subsidized credit is (not) a solution (Duesenberry & McPherson, 1991; Buttain, 1995; USAID,2007)• Programmes showing failure unless Grameen principle adopted (Cohen, 2010) i.e. Compulsory savings, Debt management & Budgeting training e.g. Bukidnon• Government credit increase farmers’ risks of over indebtedness (Real et al., 2010; Bert et al., 2011)• Seen as resource misallocation, worsening condition (Buttain, 1995; USAID,2007)• How to measure access, demand constraints are known (Machethe, 1997; Diagne et al., 2000)• Credit-temporary substitute for savings (Briquette, 1999; Yehuala, 2008) 11
  12. 12. Cont’• Government driven credit lead to excess demand (Gonzalez-vega, 1984; Binswanger & Rosenweig, 1986; Braverman & Stiglitz, 1989; Disney et al., 2010)• BUT others contend financial institutions not getting qualifying borrowers (Adams et al., 1984)• Despite popularity of credit, majority of target population still not reached (Ellis, 2000; Maxwell & Heber-Percy, 2001; Gine & Karlan, 2006, Llanto, 2007)• Cohen (2010) claims farmers take credit as handout 12
  13. 13. What is not known about the problem?• Why is take-up of formal credit low, despite interventions?• What is the preference of credit over short, medium & long term credits• In spite of bankers’ claims, do government credit programmes find qualifying borrowers?• Does theory still hold that government-led credit is inefficient? – How to make formal credit programmes work for the poor 13
  14. 14. Therefore this study will …determine the extent of the problem of lack of access to formalcredit for smallholder farmers in South Africa and to assesseffectiveness and efficiency of post-apartheid interventions toimprove accessSpecifically to:I. determine the gap between demand for and supply of the different types of formal credit;II. determine the proportion of smallholder farmers that are credit constrained according to the type of formal credit;III. Examine government policies, programmes & strategies since 1994 to improve access to formal credit for smallholder farmers; andIV. To determine the effectiveness & efficiency of policies, programmes & strategies to meet demand for short-term, medium term & long term credit in South Africa. 14
  15. 15. Hypothesis• H1: Government policies, programmes and strategies implemented since 1994 have been ineffective and inefficient in improving access to credit for smallholder farmers in South Africa. 15
  16. 16. Theoretical & conceptual frameworks• Strands of financial liberalisation theory a basis to vindicate credit targeting and subsidization (Buttain, 1995)• However, criticism arise from failure in credit market• Various constructs that: – market failure can be addressed head-on through policy and institutional reforms; – Government can play a strong financial role but not to provide cheap credit • In response governments have taken over credit provision due to the market-failure, but this is not efficient (Stiglitz, 1981; Hoffs & Stiglitz, 1981) 16
  17. 17. Cont’• Role of government is institutional, otherwise lack accountability, arbitrary & political (Duesenberry & McPherson, 1991; Buttain, 1995)• Role: – develop legal framework – Enhance market information availability – Proper regulation – Supervision – Enforcement in financial market• SA has a Microfinance Regulatory Council since 2001, prohibits reckless lending 17
  18. 18. Empirical measurement• Assessment: credit demand and supply using credit limit variable Ebmax and bmax (Diagne et al., 2000)• Measuring effectiveness: checklist, if performance target met (Wangstaff, 2004)• Measuring efficiency: using parametric, non-parametric and cost control of (accounting) – Traditional accounting uses cost-to-income ratio, efficiency ratio• traditional accounting never used government programme on credit (or financial service) 18
  19. 19. cont’• Ncube (2009) used parametric frontier for efficiency of SA banks• Chortareas et al., (2010)use both accounting and DEA in EU financial Efficiency ratio = Non-interest expenditure Net operations revenue – Method also applied by Barthe et al., 2006; Demirgue- Kunt et al., 2004; Beck et al., 2006, FDIC, 2012 – FDIC (2012) for instance found that community bankers were more efficient than other banks • As such, study forms a benchmark for interpreting this study 19
  20. 20. ANALYITICAL FRAMEWORKSOBJECTIVE I: determine the gap between demand for and supplyof the different types of formal credit;1st: Descriptivestatistics to characterize demand for and supply of formal credit,• Step 1: estimate effective demand & effective supply from smallholder farmers who participate in credit• Measure statistically the differences between the two, to establish unsatisfied demand – using cumulative analysis of gap• Further ascertain variance i.e. If bmax < Ebmax 20
  21. 21. Objective II determine the proportion of smallholder farmers thatare credit constrained according to the type of formal credit• Estimate statistically proportion of the sample who; – Did not have access to formal credit since bmax = 0 [SEVERE CASE OF A SMALLHOLDER FARMER BEING CREDIT CONSTRAINED] – Those who were credit constrained by choice i.e. b* < bmax [SELF INDUCED] – Credit constrained because credit limit is strictly less than expected credit i.e. bmax < Ebmax [BINDING CREDIT CONSTRAINED] 21
  22. 22. ANALYSISobjective III: Examine government policies, programmes &strategies since 1994 to improve access to formal credit forsmallholder farmers• Qualitative analysis• Identify the programmes – Investigate why they were established• analyse how (and where)they were implemented• Analyse expenditure pattern• Capture the following attributes: – Goal attainment relevance to credit for smallholder farmers i.e not arbitrary? criteria not political? – Contract enforcement mechanisms in place (frequency of implementation) – Accountability (and who are stakeholders?) – Information dissemination to stakeholdersThis analysis will produce a typology and description 22
  23. 23. ANALYSISobjective IV:To determine the effectiveness & efficiency ofpolicies, programmes & strategies to meet demand for short-term,medium term & long term credit in South Africa.• Effectiveness – Using results in objective I, compare size of gap in types – Compare time for processing (bank and programme) – Proportions of intended & actuals • E.g. achieved objective to planned; beneficiaries to sample • Use graphs & figures to present results• EfficiencyStep 1: assess composition – Breakdown of credit amount to identify and quantify : • Interest rate • Length of repayment • Size of credit • Deductibles 23
  24. 24. Cont’ Step 2: assess cost reduction per transaction i.e. cost-to- returns on a unit credit (Rand) Compute: • Efficiency ratio as used by Chortareas et al., (2010) and FDIC (2012) Efficiency ratio = Non-interest expenditure Net operations revenue Where: net operations revenue = net interest income + non interest income Interpretation Ratio must range between 0 & 1. If more than 1, it means the cost of issuing credit is more than return and therefore not efficient 24
  25. 25. Proposed method in brief 25
  26. 26. Figure 1: Limpopo Province DistrictsSource: Demarcation Board (
  27. 27. Data & data sourcesprimary & secondary including:Smallholder farm household head:• Demographic• Participation in credit ( borrowed or not, credit size expected & credit size received; general comments) Programme attributes:• credit type (specify components)• cost to client (time, interest)• credit limit• advances (loans issued)• non-interest operating expenses• net revenue, fixed assests• other 27
  28. 28. Contribution of the proposed study• Study is original in content & design – First to apply efficiency ratio methodology in government credit programmes • efficiency method a useful tool to qualify/disqualify credit interventions in rural finance discipline – Makes policy contribution 28
  29. 29. Expected results and outputsOutputs• Published paper in an accredited Journal• Description and empirical reports (Dissertation)Results• Improved service delivery• Expand body of knowledge, ultimately to either validate or reject ‘theory’ (i.e. Government programmes to provide credit are inefficient) 29
  30. 30. Proposed plan & budgetActivity Duration Budget Target DateData collection 4 months ZAR 30 000 September 2012Data entry & 1 month “ October 2012analysisProduction of 6 months ZAR 5 000 February 2013paperpublication injournalCompilation of 6 months ZAR 15 000 June 2013PhDDissertation TOTAL ZAR 50 000 2013 30
  31. 31. Thank you!Your input is value- adding