Investment, risk and expectation in KwaZulu-Natal’s rural economy
Elizabeth Hull
London School of Economics
Introduction
3864 hectares, most of which is divided into 10
hectare plots rented and managed by individual
farmers, of which there are 314 altogether. The
remaining land within the scheme is divided into
243 smaller ‘gardens’ of 0.02 hectares each. Beyond
the scheme reside many ‘dry-land farmers’ and
other residents, relying on small and intermittent
rainfall, and various other limited sources of
income. According to the deprivation index of the
Health District Barometer of 2008/09, based on a
range of demographic and socio-economic data, the
district of Umkhanyakude is the 2nd most deprived
of 52 provinces nationally (Day et al. 2010: 197).In
a region characterised by high levels of
unemployment and ill-health, 85.2 per cent of
households within the local municipality of Jozini
earn less than R1,500 per month (2001 census).
This paper examines the financial strategies of
people living in the Makhathini region of northern
KwaZulu-Natal, and a recent attempt by the
government to assist small-scale business enterprise
in the area. Specifically, it looks at the formation of
a ‘community bank’ called Simunye, accredited,
funded and regulated by the South African MicroFinance Apex Fund (SAMAF), a branch of the
Department of Trade and Industry. During the
period of my research, the bank was still in its
infancy and had not yet begun providing loans. One
condition laid out by SAMAF was that the bank
demonstrated its effective operation through regular
inflows and outflows of cash, prior to paying out
any loans. As such, members were encouraged to
invest money in order to qualify for a loan at a later
stage. The paper describes the factors that enhanced
or inhibited the willingness of members to invest in
the bank. Thus, rather than to assess the success or
failure of micro-finance schemes, the purpose of the
paper is to describe how new expectations for credit
feature within a range of diverse financial strategies,
in this particular context of rural KwaZulu-Natal.
The research is based on interviews with 34
members of Simunye bank, and on information and
observations from general and board meetings of
Simunye.
The micro-finance paradigm in South Africa
With a growing realisation in recent years of the
failure of the free-market to provide stability and
financial security for a significant proportion of the
world’s population, a global reconsideration of the
role of the state has taken place. Under continued
pressure to reduce deficits, cut spending and employ
fiscal prudence, yet with the increasing
acknowledgement of the necessity of state provision
for those apparently excluded from the remit of
free-market, new forms of government intervention
are emerging. Many sectors are increasingly split
between private services for the well-off, and cheap,
mass role-out of government services for the poor.
This is represented in health care, for example, by
the split between private and primary health care.
Outsourcing to the private sector is another
widespread strategy employed by the government to
reduce the public costs of service delivery. The
movement towards micro finance, which has
received considerable impetus in recent years,
represents a further reinforcement of this trend, with
the state offering an alternative to those whom the
mainstream financial sector has been unable or
The setting
Makhathini is an area of around 13,000 hectares
spread over the low-lying areas east of the southern
Lebombo mountain range in northern KwaZuluNatal. An important region for agriculture,
particularly for cotton but also for a variety of food
crops, Makhathini has been the site of ongoing
interventions under successive colonial and
apartheid governments since 1903. One long-lasting
development was the formation of the Makhathini
Irrigation Scheme in 1982, served by the large
Jozini Dam. Today, the scheme occupies an area of
1
unwilling to assist. This is conceptualised by its
proponents as a strategy to aid and formalise what
former president Thabo Mbeki coined ‘the second
economy’.
in an account held at ABSA, a large commercial
bank with a branch in the nearby town of Jozini.
The process took over three years to finally reach
the point of official accreditation. On 4th May 2010,
the certificate was formally handed to the
chairperson of the newly formed community bank.
The bank currently has about 1,150 members, both
men and women, the majority of whom engage in
some kind of farming, from subsistence to smallscale commercial production, alongside a range of
other income generating activities. Others members
are small business owners, such as vendors, tailors
or hairdressers.
Several programmes and organisations set up
recently indicate a coherent strategy to meet this
aim. The South African Micro-Finance Apex Fund
(SAMAF) was founded in April 2002, a branch of
the Department of Trade and Industry. Its goal is to
‘facilitate the provision of affordable access to
finance by micro, small and survivalist business for
the purpose of growing their own income and asset
base’, which aims to be carried out via a ‘network
of self-sufficient and sustainable micro-finance
institutions’.1 One such ‘financial intermediary’ is
Simunye bank in Makhathini.
SAMAF has promised a loan to Simunye on the
condition that the bank is seen to be in full
operation. This will be determined by whether the
bank has sufficient inflow and outflow to be
deemed an active and functioning financial
institution. Should Simunye collapse, the money
members invested will be returned to them (with the
exception of the initial R100 required for setting up
the bank).
Simunye Bank
Simunye (‘we are one’) was founded by a small
group of cotton farmers working in the Makhathini
area of the Umkhanyakude district of northern
KwaZulu-Natal. After several years of failed
attempts at securing bank loans and government
grants, and with the advice of a government
representative, these farmers finally decided to set
up their own financial institution. The chairperson
of Simunye explained their motivations:
A representative of SAMAF told members during a
meeting in April 2010:
If you invest in the bank monthly, then
you will be in a favourable position to
receive funding. If you are able to
invest monthly, these records will be
kept about you as a further indication
that you are a person who is able to
refund, that you are reliable… The
government is here to help you, but it
won’t help if there is no progress being
witnessed.2
We realised that when we went to
institutions to borrow money, we had
problems. They used to ask for assets:
“Do you have an asset? Do you own a
house?” So that before they give you
money you’ve got to qualify. So it was
so hard for us. That is why we decided
to see if we can make ourselves a
banking institution.
SAMAF advised that they must raise an initial
100,000 rand in order to qualify for the status of an
‘intermediary institution’ that would be eligible for
funds. The group of farmers agreed to raise this
100,000 rand by recruiting new members and
charging a 100 rand joining fee. They advertised the
bank on a local radio station, Maputaland Radio,
and quickly raised the necessary funds, storing these
This statement implied that on the basis of the
bank’s records, a person’s ‘reliability’ and ability to
deal responsibly with money would be judged; and
loans allocated accordingly. During a research
interview, a board member expressed to me this
notion of individual responsibility in terms of
‘commitment’ to the bank: ‘Members must start to
save in order for us to see how many are committed
to the bank. We won’t give money to those who
aren’t committed’. This paper will show that, in
addition
to
personal
factors,
individual
1
2
See the website: www.SAMAF.org.za
2
This is an approximate translation from Zulu.
‘commitment’ to the bank may also have to do with
wider structural conditions to which people are
bound to varying degrees.
Case 1: Mr Nyawo3
Mr Nyawo has been renting a ten hectare plot
inside the Makhathini Irrigation Scheme since the
early 1990s. Currently, he is only farming six of
these ten hectares because he lacks capital to plant
the others. He also needs to replant the sugarcane
he is growing because it is old and poor quality.
The revenue he receives from selling his sugar cane
to a nearby factory is depleted by ongoing debt
repayments. He complained, therefore, that he is
unable to be fully productive and to make progress.
He has so far invested 50 rand in Simunye in
addition to the initial 100 rand joining fee, and
intends to continue investing each month. He
explains: ‘I hope to invest in the bank every month,
because I want to see my involvement pay off, to see
whether it will provide. I won’t leave it half way as
others have done… because this is our final option
for obtaining credit.’
From conversations with individual members, it
became apparent that a person’s intention to invest
money in the bank depended upon two factors. The
first was the perceived degree of risk entailed in
investing in the bank. This had to do with the
stability or vulnerability of individual livelihoods.
The second factor was the expectations, positive or
negative, about Simunye Bank itself. While I deal
with these separately for now, it will become
apparent that they are interdependent.
Risk
A SAMAF newsletter of April 2010 (Vol. 6)
celebrates the ‘success story’ of one beneficiary.
With the financial assistance of a SAMAF funded
financial intermediary,
Mrs Mushope
of
Thohoyandou transformed her struggling efforts to
generate income from making Venda traditional
clothes into a thriving business employing 4 people.
Subsequently, she was able to extend her house and
to send her children to tertiary education. Mrs
Mushope represents the model ‘entrepreneur’ –
what SAMAF literature refers to as the ‘enterprising
poor’ – by earning a living from a single, successful
business and investing in the future security and
happiness of her immediate, nuclear family.
Case 2: Jabulile
Jabulile is doing a sewing course with the intention
of starting a business after she completes it in
December 2010. She is using the child grants she
receives for her three children to cover her current
expenditure and to buy the materials she needs for
the course. She believes her business can be
successful because in the area where she lives, there
is no-one else with her skills. She will fund the startup of her business partly by selling the clothes that
she has made during the sewing course. In addition,
she’ll need to raise or borrow further capital, of
which Simunye is one possible source. She has not
re-invested in Simunye after the joining fee, because
she is spending her money on the materials for the
course, and it is her priority to finish this first,
before thinking of the next step. Her approach to
Simunye is rather ambivalent, for while she hopes it
will succeed, she is not relying on it.
What this paper will show in relation to Simunye
Bank is that while a minority of members seem to
conform quite closely to this model, others diverge
considerably, both because they make use of
multiple sources of income rather than aspiring
towards a single business idea, and because they are
involved in an extensive network of social
relationships that influence financial income and
spending in a manner obfuscated by the nuclear
household model suggested in Mrs Mushope’s
account. I begin, however, with two examples that
do share similarities with Mrs Mushope’s account
(see Case 1 & Case 2).
Both Mr Nyawo and Jabulile encapsulate the
‘entrepreneur’ model and, like Mrs Mushope, seem
to have the qualities that fit SAMAF’s notion of ‘the
enterprising poor’. They are both working towards
fulfilling a particular business ideal, and have the
skills and the will – if not the capital – to achieve it.
3
I use pseudonyms to maintain the confidentiality of the
data.
3
Like Mrs Mushope, prior to her borrowing the loan,
the only serious obstacle they face is a lack of
credit. In the case of Mr Nyawo, his previous
experiences of indebtedness have spurred his hope
in Simunye, which he sees as the ‘final option’.
and regular income source such as a government
grant. For her, the bank fits into this set of strategies
as one of several possibilities.
Her mention of the closure of the ginnery deserves
brief explanation due to its impact on the unequal
access to resources of farmers inside and outside the
irrigation scheme. Where dry-land farmers were
often compelled to continue producing cotton – due
to cotton’s resilience to low rainfall – despite the
increased costs incurred by the closure of the local
ginnery, farmers within the scheme unanimously
shifted to other types of crop production. Access to
irrigated land, therefore, is a key factor in
influencing the degree of vulnerability experienced
by farmers and the choices available to them.
For others, the picture is complicated by the fact
that income is obtained from a variety of sources, as
in the following example.
Case 3: Mrs Dlamini
Mrs Dlamini has been a cotton farmer in
Makhathini since 1994. About three years ago, the
cotton factory in Makhathini that had previously
processed much of the cotton produced in the area
was closed. Mrs Dlamini stopped farming because
of the additional costs of transporting cotton for
processing elsewhere. While describing herself as a
cotton farmer, Mrs Dlamini currently earns most of
her income from making and selling traditional
straw mats called amacansi. Her son, who has a
temporary job in Johannesburg, sometimes sends
money and she also borrows small amounts from
mashonisas (local money-lenders) when necessary.
Until about three years ago, she was receiving 500
rand per month from the government for homebased care work. Since payments for this work
ceased, she has continued this work voluntarily. She
explains that cotton farmers are now in negotiation
with the government to reopen the cotton ginnery in
Makhathini, in which case she will continue
farming.
She explained why people needed Simunye. It is
impossible to get a loan from normal banks if you
do not have a job, she explained, because they ask
to see your pay slip: ‘Even if I tell them I am selling
these amacansi they do not believe me’. She hopes
to start investing in Simunye from the money she
makes from selling amacansi, but at the moment,
she explains, she doesn’t have enough money to
spare. Ideally, she hopes to continue all these
activities, but in a way that is more financially
fruitful.
Case 4: Mrs Gumede
Mrs Gumede has a 3 hectare plot inside the
Makhathini Scheme that her niece lent to her at no
cost. She is planting beans on two hectares and
maize on the third. She also receives a pension from
the government every month. She explained that
she joined Simunye because she needs a loan to buy
new irrigation facilities. She also wants to buy seeds
to diversify her crops. The fact that her niece who
lent her the land is also on the board of Simunye
has meant that she feels able to trust it, and feels
hopeful that it will succeed. She recently invested
R50 in the bank from her pension money, and says
she will continue to do so each month so that she
will qualify for a loan.
This example demonstrates the role of a stable
income in the form of a government grant and the
potential for personal relations to act as a kind of
economic resource (Seekings & Nattrass 2005). It
also supports the observation that access to land
inside the Irrigation Scheme gives farmers a
considerable advantage over dry-land farmers. Of
the 13 members interviewed who had reinvested in
the bank, 10 were farmers working within the
scheme. None were dry-land farmers. The
advantage experienced by farmers working within
the scheme, therefore, is emerging from the
investment patterns of Simunye bank.
As Mrs Dlamini’s account illustrates, many South
Africans draw upon multiple sources of income in
order to make a living. Mrs Dlamini does not aspire
towards one particular career, but minimizes risk by
engaging in a variety of strategies. This is of key
importance, particularly in the absence of a stable
In addition to the availability of actual resources
such as land is the range of existing or potential
sources of income available to individuals. These
4
resources include a variety of income generating
activities, government grants, as well as
relationships with, for example, family members
that were employed. Thus, financial stability is not
necessarily about having one successful business,
but rather about reducing risk through diverse
pursuits: ‘Risk explains people’s concern to
establish and maintain a rural base, to disperse their
households and to diversify their sources of
livelihood’ (Francis 2000: 52). It may be that
Simunye loans will feed into these multiple
strategies, rather than into a single business.
A final example demonstrates the frustrations felt
by a farmer who is struggling to make a living
farming outside of the scheme (see Case 5).
Mandla’s story highlights the potential challenges
of a performance-based loaning system, which runs
the risk of excluding the poorest members.
Case 5: Mandla
Mandla began farming a year ago, because he was
unable to find any other kind of job. He managed to
acquire the land by collaborating with several
others who were in a similar situation. They all
share the same area of land, each with a separate
plots. Mandla sells his produce locally at a roadside
or by going from house to house. He has funded his
farming by borrowing from a mashonisa which
charges high rates of interest (40 rand a month for
every 100 rand borrowed). As a result it has been
difficult to get any returns from farming yet. He
describes his farming as only just surviving
financially, and he sometimes has to ask his
neighbours for seeds when he cannot afford them.
He supplements his income by collecting old iron
and other pieces of metal and takes them to the
scrap yard, where he is paid for each piece
according to its weight. Mandla joined Simunye
because he wanted to receive a loan in order to buy
good quality seeds – ‘professional seeds’ as he
called them – that would prevent crops from rotting
or being eaten by insects.4 When we spoke in May,
he had become very disillusioned with the board
members of the bank, accusing them of failing to
take into account his situation. How could he pay
50 rand a month, he complained, when all of his
money had to go to his children, back into farming
or returned to the mashonisa? During a meeting he
accused the board indignantly of leading him to the
false belief that his initial payment of 100 rand
would render him eligible for a loan. He later
raised his suspicions about the SAMAF
representative: ‘He’s only helping the bank, by
borrowing money from other banks and people, but
he’s not helping the people who started it.’
Mandla’s negative attitude about Simunye is
unrepresentative of members in general. Most were
more hesitant in making any judgements of this
kind and, instead, expressed cautious hope and
sometimes optimism. Yet it does raise an interesting
question about to what extent expectations about the
bank’s success were related to the degree of
personal economic vulnerability.
Expectation
The second factor that influenced a person’s
intention to invest money in Simunye was the
degree of willingness to invest trust in the processes
of standardisation. The lack of choice available to
Mandla has enhanced his suspicion of the bank and
those perceived to control it. Another woman, living
off a pension and subsistence farming, said that she
no longer trusts those in charge of Simunye bank:
‘They are telling us they won’t help anyone who
doesn’t invest this 50 rand each month. If I were
working I could pay it, but I’m not… They are not
trustworthy’. Like for Mandla, the perceived
untrustworthiness of the bank and this respondent’s
own limited resources went hand in hand.
Those responsible for organising and running the
bank engaged in efforts to gain legitimacy for
Simunye, such as calling a meeting to celebrate the
formal receipt of a certificate of accreditation from
SAMAF. In doing this, they were making a claim to
the bank’s formal status. Yet this process of
formalisation was under threat from several angles,
the most obvious being accusations of corruption.
Another source of threat was a view of the bank as
parochial and unsophisticated in relation to the
high-street
commercial
banks.
Complaints
4
Genetically-modified seeds are used widely in the
Makhathini area. They are also partly responsible for the
different standards of produce, and the competitive
disadvantage experienced by very small-scale farmers
such as Mandla.
5
proliferated, for example, about the office being ‘in
the forest’, away from the convenient location of
town. When asked whether they would begin to
invest the R50 a month that had been agreed upon
in the April meeting, many said they would do so
when the bank becomes more established, better
functioning, or more conveniently located in town.
Criticisms that were centred on this and corruption
allegations indicated the fear held by members of
reverting to the messy, uncertain and uncertified
realm of the informal. These tensions have to do
with efforts at stabilising the ‘domains of cognitive
classifications’ that are vital for an institution’s
success (Guyer 2004: 127).
Conclusion
As Case 5 shows, trust in the bank may also have to
do with one’s personal circumstances. Mandla’s
mistrust was enhanced by his sense of being
economically and spatially peripheral. In Case 1,
personal circumstances – this time of an historical
dimension – gave impetus behind Mr Nyawo’s
support of Simunye. His story locates Simunye as
the most recent intervention in a long trajectory of
cycles of loaning and indebtedness that has
characterised the institutional landscape of
Makhathini. Unlike for Jabulile (Case 2), whose
early career situation gives her a feeling of a wide
array of possibilities, Mr Nyawo invests –
financially and emotionally – in Simunye because
he believes it will be his last opportunity to access
much needed credit.
Second, despite the individualising discourses
evident in some rhetoric around the idea of
‘entrepreneurship’, wide structural and historical
factors play a role in determining the likelihood of
individuals to invest in Simunye. The most apparent
of these is the dynamics of farming in Makhathini,
and the advantage that scheme farmers have over
dry-land farmers. This is a distinction which is
evident in the investment patterns of the bank, and
raises the question of in what ways Simunye – when
it begins to deliver loans – will interact with
existing power relations characterising this local
economy.
A number of strands can be drawn together in
conclusion. Firstly, given the multiple strategies in
which people engage in order to survive, the
majority strive towards successfully negotiating a
number of income sources; continuing as many
different pursuits as successfully as possible. This
is, for many, the most effective way of reducing
risk. Farming, in particular, rarely serves
exclusively as a means of livelihood, even for those
working within the scheme. It remains to be seen
how Simunye loans will fit alongside these
strategies.
Third, the variety, flexibility and regularity of an
individual’s income sources – and hence the degree
of financial risk they experience – influences the
way that they conceptualise the bank and formulate
judgements about its possible future success. In the
case of Mandla, it is apparent that a generalised
sense of exclusion both from local resources and
from the formal economy enhances his sense of
mistrust in the bank and the perceived threat of
corrupt benefactors. A feeling of economic
marginalisation is often mirrored by a sense of the
bank as peripheral to the formal sphere. Thus, the
bank’s struggle to gain legitimacy as a formal
institution reflects the vulnerability felt by its
members and vice versa.
Knowledge of this local history may serve as a
warning to new attempts at intervention, particularly
given a national context in which it is increasingly
difficult to make a viable living from small-holder
farming (James 2007). Mrs Dlamini’s story (Case 3)
shows that the effectiveness of a possible Simunye
loan will depend on a wider set of institutional
arrangements and government interventions. It
seems unlikely that, even with credit, Mrs Dlamini
could continue with cotton farming unless the
government reopens the nearby ginnery. For her,
expectations about Simunye are intertwined with a
wider set of institutional developments as well as
personal livelihood strategies.
References
- Day, C., F. Monticelli, P. Barron, R. Haynes, J.
Smith & E. Sello. 2010. District Health Barometer
2008/09. Health Systems Trust.
6
See: http://www.hst.org.za/publications/864.
- Francis, E. 2000. Making a Living: Changing
Livelihoods in Rural Africa. London: Routledge.
- Guyer, J.I. 2004. Marginal Gains: Monetary
Transactions in Atlantic Africa. Chicago: University
of Chicago Press.
- James, D. 2007. Gaining Ground? ‘Rights’ and
‘Property’ in South African Land Reform. Oxon:
Routledge-Cavendish.
- Porteous, D. & E. Hazelhurst. 2004. Banking on
Change: Democratising Finance in South Africa,
1994-2004 and beyond. Cape Town: Double Story.
- Seekings, J. & N. Nattrass. 2005. Class, Race, and
Inequality in South Africa. New Haven and London:
Yale University Press.
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