CHINHOYI UNIVERSITY OF TECHNOLOGY
SCHOOL OF ENTREPRENEURSHIP AND BUSINESS SCIENCES
GRADUATE BUSINESS SCHOOL
MASTER OF SCIENCE IN STRATEGIC MANAGEMENT
THE CONTRIBUTION OF MICROFINANCE TO THE DEVELOPMENT OF
RURAL FARMING IN ZIMBABWE: THE CASE OF DOMBOSHAVA TOMATO
FARMERS
BY
FANUEL TINASHE CHIRIMBA
C14124281D
A DISSERTATION SUBMITTED TO THE SCHOOL OF ENTREPRENEURSHIP
AND BUSINESS SCIENCES IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE MASTER OF SCIENCE IN
STRATEGIC MANAGEMENT
SUPERVISOR: DR GERALD MUNYORO
30 JUNE 2017
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DECLARATION
I Fanuel Tinashe Chirimba, do hereby declare that this dissertation is the result of my own
investigation and research, except to the extent indicated in the acknowledgements, references
and by comments included in the body of the report, and that it has not been submitted in part or
in full for any other degree or to any other university.
Student signature………………………………Date………………………
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DEDICATION
This research is dedicated to GOD Almighty for HIS abundant grace which allowed me to
pursue this final part of my studies. I would want to acknowledge the part played by my late
father, Mr Conrad. K. Chirimba, and my late elder brother Nigel Chirimba who always pushed
me to pursue my dreams and goals in the midst of discouragement. I would also want to mention
the support of my mother, Mrs Winifreda. Tafirenyika, my brothers and sisters for also pushing
me when I felt like giving up. My special acknowledgement goes to my life partner and soul
mate, Ashley Chademana who has been my pillar of strength ever since we met. I would want to
build on this programme and do more researches by the grace of GOD.
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ACKNOWLEDGEMENTS
I am grateful for the everlasting grace of the Lord Almighty for the ability to successfully
undertake the research project over the six months from January to June 2017.I acknowledge my
employer, FBC Holdings (FBC Bank) for encouraging staff to develop themselves academically
by allowing me to attend block release sessions and also availing support towards fees. I am
highly indebted to my supervisor Dr Gerald Munyoro for the guidance, mentorship and sacrifices
to accommodate us each time we wanted his assistance. My supervisor became more like a
brother to the group and we remain indebted for the approach which lessened the hectic work we
had on our hands. I remain humbled by the unity, teamwork and support of our group members
who became like a family led by our supervisor; Austin, Blessing, Moreblessing, Kudakwashe,
Shamiso, Gamuchirai, Hardwork and Robson, thank you guys. I am also indebted to the
respondents from key stakeholders in Domboshava who cooperated when we were collecting
data through completion of questionnaires and the focus group discussions. I would also finally
want to thank Vivia Gay Matanda for assisting with some of the typing and editing, you have
been an all-weather friend and companion. May GOD richly bless you all!!!.
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ABSTRACT
The study aims to evaluate the contribution of microfinance towards the development of rural
farming in Zimbabwe. The rural populace represents a marginalized segment of society as far as
access to financial services is concerned despite the important role that rural farming plays in the
development of the rural and the national economy. Furthermore, the microfinance sector itself
has been growing in terms of the number of players being licenced each year in an economy
facing a lot of headwinds and increased informalisation. Thus, the focus of the study will be the
rural farmers in Domboshava, Goromonzi district of Mashonaland East, who are a major supplier
of vegetables to the Capital of Harare. In addition, the study adopted a phenomenological
research paradigm which was aimed at assessing the contribution of microfinance to the
development of rural farming. A sample size of 500 rural farmers in Domboshava was used to
collect data for the study. The study established that there are immense opportunities for
microfinance in rural farming sector. The study also found out that microfinance plays a
significant role in as far as the modernization and development of the rural farming sector is
concerned. The success of microfinance in the development of rural farming also requires the
support of the RBZ, government and development partner institutions to create an enabling
environment for the sector to thrive.
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TABLE OF CONTENTS
ITEM
PAGE
DECLARATION ......................................................................................................................... i
DEDICATION ............................................................................................................................ ii
ACKNOWLEDGEMENTS ....................................................................................................... iii
ABSTRACT ............................................................................................................................... iv
TABLE OF CONTENTS ............................................................................................................ v
LIST OF TABLES ................................................................................................................... viii
LIST OF FIGURES .................................................................................................................... ix
ABBREVIATIONS ..................................................................................................................... x
CHAPTER ONE ............................................................................................................................. 1
1.0 Introduction ........................................................................................................................... 1
1.1 Background of the study ....................................................................................................... 1
1.2 Domboshava area of Mashonaland East ............................................................................... 3
1.3 Statement of the Problem ...................................................................................................... 4
1.4 Research Objectives .............................................................................................................. 5
1.5 Research Questions ............................................................................................................... 6
1.6 Significance of the Study ...................................................................................................... 6
1.7 Scope of the Research ........................................................................................................... 7
1.8 Limitations of the study......................................................................................................... 8
1.9 Dissertation structure............................................................................................................. 8
CHAPTER TWO .......................................................................................................................... 10
2.0 Introduction ......................................................................................................................... 10
2.1 Background of the study ..................................................................................................... 10
2.2 The History of farming in Zimbabwe ................................................................................. 12
2.3 Major policy changes and programmes affecting the farming sector ................................. 13
2.4 What is Rural Farming ........................................................................................................ 14
2.5 The benefits of rural farming to the Zimbabwean economy ............................................... 15
2.6 The challenges facing rural farmers in Africa ..................................................................... 17
2.7 Agriculture financing ........................................................................................................ 19
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2.8 What is microfinance .......................................................................................................... 21
2.9 Services offered by Microfinance Institutions .................................................................... 23
2.10 Sources of funds for Rural farmers in Zimbabwe ............................................................. 26
2.11 Lending models available to MFIs for financing rural farmers ........................................ 29
2.12 Insurance for Rural farmers............................................................................................... 38
2.13 Empirical Literature Review ............................................................................................. 41
2.14 Research Gap..................................................................................................................... 44
2.15 Chapter Summary.............................................................................................................. 45
CHAPTER THREE ...................................................................................................................... 46
3.0 Introduction ......................................................................................................................... 46
3.1 Research Philosophy ........................................................................................................... 46
3.2 Research Design .................................................................................................................. 47
3.3 Population............................................................................................................................ 48
3.4 Sample ................................................................................................................................. 48
3.5 Sampling Procedure ............................................................................................................ 49
3.5 Research Instruments .......................................................................................................... 49
3.6 Data Collection Procedure .................................................................................................. 51
3.7 Limitations of the study....................................................................................................... 51
3.8 Reliability and Validity ....................................................................................................... 51
3.8 Ethical Consideration .......................................................................................................... 52
3.9 Data Analysis Procedure ..................................................................................................... 52
3.12 Chapter Summary.............................................................................................................. 53
CHAPTER 4 ................................................................................................................................. 54
4.0 Introduction ......................................................................................................................... 54
4.1 Questionnaire response Rate ............................................................................................... 54
4.2 Gender ................................................................................................................................. 55
4.3 Age group of respondents ................................................................................................... 56
4.4 Education ............................................................................................................................. 58
4.5 The Number of Years practising rural farming ................................................................... 59
4.6 Factor Analysis .................................................................................................................... 61
CHAPTER FIVE .......................................................................................................................... 69
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5.0 Introduction ......................................................................................................................... 69
5.1 Summary of Findings .......................................................................................................... 69
5.2 Recommendations ............................................................................................................... 73
5.3 Chapter Summary................................................................................................................ 75
5.4 Further Research ................................................................................................................. 76
REFERENCES .......................................................................................................................... 77
APPENDIX A: Questionnaire ................................................................................................... 85
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LIST OF TABLES
Table
page
Table 4.1
54
Table 4.2
56
Table 4.3
57
Table 4.4
58
Table 4.5
60
Table 4.6
61
Table 4.7
73
viii
LIST OF FIGURES
FIGURE
PAGE
Figure 2.1
21
Figure 4.1
54
Figure 4.2
55
Figure 4.3
57
Figure 4.4
58
Figure 4.5
60
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ABBREVIATIONS
EAFF - Eastern Africa Farmers` Federation
FSD – Financial Sector
IFC – International Finance Corporation
IFAD – International Fund for Agricultural Development
MFSB – Monthly Financial Sector Bulletin
RBZ – Reserve Bank of Zimbabwe
SACCO – Savings And Credit Cooperatives
UN – United Nations
ZAMFI – Zimbabwe Association of Microfinance Institutions
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CHAPTER ONE
1.0 Introduction
The chapter outlines the importance of the microfinance sector on the development of rural
farming in Zimbabwe`s Mashonaland East region with a focus on rural farmers of Domboshava,
under Goromonzi district of Mashonaland East and is among the main horticulture production
areas of Mashonaland East province along with Uzumba Maramba Pfungwe (UMP), Murewa
and Mutoko. Tomato and vegetable production is a key activity amongst the rural farmers in
addition to maize farming at subsistence level in Domboshava. This chapter sets out the
background of the research, the research problem, objectives of the research, the research
justification as well as the scope of the research.
1.1Background of the study
Agriculture is a key sector of the global economy, more so to the less developed world,
contributing to food security and poverty reduction according to the World Bank report of 2014.
In Africa, countries such as Zambia, Malawi, Mozambique and Zimbabwe, are agro-based
economies with a large rural populace involved in small scale farming. This report further states
that farming is fundamental to sub-Saharan Africa's development and is key to the region`s
accomplishment of the Millennium Development Goals (MDGs) which specifically focus on the
reduction of poverty. Agriculture represents 33% of the total national output (GDP) and 75% of
work in Sub-Saharan Africa (World Bank, 2014). The significance of the agriculture sector to the
sub-Saharan Africa region is supported by Hanson (2008) who explains that sub-Saharan Africa
can potentially be turned into a farming powerhouse as currently harvests for most of the region
constitutes a very small percentage of crop yields from the rest of the world. The African
continent thus needs to build its agribusiness efficiency, and should consider adopting a scope of
alternatives—from high produce seeds; increasingly use organic fertilisers and compost to
enhanced infrastructure—to guide a farming upgrade in Africa as a whole (Agriprofocus
Zambia, 2014).
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Smallholder farmers have inherent potential to play an extremely important role in Africa and
Zimbabwe`s development as explained by Rukuni (2012) who points out that these rural and
smallholder farmers are the future backbone of the Zimbabwean economy and can potentially
lead sustainable and comprehensive economic development due to their proficiency and value
benefits. The potential benefits of the development of rural and small-scale farming particularly
in horticulture are outlined by Chigusiwa et al (2013) who state that small scale horticultural
activities are a source of livelihood for most rural families in Zimbabwe where the bulk of the
population, constituting more than 65%, resides. They however potentially lack capital needed to
engage in commercially-oriented agricultural production. This is what makes small scale
agriculture one of the most pivotal activities in the fight against poverty and the very high
unemployment levels currently being experienced in Zimbabwe which according to Munyoro et
al (2017) in their study on small scale and artisanal miners is estimated at levels around 90%.
Thus, the goal is the promotion of a vibrant rural and small scale agriculture sector which
requires investment in infrastructure , research and development, a solid rural financial
framework and security of tenure as fundamental essentials ( Rukuni and Jensen , 2003 ).The
greatest challenge facing rural and smallholder farmers globally and in Africa is assumed to be
limited access to finance (Rweyemanu et al , 2012).They argue that the absence of finance,
market access, and farm inputs` shortages negatively affect agriculture production amongst rural
and small scale farmers across all crop types. The adverse impact of limited access to finance is
summed up by Mutambanadzo et al (2013) who point out that the absence of credit extremely
disrupts agriculture development. In addition, Hanson (2008) states that without credit, the
majority of small-scale farmers fail to increase productivity through their failure to adopt the
most advanced technology to improve yields. Morvant Roux (2008) concurs and additionally
points out that enhanced access to finance for rural and small scale farmers is decisive, yet the
majority of peasants in developing countries remain excluded from the banking system with
bank penetration rates in agricultural regions of Africa and South Asia being barely over 5-6%
(Bachelier, 2007).
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This study therefore seeks to understand the challenges communal farmers face with a greater
focus on the assumed limited access to financial services and the contribution that financial
service providers particularly MFIs can play in the development of the sector. The study uses
rural farmers in the Domboshava area of Goromonzi, Mashonaland East as a case study. The
study further evaluates the significance of the microfinance sector in potentially alleviating the
financial challenges facing the small scale farming sector in Zimbabwe as a whole. It also
explores potential benefits of alliances and linkages between key stakeholders who include the
local authorities, microfinance sector, central government and non-governmental organisations
(NGOs) who are active in rural upliftment and poverty alleviation programmes.
1.2 Domboshava area of Mashonaland East
Domboshava falls under the jurisdiction of Goromonzi district and is located in an area which is
mainly covered by granite rock with the name itself “Dombo-Shava” meaning brown rock
(Hungwe, 2014). This peri-urban area which lies about 27 km North East of the capital Harare
under Chief Chinamora is rocky and more renowned for its National monuments with the caves
and large granite rock as the main tourist attraction. According to Matondi (2013), Goromonzi
district lies in agro-ecological Natural Region II (a) and II (b) which is characterized by high
rainfall patterns ranging from 1000-1200mm per annum. However, there is a high variability
within different parts of the district and within different years. The climate varies in altitude from
between 1300m and 1550m above sea level. The district has a temperature range of 21 – 32
degrees Celsius, with an average temperature of 25 degrees Celsius per annum. The availability
of water throughout the year and the good temperatures are ideal for growing tomatoes, a major
horticultural crop grown by almost every household while other crops like butternut, onion,
carrot, leafy vegetables, cucumber, okra, gem squash and garlic are grown to a much lesser
extent. The area is dominated by rocky terrain which involves mountains, streams and rivers The
farmers grow vegetables and tomatoes in gardens which are mainly located along main water
sources such as rivers and small streams. The farmers rely on these rivers and dams to eke out a
living.
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The rural farmers of Domboshava are well-known in Harare as the providers of vegetables
mainly tomatoes at the Showground and Mbare Musika people`s market. There is however a
greater need for a shift in the mentality and practice for these rural farmers as suggested by
Miller (2011) who points out that it is no longer sufficient or feasible for rural producers to
cultivate and market as did their forefathers. The share of produce being marketed through local,
open markets is rapidly diminishing, and consumers, along with the increasing pace of
urbanization and changing lifestyles, are much more demanding. These rural farmers therefore
need to be more competitive in the future which entails having profitable and sustainable
operations through the use of improved seeds and technologies to meet production requirements
(Meyer,2015).Additionally, they must also increasingly deal with negotiating contracts and
upholding commitments for buying and selling to specific market segments (Miller,2013).The
key question thus becomes the ability of the rural farmers to meet the market demand of having
the right products, in sufficient quantity at the right time and place, and endeavoring to meet the
increasingly stringent quality and safety standards for agricultural products (Meyer,2015).
1.3 Statement of the Problem
De Arghion and Murdoch (2005) explain that microfinance is a movement that goes against the
dictates of economic theory which has provided ample cautions against lending to low-income
households that lack collateral to secure their loans. In addition, Khavul (2010) states that this
emerging phenomenon of microfinance opens up access to capital for individuals previously shut
out from financial services. The direct engagement of microfinance with the poor represents a
new way for financial capital to potentially stimulate economic growth in developing countries.
In addition, Ledgerwood (2013) argues that people in developing countries do not have access to
the financial services and education that would help them to be productive, engaging citizens in
their economies. Microfinance thus represents an avenue to enhance economic development
through empowering marginalised communities to engage in productive economic activities for
the greater good of the local communities and the nation. This is a view that is supported by
Morvant Roux (2008) who states that in developing countries, microfinance has the potential to
play the key role of modernizing agriculture and improving access to financial services for
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previously unbanked communities given its advantage in terms of proximity to the client and its
frequent association with cooperative approaches.
Zimbabwe is currently experiencing very high levels of unemployment which hit the rural
populace the hardest. The rural population itself has several means of surviving in the harsh
economic environment with farming being one of the most practiced activities in areas which
have better access to water, temperatures and the knowledge. There are success stories of
interventions in Asia and Latin America which have enabled rural people to engage in profitable
ventures mostly in farming which have transformed their livelihoods and communities.
Zimbabwe has a fairly developed microfinance sector with the number of institutions being more
in number than mature MFI markets such as Uganda and Tanzania in East Africa (MFSB ,
2017).There is a need to understand the catalytic role that microfinance can play in mitigating
poverty, facilitating women empowerment and enhancing financial inclusion amongst the rural
populace through contributing towards modernisation and development of the rural farmers
engaged in their diverse agricultural activities beyond ssubsistence. The potential of
microfinance through several initiatives to enhance, drive an improvement in communal farmers`
livelihoods and adoption of sustainable farming practices through partnerships with NGOs,
conservationists and environmental activists among others also needs to be evaluated.
1.4 Research Objectives
The principal objective of this study is to investigate the contribution of microfinance to the
development of rural farming in the Domboshava area of Goromonzi district of Mashonaland
East province. This will be supported by the following specific objectives:

To establish the current state of microfinance support to communal farmers in
Domboshava.

To identify the challenges faced by communal farmers in Domboshava in accessing
finance.
5

To assess the capacity and readiness of microfinance institutions to serve communal
farmers in Domboshava.

To evaluate how strategic alliances and technology can be leveraged upon to develop
communal farming in Domboshava.
1.5 Research Questions
The study is guided by the following questions:

To what extent are microfinance institutions supporting communal farmers in
Domboshava?

What are the challenges faced by communal farmers in Domboshava in accessing
finance?

How capacitated are microfinance institutions to serve communal farmers in
Domboshava?

How can strategic alliances and technology be leveraged upon to improve communal
farming in Domboshava?
1.6 Significance of the Study
The agricultural sector is a bedrock of the Zimbabwean economy with the key benefits of a
successful agricultural sector being inter alia poverty alleviation; food security; employment
generation and enhancement of national income (FAO, 2017). In Zimbabwe, rural and small
scale agriculture is of strategic importance as it promotes grassroots economic growth and
sustainable development (Rukuni and Jensen, 2003). The findings of this study will shed further
light on how smallholder farmers can benefit from microfinance; boost productivity and enhance
profitability from their rural farming operations. The study will also seek to further understand
the micro financing gap that appears to exist in the market thereby benefiting the MFI sector and
sector body ZAMFI. These findings will also be useful for government policy making in line
6
with its efforts to promote agriculture especially supporting rural farmers. The fact that the
elderly, women and the unemployed youths constitute a large proportion of rural dwellers will
also inform intervention strategies for the line Ministries whose responsibilities are to
superintend over the affairs of these vulnerable groups notably Ministry of Women and Gender
Affairs; Ministry of Youth, Indigenization and economic empowerment, as well as the Ministry
of Labour and Social Welfare.
The micro finance sector will benefit from the findings which will inform them in greater detail
about the largely untapped part of the market which these institutions can explore as they seek
growth and enhanced profitability through appropriately designed products and strategies to
curtail the risks involved. The study will also benefit the development partners (NGOs, specialist
funders with an interest in agriculture development, empowerment of rural farmers and poverty
eradication) who will also get a different insight into the sector, as well as possible areas of
cooperation/alliances with other key stakeholders. The academic community will benefit from
the findings of this study which will also add to the existing body of knowledge on microfinance
and rural agriculture financing that can also serve as a foundation for future research.
1.7 Scope of the Research
The study focused on the communal farming area of Domboshava in Goromonzi district of
Mashonaland East province of Zimbabwe, which is well known for horticulture production of
vegetables mostly tomatoes (Bindu and Chigusiwa, 2013). According to Chandiposha et al
(2014), tomatoes are among the most important vegetables grown by rural farmers in Zimbabwe
with the production and marketing of the crop providing employment and a source of income for
a greater percentage of the rural Zimbabwean population. This study focuses on these rural
farmers who are largely marginalized as far as access to financial services is concerned. The
study will engage agriculture extension officials from the Ministry of Agriculture, Irrigation and
Mechanization as well as the local leadership. The study covers the period 2009 to 2016
following the adoption of the multicurrency regime to allow comparisons to be made. The study
7
will also consider microfinance institutions with a significant presence in Goromonzi district and
Domboshava in particular.
1.8 Limitations of the study
1.) The researcher conducted the study with limited financial resources to cover the whole area in
the district to enhance the coverage of the study as well as collection of primary data. The
researcher however also relied on data provided by Agricultural extension officers under the
Ministry of Agriculture as well as secondary data from government department publications.
2.) The limited time available for the research also limited the availability of more reliable data
in view of the seasonal nature of farming. The engagement of extension officers however
provides a reliable overview.
1.9 Dissertation structure
The study will be broken down into five chapters namely: introduction; literature review;
research methodology; data presentation, analysis and discussion; and conclusions and
recommendations.
Chapter 1: Introduction
This part outlines the background to research, statement of the problem, research objectives and
questions, significance of the study and scope of the study.
Chapter 2: Literature review
The section reviews of literature related to the subject area with emphasis on microfinance and
smallholder farmers. The chapter will also review empirical evidence on the subject area with the
aim of identifying literature gap.
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Chapter 3: Research methodology
The chapter discusses the outline of how the research will be carried out. It highlights research
philosophy, and research design adopted in the study. Further, it outlines and discusses the
population, sampling, data collection methods and data analysis procedure as well as issues to do
with validity and reliability.
Chapter 4: Data presentation, discussion and analysis
This chapter presents data obtained in the research. Data analysis is then done with the aid of
various data analysis methods and discussed with reference to previous findings of other authors
on respective issues.
Chapter 5: Conclusions and proposals
The final chapter wraps up the study by giving a summary and conclusions. Recommendations
are given in light of the shortcomings noted in the study. The chapter further gives suggestions
for further research
1.8 Chapter Summary
The chapter gave an introduction to the study on the significance of microfinance on the
development of agriculture in Zimbabwe. The next chapter provides a critical analysis of
previous works by other scholars with the aim of addressing the earlier stated research
objectives.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
The chapter is a review of the literature on the contribution of microfinance to the development
of rural farming with a focus on the horticulture sub-sector of agriculture. The chapter focuses on
the various issues affecting rural farmers, microfinance and its potential role through reviewing
existing literature as guided by the research problem and respective research questions. The
chapter also discusses the concept of microfinance and gives an overview of the financing of the
agricultural sector in Zimbabwe.
2.1 Background of the study
The agricultural sector is the most important sector in Zimbabwe as well as many nations in subSaharan Africa according to FAO (2017).This sector is a dominant source of livelihood for the
majority of the population who reside in the rural areas, with an estimated 60 - 70 percent of the
economically active population engaged in agriculture, whilst the agriculture sector itself
accounts for more than 15 percent of gross domestic product (GDP) in most countries in Africa
(Chirwa and Muhome – Matita , 2013 ; Gonzalez , 2014; Chigusiwa et al, 2013 ; Miller,2013 ).
Matondi and Chikulo (2012) additionally point out that although agriculture has long been
recognised as a key economic driver in Zimbabwe, being a source of livelihood and employment
for close to 70 percent of the country’s population particularly the rural poor, it remains beset
with a number of challenges that must be addressed to ensure the sector’s meaningful
contribution to the economy. In the last decade, the country has transitioned from being
recognised as the bread basket of the southern African region, to a bread bowl as reported by the
Zimbabwe Independent of 20 February 2015. The fast track land reform programme, aimed at
redressing land imbalances which were skewed towards the almost 400 white commercial
10
farmers has been blamed for persistent food deficits in the country according to FAO (2017).
This view resonates with the popular sentiment that the year 2000 ranks in political and
agriculture folklore as the year in which the fast-track land reform programme pressed the start
button of a downturn in the fortunes of the key agriculture sector and the economy at large
according to the FAO report.
The rural farming sector which is the focus of this study is viewed as vitally important in terms
of poverty alleviation and the continued growth of the agricultural sector as a whole. The rural
farming sector has also been affected by the very high unemployment levels estimated at levels
above 90% according to Munyoro et al (2017) in their study on artisanal and small-scale mining.
The rural farming sector is a vital supplier of fresh produce to the local markets as well as the
major markets such as the people`s market of Mbare Musika in the capital Harare. This
production of vegetables by the rural farming community has become a source of livelihood and
is one form of the survival entrepreneurial activities to have emerged in the harsh economic
environment of Zimbabwe alongside artisanal and small scale mining as argued by Munyoro et
al (2017). In addition, Matondi and Chikulo (2012) point out that besides forming the majority of
the rural population, rural farming households also constitute the economic, social and cultural
bulwark of the African countryside. In their view, African governments face a kaleidoscope of
pressures regarding their rural farming populations, most of whom have moved from being
subsistence to commercial producers of a number of key agricultural commodities. An important
observation that they make is that although the greater part of the fast track land reform
programme (FTLRP) has since been completed in Zimbabwe, it remains to be seen if the
increase in smallholder farmers will translate into increased agricultural productivity. A major
drawback for attaining the full potential for rural farmers has been inadequate access to finance
(EAFF,2013).
Miller (2013) therefore argues that many governments and development agencies have
specifically included increased access to agricultural finance for their rural populations in their
national development strategies as part of efforts to enhance the contribution of rural farmers
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towards their economic developmental goals. This has also been evident in Zimbabwe with the
RBZ (2016) stressing the importance of the rural farming sector from a policy perspective when
it states that Zimbabwe is an agro-based economy where the agriculture sector contributed 12%
of the country’s GDP in 2014 and more than 60% of inputs to the manufacturing sector. The
report further points out that the low levels of access to financial services particularly by rural
and smallholder farmers is a major bottleneck to targeted agricultural performance in Zimbabwe.
Additionally, the IFC (2012) argues that there are immense opportunities in financing agriculture
in Africa with attractive growth prospects. There is an increasing demand for natural foods and
commodities in general across the world and Africa with its land, good weather and abundant
labour can play a key role in fulfilling this demand. There is also an increasing emergence and
development of profitable agricultural value chains and small and medium sized agricultural
enterprises can be more productive and efficient if markets for their goods function properly
(Meyer, 2015).
2.2 The History of farming in Zimbabwe
The FAO (1999) report gives an overview of the history of farming in Zimbabwe when it
explains that Zimbabwe has a total land area of over 39 million hectares with 33.3 million
hectares being used for agricultural purposes. The remaining 6 million hectares have been
reserved for national parks and wildlife, and for urban settlements. The distinguishing
characteristic of Zimbabwean agriculture has been its dualism, i.e. the existence of two major
subgroups based on the size of landholdings. The larger group is unsophisticated and comprises
about 7.1 million smallholder and rural farmers occupying a total of 21 million hectares. In
general, communal and smallholder farmers occupy areas of lower natural potential for
agriculture in terms of rainfall, soils and water for irrigation. In addition, these areas are of lower
economic potential because of the distances from markets and poor communication and social
infrastructure. The report further states that before the Land reform programme, the other group
comprised about 4 000 large-scale farmers with very sophisticated production systems and
occupied about 11 million hectares of land, primarily located in the areas of high agricultural and
economic potential.
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2.3 Major policy changes and programmes affecting the farming sector
Tekere and Kuda (1999) explain that three main policy frameworks have affected the
performance of agriculture in Zimbabwe in the past two decades. First, there was the “growth
with equity programme” pursued by the government between 1980 and 1990 which sought to
redress the colonial legacy in favour of rural farmers. Second, there was the “structural
adjustment market-oriented reforms”, the Economic Structural Adjustment Program (ESAP),
adopted in 1991. Finally, with more profound implications for the sector, there was the
programme of “fast-track land resettlement and redistribution” started in 2000.The two main
features of agriculture at independence in 1980 were the duality of agriculture and the high
degree of government intervention in the sector intended to stimulate production. After
independence in 1980, agricultural policy was directed to reducing inequality and to supporting
smallholders and rural farmers. The supply response by smallholders was dramatic, and they
became the largest suppliers of maize and cotton to formal markets within the first five years
(1980-1985) of independence. The focus on stimulating and supporting smallholder agriculture
was also seen as a means towards achieving food self-sufficiency and food security among rural
farmers. At the same time, government instituted a land resettlement programme and charged all
key public sector institutions to give a high priority to smallholder agriculture. The main problem
that has faced government has been that of generating substantially greater farm output from
smallholder farming (communal, resettlement and small-scale farming) to meet direct household
consumption needs and to generate greater net farm cash incomes. To consolidate these reforms,
in 1995, government adopted a comprehensive agricultural policy for the period 1995-2020.
Mangoyana and Meda (2001) argue that market liberalization reforms led to a tremendous
increase in agricultural production costs particularly for stock feeds, fertilizer, transport costs and
agricultural equipment compared with prices of agricultural produce. They further state that
interest rates swelled and constitute one of the largest components of production costs for
commercial farmers. The hoped-for diversification resulting from market reforms has not
happened because of limited appropriate technology options in the various farming regions, lack
13
of access to capital, lack of markets, absence of any farmer advisory services and the disruptive
nature of land invasions.
2.4 What is Rural Farming
According to Sumelius (2011), rural farming is a major component of smallholder agriculture
which is carried out by rural producers who rely mainly on family labour and depend on income
from agriculture for their sustenance. In addition, FAO (2008) says that rural farming is
agricultural activity carried out by marginal and sub-marginal farm households on small pieces
of land of less than two hectares in size. The FAO (2000) report explains that most poor people
live in rural areas of developing countries and are dependent on agriculture for their livelihood
and hence the key to eradicating current suffering must lie in the creation of dynamic rural
communities founded upon prosperous farming. It further states that the challenge for
governments, civil society organizations and the private sector is to provide the institutional
environment and incentives that will enable farm households themselves to achieve agricultural
growth and poverty reduction. The country of Zimbabwe is divided into five ecological or
natural farming regions with the Ministry of Agriculture, Mechanisation and Irrigation
development stating that almost 80% of the rural population live in Natural Regions III, IV and
V where rainfall is erratic and unreliable, making dry land cultivation a risky venture and the
success rate of rain fed agriculture very low. The vagaries of the weather to rural farmers is also
confirmed by Proctor et al (2000) who state that rural households in ecological regions V and VI
hardly produce above their subsistence levels owing to poor soil and low rainfall patterns. In this
study, rural farming is defined as agricultural activity carried out on small plots of land with little
mechanisation and limited adoption of modern technology with labour primarily being provided
by family members. The skills and knowledge are passed from generation to generation which
however according to Miller (2013) needs to be transformed if rural farmers are to reach their
full potential.
14
2.5 The benefits of rural farming to the Zimbabwean economy
Rural farmers play a very important role as explained by Rukuni (2012) who says that rural and
smallholder farmers are the future backbone of the Zimbabwean economy as they possess the
potential to lead sustainable and comprehensive economic development due to their proficiency
and value benefits. In addition, commenting on the benefits of the development of rural farming
particularly horticulture, Chigusiwa et al (2013) point out that small scale horticultural activities
are a source of livelihood for most rural families in Zimbabwe with the bulk of the population,
constituting more than 65% residing in the rural areas, and lacking capital to engage in
commercial-oriented agricultural production. This is what potentially makes rural and small scale
agriculture one of the most pivotal activities in the fight against poverty and the very high
unemployment levels which according to Munyoro et al (2017) is estimated at levels around
90%. The FAO (2017) report affirms that agriculture constitutes the most important source of
rural livelihoods with Zimbabwe’s agricultural economy being structured around at least 15
commodities which include the key food and cash crops (maize, wheat, small grains i.e.
sorghum, finger millet and pearl millet); tobacco, cotton, sugar, horticulture (food and non-food);
and groundnuts. It is against this background that an investment in rural agriculture should thus
be seen as an investment in the entire economy since rural agriculture promotes sustainable
development and the inclusion of rural communities especially the poorest in economic activities
which should be encouraged (Chigusiwa et al, 2013). The Opportunity (2016) report estimates
that rural farmers in Africa are operating at just 40% of their capacity. The following constitute
the more specific benefits of rural farming:

Source of employment
According to the EAFF (2013), rural agriculture is a source of livelihood to the majority of the
population especially women (who form a majority in rural agriculture), the elderly and the
youth who normally possess low levels of education. The opportunity cost of having this form of
employment can therefore not be underestimated. In addition, Gonzalez (2014) argues that
agriculture remains the largest employment sector in most developing countries, and rural and
smallholder farmers in these countries provide a large portion of the employment numbers.
15

Scalability and power of smallholder farmers’ aggregate output
Rural and smallholder farmers are the major providers of food and non-food products around the
world, making them the key purveyor of food security. In China alone, it is reported that there
are at least 250 million rural farmers holding only 10% of the total amount of agricultural land
that is globally available, but produce 20% of all food in the world. (EAFF, 2013). In addition,
coffee is the second most traded commodity after crude oil with the global coffee industry
thought to be worth over USD18 billion but of note about coffee and its production is that 70%
of the world’s coffee is grown by around 25 million rural and smallholder farmers in developing
countries who are usually subsistence farmers who grow a small amount of coffee as a cash crop
(Black Gold Foundation, 2011).In Zimbabwe particularly the vegetable sub-sector of rural
farming , the local market is dominated by rural farmers with Njaya (2014) arguing that
Mashonaland East Province has the largest market share of vegetable revenues with Murehwa
and Mutoko districts being among the main horticultural producing areas in the province

Being part of the market economy/markets for good
Rural farmers contribute considerably to economic growth, directly through production of goods
for the local market, and indirectly through constituting a large part of the internal market. This
is especially so in developing countries (Mazoyer and Roudart, 2006). This therefore entails that
when the rural farmers’ incomes grow, there will be a boost to the aggregate demand for goods
and services produced in the local industries.

Efficiency in food production
It has also been established by FAO (1999) that rural farmers can have significant advantages
over large-scale farmers in terms of efficiency in producing staple foods. The report notes that
‘there is a rich empirical literature suggesting that output per unit area in small farms is higher
compared to larger farms’. This is attributed to the greater efficiency in the use of inputs,
especially of family labour. Family labour offers the flexibility that is denied to larger farms that
depend on wage labour. The FAO report also highlights that rural farming production is more
suitable for labour-intensive produce, such as vegetables, that require transplanting and multiple
harvests by hand (EAFF, 2013).
16
2.6 The challenges facing rural farmers in Africa
The challenges facing rural farmers in Africa can be summarised as follows according to sector
reports from IFAD (2013); Opportunity International (2016) and EAFF (2013)

There is a general lack and inadequacy of key infrastructure such as roads, dams,
irrigation systems which are key enablers to the development of successful agriculture
systems.

There is an observed low human capital (skills) amongst most rural and small scale
farmers which results in the low adoption of current technologies crucial for more
efficient farming systems.

There is low and limited access to technical support and extension services which are
provided by government and NGO players in more successful systems.

There is limited access to markets as well as limited information on pricing of produce.

Lack of access to agricultural finance
This study is mainly focused on the last challenge/factor as identified by the sector reports which
argue that the limited access to agricultural finance by the rural farming community who
themselves also fall under the vulnerable groups of society is a key hindrance to attaining
optimal production levels by rural farmers (Opportunity, 2016). The EAFF (2013) report further
argues that the fact that rural and smallholder farmers are underfunded/under-capitalized is
common knowledge and may not warrant further research. Several scholars generally agree with
this argument that limited access to agricultural finance to fund the growth of rural farming in
Africa is one of the greatest challenges for stakeholders with an interest in both financial and
agricultural sector development on the continent (Coates and Hofmeister, 2013; Meyer, 2015;
Miller, 2013)
The IFAD (2013) delves deeper into the issues surrounding limited financing of the rural farmers
when it points out that rural farmers are often perceived by financial institutions as too risky and
often fall into the category of ‘the missing middle’, which is unable to obtain financing from
17
both microfinance institutions and commercial banks. The report states that they are either
simply too far away or too expensive, and many times, formal financial services are not aligned
with the business strategies of the rural farmers. In addition, the EAFF (2013) argues that
enhanced access to financial services by rural farmers can potentially play a strong and pervasive
role that affects not just the farmer but the entire economy and society in general as credit is
assumed to make rural farmers more productive and efficient. The report further be cries the fact
that in spite of the assumed tremendous contribution of rural and smallholder farmers to the
economy, the commitment of African governments towards addressing the needs of rural farmers
is very low with pockets of policy and funding support across countries which is however not
commensurate with the contribution and the potential benefits from supporting rural farmers.
Furthermore, Opportunity (2016) says that overally crop production remains low in Africa
because the majority of food producers are rural farmers who lack access to financial services
which are a catalyst for all the other ingredients for a robust and successful rural farming sector.
The increased access to finance should facilitate better access to farming inputs (including
improved seeds and fertilizers); agricultural training and fair crop markets to optimize their
productivity and increase their earnings. In support, Miller (2013) argues that the low crop yields
being experienced by rural farmers across all crops keep farmers’ incomes low and small, a
development which prevents them from acquiring requisite collateral through asset
accumulation. It is collateral which is generally required by mainstream financial institutions to
qualify for a loan. It is generally argued that increased access to funding enhances the ability by
farmers to purchase inputs and transition from subsistence farming to economically and
commercially active farming (Gonzalez , 2014) .The sad development is that without access to
proper agricultural finance , many of the cash-starved rural farmers are unable to adopt the most
productivity-enhancing practices and as a result, they continue to engage in low-return,
subsistence-oriented production practices that lack diversification and undermine rural livelihood
strategies (Rweyemanu et al., 2012).Thus, there is an assumption that increased access to
appropriately structured and affordable finance is one of the key factors that can contribute to
the development of agriculture in African countries (EAFF , 2013).
18
2.7 Agriculture financing
Increased access to credit allows rural farmers to invest in key agricultural inputs such as labor,
land area cultivated, equipment, improved variety seeds, or fertilizers which they might
otherwise be unable to afford (Owuor, 2009 ; Diagne, 2002).The resultant increased investment
in inputs should lead to increased production in terms of volume and quality which can then be
sold or consumed with the additional income from sales and greater quality food consumption
improving
household well-being (Beaman, et al.(2014); Berhane and Gardebroek (2011),
Ashraf, et al (2009).Agriculture has traditionally been a difficult sector for lenders and investors
in most parts of the world because it is often exposed to high systemic risks — both
environmental risks (such as drought, flood, disease) and market risks (for example, price
volatility, trade policy barriers, transport and logistics challenges),(Coates and Hofmeister ,
2013).
There is therefore a need for financial service providers to recognize the peculiarities of
agriculture financing which Ledgerwood et al (2013) argue that due to the fact that people living
in rural areas who earn their main incomes from agricultural activities generate very different
cash flows to those of traditional “microenterprises.”, financial services targeted at rural farmers
need to suit their cash flows and also consider the production and marketing risks specific to a
given crop. In addition, Miller (2013) argues that rural farmers require access to finance for
financing agriculture-related activities such as the procurement of inputs, production, storage,
processing, and marketing of produce, all of which are not served by a single product. He further
explains that short-term funding is required for working capital purposes whilst medium and
long-term finance is required for investment in key infrastructure
such as irrigation systems,
storage facilities, and machinery. This places agricultural finance at the core of ensuring that the
rural farming sector is capacitated to enhance productivity and profitability of the farmers.
Masiyandima et al (2012) depict the forms of agricultural financing available to rural farmers in
Zimbabwe in Fig.1 below: The figure explains that there are generally three (3) forms of
agriculture financing which encompass rural finance, agriculture finance and microfinance.
Coates and Hofmeister (2013) point out that commercial banks the providers of agriculture
finance are generally absent in rural areas even in developed markets and the gap is largely filled
19
by SACCOs which are member-based financial institutions designed to capture and intermediate
the savings of local communities or organized groups who feel they are underserved by the more
mainstream financial sector. SACCOs are the dominant players in rural finance provision.
SACCOs have generally failed to gain traction in most African states and Zimbabwe included
(Mago, 2013). The other form of finance provider, microfinance is however more common with
the number of players numbering 185 as at 31 December 2016 (RBZ, 2017).
Figure 2.1 – Forms of Agricultural financing
Source: CGAP (2003)
CGAP (2003) explains that microfinance refers to financial services (savings, credit, payment
transfers, insurance) for poor and low-income people. Rural finance on the other hand refers to
financial services offered and used in rural areas by people of all income levels. In addition,
agricultural finance is a sub-set of rural finance which is dedicated to financing agriculturerelated activities such as input supply, production, distribution, wholesaling and marketing. This
study will focus on microfinance as a form of agriculture financing for the rural farming sector.
20
2.8 What is microfinance
Masanga and Jera (2017) explain that microfinance is a term that has developed from
microcredit, a practice that has existed for many centuries (Helms, 2006). According to Churchill
and Frankiewicz (2006), microfinance can be defined as small working capital loans that are
invested in microenterprises or small-scale (micro) income generating activities. Rahaman and
Khan (2007) in addition point out that microfinance is a development approach which mainly
involves the provision of financial services through several types of institutions targeting lowincome clients, popularly known as the “bottom of the pyramid”. Mainstream financial service
providers such as banks require collateral for lending and the proposition of microfinance as
financial services for the poor is that it is intended to target those without collateral (Helms,
2006). There has however been an evolution in microfinance because microfinance today
encompasses the provision of more financial services including deposits, payment services,
money transfers and insurance services (Daley-Harris and Awimbo, 2011).
There has been a shift in the discourse over the years from “microcredit” to “microfinance,”, and
now widespread concern for “financial inclusion” which is directing attention to the broader
“financial ecosystem” and how to make financial markets work better for the poor (Ledgerwood
,2013; Khavul, 2009; Wrenn,2005). This evolution has been driven by an increased awareness
that poor people have many and diverse financial service needs. Microcredit has however
remained the most dominant activity for microfinance institutions (Ottero, 1999). The rising
popularity of microfinance has been its antagonistic approach to conventional economic theory
which has provided ample cautions against lending to low-income households that lack collateral
to secure their loans (de Aghion and Morduch, 2010). The antagonistic movement was initiated
by Professor Muhammad Yunus, who is widely recognized as the visionary of microfinance
which has now become a global and growing industry. This industry has experienced exponential
growth in the number of clients as well as the number and type of providers and products being
offered (Ledgerwood, 2013). Yunus, an economics professor at a Bangladesh university, started
making small loans to local villagers in the 1970s and vowed to one day make profits arguing
that his poor clients would pay back the loans reliably. Muhammad Yunus’ Grameen Bank
model has now been replicated on five continents with microfinance institutions today providing
21
small loans without collateral, collecting deposits, and, increasingly, selling insurance, all to
customers who had been written off by commercial banks as being unprofitable.
The UN (2013) has also thrown its backing behind microfinance which it defines as the
provision of a variety of financial services to poor, low-income people and micro and small
enterprises that lack access to banking and related services, as vital to empowering communities.
The report states that many development experts agree that microfinance, when properly
harnessed and supported, can economically empower individuals and small enterprises and
enable them to contribute to and benefit from economic development. Increased access to
financial services helps people improve their lives and work their way out of poverty, and the
growth of the microfinance industry was central to the social progress achieved in South Asia in
the past four decades (Meyer,2015).However, the degree of success by microfinance institutions
towards financing rural farmers varies across continents with the concept of microfinance itself
being associated with less developing continents of Asia, Latin America and Africa (EAFF,
2013) .The report further points out that whilst micro-finance institutions through innovative
instruments have taken financial services to millions of previously un-bankable clients, they have
so far largely failed to reach poorer rural areas and/or smallholder agricultural producers whose
livelihoods are characterized by seasonal investments, risks, and low returns (Peacock et. al.,
2004).
Furthermore, Morvant-Roux (2008) states that despite the great hopes associated with the strong
growth of the microfinance sector, it has soon become clear that the supply of microfinance for
agricultural activities is marginal at best and poorly adapted. This rather negative state of affairs
is also supported by Nuhu et al (2014) who point out that despite the recent growth in the
microfinance sector, advancing loans and credit to farmers to increase crop production is still a
challenge. It is argued that although improved productivity and output levels will be achieved
through the introduction of new production technology, credit is a prerequisite to gain access to
such technology particularly for the rural farmers in Africa with little or no capital of their own
(EAFF, 2013). Microfinance is thus seen as a very critical tool for increasing crop production
amongst rural farmers through enhancing the rural farmers` access to financial services (Islam
22
and Tenaw,2009). The general state of affairs in most African countries is that rural areas, where
these farmers are located have limited networks of financial institutions and in the very few cases
where financial service networks are present the rural and smallholder farmers have a poor credit
rating, especially for medium-term loans. If they are lucky to qualify for a facility, they get it at
such a high interest rate and an unfavourable repayment schedule that can make them bankrupt,
pushing them out of farming altogether (EAFF, 2013).
There has however been a lot of progress that has been made in easing access to finance for rural
farmers though challenges remain due to limited access to appropriate financing (Rweyemanu et
al,2013). Meyer (2015) further explains that MFIs are heterogeneous, including banks that
downscale to serve lower-income market segments, traditional savings-led member-owned
institutions and NGOs, some of which aspire to achieve some type of regulated bank status, with
some countries with a special MFI regulatory framework that determines if they can accept
deposits and transact with only members or the general public. The Zimbabwean microfinance
sector also has seen some banking institutions downscaling to form stand-alone MFIs with the
most prominent being Microplan financial services, a subsidiary of banking group FBC Holdings
and BancEasy, a subsidiary of BancABC.The sector is also comprised of money lenders, creditonly microfinance institutions, deposit – taking microfinance institutions and SACCOs
(ZAMFI,2015).
2.9 Services offered by Microfinance Institutions
The services offered by microfinance institutions can be broadly summarised as financial
intermediation; enterprise development, and social services.

Financial intermediation
Financial intermediation refers to the general go-between role that financial institutions play
through offering a range of financial services and products such as investment, insurance, credit,
23
savings and payment system which broadly entail linking surplus and deficit units (Gorton and
Winton, 2002). Financial intermediaries are institutions that source funds from savers (surplus
units) and loan to those that need resources (deficit units) for investment. This is a role that is
largely characteristic of more mature microfinance markets as it aligns with the business of
deposit taking microfinance institutions. This class of institution is relatively new in Zimbabwe
with the RBZ (2016) announcing in the mid-term policy statement the licencing of the fourth
deposit-taking micro-finance institution, Lion microfinance in addition to the three (3) licenced
in 2015 which are African century, Collarhedge (Success bank) and Getbucks.The
intermediation function from a deposit taking perspective is thus largely in its infancy for the
local microfinance sector
Lending or credit services is the main service offered by microfinance institutions in Zimbabwe.
Ledgerwood et al (2013) stresses the need for MFIs to conduct their lending business in a
professional and ethical manner as they state that increasingly, best practice in microfinance is
responsible finance, which is defined as the delivery of retail financial services in a transparent,
inclusive, and equitable fashion. Consumer protection and financial capability are now seen as
important policy objectives, particularly in the context of new providers, more sophisticated
products, and technology- enabled delivery channels. Reference is made to recent media
attention to the significant profits being made through initial public offerings (IPO) of
microfinance banks mostly in Latin America which have highlighted the need for transparent
pricing and appropriate interest rates. Annibale (2011) as quoted in Ledgerwood et al (2013)
additionally points out that there are many different client segments in micro finance, and MFIs
would do better to focus on each segment to develop the best business models to serve those
clients. The RBZ (2016) report also compels MFIs and moneylenders to be responsible in their
lending activities and lower their interest rates to avoid condemning borrowers into “debt traps”.
In addition, the RBZ (2017) again further encouraged microfinance institutions to protect their
clients from over-indebtedness through responsible lending and compliance to the industry code
of conduct
24

Enterprise development/ Capacity building
This refers to non-financial services that help in developing small enterprise operators and
encompasses management training, skills enhancement, technology services and subsector
evaluation. The UN (2013) says that capacity building involves human skills development and
the reinforcing of administrative systems, institutional development that also includes
community participation and creation of an empowering environment. In addition, Hanson
(2008) defines capacity building as the process by which people are empowered with knowledge
and skills necessary for them to perform viably in their diverse enterprises. The main thrust is for
financial institutions to assist prospective and current entrepreneurs to participate in training
programmes that will upgrade their capabilities which greatly enhance the sustainable
development of their ventures.
Ledgerwood (2013), however, argues that there is practically no distinction between businesses
that obtained credit alone and those that obtained both credit and integrated development
packages which somewhat digresses from observations by most researchers who stress the
importance of training and capacity building particularly for the poor and very poor segments of
society, most of whom lack basic formal education. The importance of training and development
for rural farmers is however well documented and touted as a key success factor for intervention
with the IFAD (2013) report indicating that rural farmers tend to practice agriculture in the way
it was done for generations but in order to participate in larger value chains they must meet
specific standards in terms of agricultural practices and management. The report further states
that rural farmers lack awareness of up-to-date cultivation and post-harvest management
techniques; as well as basic business skills such as accounting, cash-flow management and
medium-term strategy development. Most rural farmers have little formal education (many
complete just two to four years of schooling), and resultantly they struggle with lack of capacity.
Many MFIs themselves also lack the resources to provide the required training. The role of
training is affirmed by the RBZ (2016) which instructed MFIs to develop programmes aimed at
capacitating MSMEs and enhance their entrepreneurial and financial skills to effectively and
efficiently manage their businesses
25

Social services
Social services relate to non-financial services that emphasise upholding of the welfare of
vulnerable groups and smaller enterprise operators and this incorporates education, wellbeing,
nutrition, and literacy (Ledgerwood, 2013). These social services commonly require regular
subsidies offered by the donor community through NGOs and sometimes the central
government. There are instances where rural farmers in Sub-Saharan Africa confront challenges
with acquisition of information on agricultural inputs, marketing of their produce, and available
sources of credit, which role can be facilitated by microfinance institutions. Sumelius (2011) in
addition explains that the costs for marketing are huge for individual rural farmers who also lack
bargaining power as they do not benefit from economies of scale. Added to this, the vulnerability
of supply and the little volumes produced by single poor producers does not inspire the interest
of private market dealers.
Furthermore, Mutambanadzo et al (2013)
explain that the local microfinance sector has
developed from the largely informal savings clubs and credit cooperatives to the formal
microfinance institutions that fall under the regulatory purview of the RBZ.A worrying
observation in their view is that the microfinance sector is largely made up of moneylenders and
very few genuine microfinance institutions , with the bulk of MFIs focusing on salary based
consumer loans which have quick returns at the expense of enterprise loans which promote
sustainable and long term economic and enterprise development..
2.10 Sources of funds for Rural farmers in Zimbabwe
The access to banking and financial services has somewhat improved in general but continues to
be troublesome, especially for farmers, rural people, the poor and women (Mago,2013).
Microfinance institutions (MFIs) supply financial services to the poor, but do not yet reach most
enterprises and poor households in semi-urban and rural areas where bank branches are sparse.
Member-owned financial institutions such as SACCOs are important in mobilising savings, but
many are small, suffer governance problems, are slow to modernise and serve few rural
26
households. Resultantly, financial services continue to be identified as major constraints for
agriculture. Policies designed to ease constraints are widely viewed as ineffective or too slow,
especially for smallholder farmers (Meyer, 2015).

Savings
Gonzalez (2014) explains that facilitating access to financial services for rural farmers allows
them to save their cash reserves efficiently to better protect themselves from shocks before they
occur as well as increasing their holding of liquid assets to smooth consumption against income
shocks. Savings also allow rural farmers to improve their own infrastructural systems to support
their on-farm production, increase their use of improved agricultural techniques and
technologies, establish producer cooperatives, and develop agricultural value chains. Saweda and
Winter-Nelson (2009) additionally point out that some MFIs have sought to inculcate a savings
culture by applying compulsory savings clauses within the terms of the loans they avail to rural
farmers and they observe that in 2011, about a third of micro-borrowers were served by lenders
that required them to maintain a percentage of their loan on deposit with the lender.
Morvant-Roux (2008) further points out that in order for MFIs to serve as genuine financial
intermediaries, they need to offer deposit services so that the deposits can be used not only to
guarantee farmers’ profits but also to leverage credit portfolios. The rural populations have
considerable capacity to save, which capacity is not recognized by the banking sector and
microfinance institutions have many advantages (in terms of proximity, knowledge of the client,
trust) that they need to consolidate. Reference is made to the success of the cooperative networks
of West Africa which are particularly active in mobilizing savings compared to the rest of the
world (MIX Market, 2007). In addition, a somewhat optimist report by Opportunity (2016) states
that the demand for savings` services amongst rural farmers can be at least five times higher than
the demand for loans once rural clients are made to understand the advantages of opening a
savings account .The report further says that through market research and many growing seasons
of experience, Opportunity has learned that under-resourced farmers who cultivate small plots of
land need not just one or two, but an array of financial tools— including savings—to make their
27
farming operations economically and commercially viable especially savings accounts because
many rural families do not have a safe place to store their money, which gap Opportunity is
dedicated to providing savings products that meet farmers’ unique needs. The rural farmers`
income is seasonal in nature mostly after harvest and hence farmers who use a savings account
are better able to pay for household expenses throughout the year without resorting to selling
their crops early at a below market price or working with costly local moneylenders. The access
to savings accounts is thus a financing source from own funds by rural farmers who will be
financing their needs from own resources saved during excess periods. This type of financing is
rather limited in the case of rural farmers in Zimbabwe most of whom do not have access to
formal finance. The presence of SACCOs is quite limited in rural areas and insignificant in
deposit mobilization from members (Mago,2013). Most moneylenders and credit-only MFIs who
dominate the microfinance sector are not permitted to accept deposits by the RBZ and hence
with limited if any commercial bank presence in rural areas, this form of financing is not a
feasible option at present to Zimbabwean farmers.

Loans
The IFC (2012) points out that external investment and long-term loans, other than informal
loans from family and friends, are available only for a tiny proportion of rural farmers in all
economies, and worse in developing economies. This limited access to loans is also alluded to by
Coates and Hofmeister (2013) who state that most rural agricultural producers have no access to
formal financial services from the leading financial institutions in their countries and their shortterm working capital shortages are therefore often covered by credit from extremely expensive
informal credit sources which further undermines producer profitability. Masiyandima,
Chigumira and Bara (2011) in addition argue that the expected return from new investments in
agriculture is high in Zimbabwe where levels of investment in rural agriculture is still markedly
low. They observe a positive relationship between access to finance by rural farmers and
agricultural productivity which gives a strong case for increased investment into the rural
agricultural sector to enhance productivity, food security and improved livelihoods of rural
communities.
28
2.11 Lending models available to MFIs for financing rural farmers
The IFC (2012) explains that the financing models available to communal and small scale
farmers can be classified according to the source of repayment or collateral into three categories:
farmer; movable collateral; and buyer. In the first group, financing models target the farmer or
groups of farmers, the second group targets collateral and generally involves cash flow analysis
by MFIs in order to underwrite anticipated earnings, overall savings, and/or group guarantees.
Financing models using movable assets as collateral often include leased equipment or harvested
commodities in warehouses. The finance models that rely on buyers as the repayment source are
based on an overall value chain analysis in which strong business relationships exist. The IFAD
(2013) report additionally stresses the importance of innovative models to finance farmers and
agricultural SMEs with the goal of finding ways to deal with credit risks given the challenges
associated with lack of financial information, lack of track record, or acceptable collateral by
these entities. The vast majority of farmers and agricultural SMEs, particularly the smaller ones,
operate in the informal sector and in rural areas that are not usually covered by financial
infrastructure (e.g., credit bureaus) and where banks or other financial institutions have scant
local presence in terms of branches further complicating matters for players operating in these
areas.
Requisite financial infrastructure is still lagging behind in developing countries such as
Zimbabwe where credit bureaus still have very limited coverage and are used by very few
institutions especially in the microfinance sector. The ZAMFI (2016) report makes reference to
the amendment of the Banking Act which empowered the RBZ to establish a credit registry,
license and supervise private credit bureaus with effect from 13 May 2016. The amendment
allows the credit registry to collect credit information from participating institutions including
microfinance institutions, non-regulated credit providers and utility bodies which represents a
bold legal and policy action on the part of the Central Bank which was welcomed by all
stakeholders in the financial sector. This development according to the report is set to make it
more efficient on the part of credit providers to vet their potential clients for credit and eliminates
challenges of information asymmetry and multiple lending. This represents significant regulatory
29
support and positive steps towards modernising the financial infrastructure required to make it
more attractive for players in the microfinance sector to venture into enterprise financing in areas
such as rural agriculture which have been viewed as high risk.
The IFC (2012) summarises the potential of lending by micro financiers when it states that the
challenges of lending to small and medium agriculture players are not insurmountable for
institutions that rely on innovative and targeted approaches which make use of value chains,
local knowledge, and producer organizations to lower the associated risk. The key issue being to
address the variety of risks in agriculture lending while containing transaction costs. Miller
(2011) also highlights the opportunities presented by the convergence of microfinance and
agriculture lending to small players when he states that agriculture has become more marketlinked, microfinance institutions have evolved, strategic partnerships have increased
opportunities, and new technologies and approaches to reduce cost and risk in agricultural
microfinance have been developed. He then stresses the importance of understanding and
applying these exciting developments in the design and implementation of microfinance stating
that financing crop agriculture for low-income households can be successful, sustainable and go
a long way in helping to address food and livelihood security.

Direct Lending to the farmer(s)
The financing of farmers directly or indirectly, through farmer-based organizations (FBOs) or
cooperatives is one the most popular and key financing models according to the IFC (2012). The
primary source of repayment is usually the farm’s conversion of working capital into cash flow
through the production season. In cases where for some reason, this conversion fails to generate
sufficient cash flow to service the loan requirements, lenders consider alternatives most of which
still depend on the farmer’s ability to generate cash flow or liquidate various assets to repay the
loan. The key success factors generally involve an investment by the lender to understand the
financial needs of the farmers and the primary cash flow strengths and weaknesses in order to
adequately underwrite cash flow and rely less on collateral. The following models innovate
30
through new types of finance arrangements, such as group lending, parametric lending
methodologies, emerging farm business finance, out-grower models, or savings linked
approaches. The key risk mitigants for the direct lending model are a deep knowledge of the
farmer and his or her business; a cap on the exposure to a single farmer, group lending
(collective responsibility), integration into a supply chain; and the provision of cash to the farmer
during the lean season to lower the side selling risk.
The direct lending model allows the institutions to attract deposits in jurisdictions where they
are permitted to take deposits from the public through having the respective licences which
lowers funding costs and facilitates more effective asset/liability management such as in major
East African markets of Kenya, Uganda and Tanzania where microfinance banks have been
operating for some time. In the Zimbabwean financial services sector, deposit taking
microfinance institutions are a very new class of banking institution with the first four
institutions licenced in 2016 and, all yet to make any visible contribution in their deposit taking
forays. A successful institution that practices direct lending through its respective models is the
Kenyan institution, Equity Bank.
It is generally agreed that direct lending to the rural farmers on pure commercial terms is
unsustainable and there is mostly an involvement of the donor community to subsidise the cost
of the loans as well as act as guarantors to some extent through first loss insurance structures.
These Credit guarantee schemes (CGS) have been used by governments, donors and NGOs to
promote credit delivery to rural farmers as well as micro, small and medium-scale enterprises
(MSMEs) and in theory, by reducing collateral requirements and sharing the risk of default, these
schemes enable farmers and MSMEs to access credit otherwise not available to them (Onumah
and Meijerink, 2011). However, the effectiveness of CGS funded by governments, donors and
NGOs in improving access to finance has been questioned by a number of researchers who
challenge the sustainability of most schemes arguing that this is in doubt largely because of
moral hazard problems – where beneficiary borrowers appear to have incentives to default – as
31
well as adverse selection problems – where lenders finance high risk borrowers with the
assurance that losses will be covered in the event of borrower’s default.

Indirect Lending through FBOs/Cooperatives
This model also known as the wholesale model is based on a bank lending indirectly to rural
farmers through an aggregator organization, such as a farmer-based organization (FBO) or
cooperative, (IFC,2012). In this model, the entire group is the borrower, and therefore group
members guarantee each other. There is another variant, the agent model where the group’s
organization only administers the loans, and individual group members are the borrowers. The
benefits of this approach are savings on costs of creditworthiness assessment and loan
administration from the lending institution. The security of the model can be enhanced by cash
collateral requirements at the organization level, instead of traditional collateral or claims on
harvest proceeds at the individual farmer level, as well as direct integration with input suppliers
to reduce the amounts of cash disbursed directly to farmers. Other success factors include the
strength of management, length of history, and commercial orientation of the FBO or
cooperative through which the bank will lend.
The Indirect lending model needs to have organized farmers with the critical mass required as
well as proper governance which could be difficult for most rural farmers at present. There is a
great need for the rural farmers to be organized which also enhances certainty in market and
price negotiations through higher bargaining power with Miller (2011) explaining that the era of
open markets is declining and somehow unsuitable for these financing models to be implemented
efficiently. The strength of alliances and cooperation between financial institutions, government,
farmers and their organizations as well as input suppliers and buyers is a step in the right
direction as competitive agriculture is connected agriculture – one which links those in a sector
or within a value chain in which everyone involved has a vested interest. In addition, Agar
(2011) says that agricultural value chains collectively have needs and challenges that supersede
the needs of any single actor some of which can be met or alleviated in part by improving access
to financial services. An increase in investment in processing plants and the use of improved
inputs (seeds, fertilizers, irrigation, etc.) could increase the competitive positioning of the rural
32
farming sector of a given country in national and export markets, thereby benefiting the entire
chain.

Equipment Finance/Leasing
According to the IFC (2012), equipment finance refers to the financing of movable assets
acquired as additions or supplements to more permanent assets. An important factor in this type
of asset finance is the close collaboration between the equipment providers (vendors) and the
financial institution. The key success factors for equipment finance include an understanding of
the farmers’ payment capacity; avoiding intermediates; local network and local decision
processes with short response times; products that suit farmers and account for seasonal payment
patterns; a platform for effective repossession and remarketing of equipment for defaulting
farms; and, the efficient handling of payments. Microfinance institutions need to focus on
unlocking the potential of rural farmers through availing facilities for working capital finance
and investment finance which support irrigation and mechanization, as well as programmes that
enhance farm management skills notably technical skills, and financial skills (cash flow
planning).
Dondo and Shoko (2013) in their study on Mutoko farmers observed that one of the key
challenges facing these rural farmers was the issue of transport to Mbare Musika which is the
main market for the produce (vegetables and mostly tomatoes) for the farmers. They found out
that in most cases, the rural farmers harvested their produce without having any transport
arrangements in place which exposed them to losses, harm and death due to accidents in
travelling to and from selling their produce. Frequent breakdowns of the trucks also led to losses
as the produce deteriorated on roadsides which highlight the need for appropriately structured
transport solutions. The availability of sufficient water bodies in tomato producing areas such as
Domboshava, Mrewa and Mutoko according to Bindu and Chigusiwa (2014) can be assumed to
present a ready market for low-cost irrigation technologies such as drip irrigation kits for the
rural farmers. Smaller refrigeration trucks and irrigation kits which are more efficient than canal
33
irrigation being used by most rural farmers could be financed by MFIs through appropriately
structured lease finance products.
According to FSD (2017), agricultural equipment leasing tends to be a favoured form of asset
financing in countries where agricultural and financial sectors are well developed which makes it
a relatively underdeveloped sector in most sub-Saharan countries including Zimbabwe. The
comparatively slow development of leasing in sub-Saharan Africa, especially for agriculture, is
most likely driven by market failures and constraints occurring at different levels of the market
system. The failures are from the supply and demand sides with the key factors on the supply
side being the informational asymmetries which reduce incentives for financial service providers
to lend to farmers. There is a lack of visibility and understanding of customer needs and behavior
which however is a common challenge within the entire agricultural finance space. There is
however an additional constraint regarding leasing in that there is an additional concern around
the adequate maintenance of equipment, which constitutes the underlying security for a lease
contract. Additionally, the lack of a developed secondary market for used agricultural equipment
in most of the study countries is also a particular constraint, making the re-sale of equipment in
cases of default very challenging. In Zimbabwe, which was not part of the study the constraints
however are also evident and hence also limit the potential for leasing of agricultural equipment
at all levels of agriculture.
It is however heartening to note that the study states that despite these many challenges, there is
increasing interest among financial service providers to expand into agriculture, under the right
conditions. On the demand side the study shows that although the agricultural sector forms a
large part of the economy in all the countries reviewed, effective demand for leasing is
comparatively low. The importance of the rural farming community is stressed by the FSD
(2017) when they confirm the dominance of rural farmers in the farming space. A key constraint
from observations by the study is that the small plot sizes owned by most of the rural farmers are
too small to justify significant investments in mechanization, and realistically only a fraction of
the overall sector is capable of absorbing lease finance to a significant degree. The other key
34
constraint to demand according to the study is the lack of familiarity with leasing and lack of
skills, resources or motivation to adequately maintain equipment. In most of the study countries
the financial capabilities of rural populations, including farmers, is very limited. The observation
that leasing remains unsuitable for rural farmers is alluded to by Agar (2011) who points out that
mmuch of the credit availed by MFIs through value chains has been for working capital needs,
which has been a key gap for rural farmers but there is also a need for fixed asset finance. The
alternative for financing fixed assets is financial leases which are a close substitute for loans, and
offer several advantages for providers and clients in that farmers do not need to have a strong
asset base or pay large initial cash deposits, with the inherent value of the purchased asset acting
as the collateral. The MFI benefits in that leasing offers a major advantage in developing and
middle income countries where enforcing creditors’ rights is difficult and/or costly. This
advantage to MFIs is however debatable and not yet tested in countries such as Zimbabwe. The
use of financial leases for machinery in the agricultural setting is not new or innovative, but the
leasing packages for equipment are usually beyond the reach of most rural farmers. There is an
observation that evidence of participation in the leasing market for lower-value agriculturalrelated capital investments remains relatively scarce.
The recommendations made by the researchers are highly applicable to the Zimbabwean scenario
particularly for institutions seeking growth as well as policymakers. There is need for the rural
farmers to understand the potential benefits of leasing over traditional bank loans. Financial
service providers do not see sufficient market opportunity to justify investing in the skills and
capacity required to effectively offer leasing to the agricultural sector despite the significant
benefits attached to supporting leasing in sub-Saharan Africa. The availability of financial
leasing for agricultural equipment can greatly increase mechanization of the operations of rural
farmers and there is great potential to drive meaningful development impact. Agar (2011) in
addition discusses the move away from traditional forms of collateral when he explains that the
unattractiveness of rural land as collateral has led to a shift in the thinking towards moveable
collateral and so-called soft collateral based on contracts with the latter seemingly promising
with agricultural contracts. It is not yet widely practiced in rural areas yet, though attempts to use
moveable property on a wider scale could play a significant role in the business climate reform
35
agenda in developing countries. In China, an online registry has been created by the People’s
Bank of Credit Information Center for pledges of receivables, thus creating a modern movable
collateral registry. In Zimbabwe, the RBZ is also driving the implementation of a collateral
registry system which is believed to greatly ease the issues around the absence of immovable
assets` collateral which has seen many rural farmers and rural enterprises failing to access
finance from MFIs.

Value chain finance
Value chain financing and other approaches that rely upon buyers are based on business
relationships in the value chain which include financial flows between value chain actors, such
as buyers or input suppliers, as well as flows from financial institutions into the chain, or
combinations of both (IFC,2012). The buyer security models are structured so that the bank
relies upon the buyer contracts (verbal or written) to help secure its loans. The microfinance
institutions` perspective prefer having a strong buyer in the chain as this provides comfort by
helping to reduce or manage the risks associated with limited market access and price volatility,
especially in cases where these farmers have an off-take agreement with a trusted counterparty,
and is therefore less likely to default. There can also be instances where financiers are further
secured when the buyer helps to minimize default risk with the pledge of buyer receivables to the
lender or some other form of guarantee, and by sale proceeds flowing through the financing
institution. These models involve lenders basing their lending decisions on the strength of the
value chain as much as on the creditworthiness of individual farmers. The downside of these
approaches however is the dependence of farmers on a single buyer which entail that when the
buyer disappears or defaults on his or her obligations, the whole supply chain collapses and takes
farmers repayments with it. An additional constraint of value chain finance is that it does not
address the other financial services needs of the farmers, given its focus on credit only. These
models do not facilitate the development of the smallholder into an emerging farm business
Miller (2011) in addition points out that reducing risk is one of the most critical considerations in
agricultural finance and the value chain finance approach helps to reduce three types of risk i.e.
36
production, price, and credit (client) risk. Production risk is reduced through access to improved
seeds, farming practices and technologies and more often technical assistance. Price risk can be
reduced through secured markets and direct sales and a better understanding of the market.
Client risk is reduced through a better understanding of the client and his/her risks and often
through having loan repayments discounted at the point of sale. There is a greater need to
address the shortcomings of value chain financing which largely focuses on credit through
viewing rural farming activity as a business enterprise (Miller,2011). In agreement with the need
for broader financial services, Miller (2011) additionally argues that no discussion of agricultural
crop lending can be complete without highlighting the need for comprehensive financial services
which go beyond agricultural crop loans which are risky and seasonal. There is a need for
savings mechanisms which provide a cushion required to help carry one through times of need
by evening out the cash received at time of sale of produce.
Value chain financing models have been recommended by the RBZ (2016) wherein the apex
bank encouraged financial institutions to adopt value chain financing models to facilitate
increased business opportunities for SMEs in all sectors of the economy. The report further
encouraged deliberate initiatives from the institutions to complement government efforts to
revolutionalise agriculture at all levels through the introduction of modern farm-mechanization,
improvement in production yields, promotion of better market access, and integration of farming
with other diverse markets, through the provision of more innovative and sustainable valuechain financing products to small holder farmers and rural farmers.

Warehouse Receipt Financing
The World Bank (2005) explains that the basic rationale behind any collateralized commodity
transaction is a structural risk change for the lender who instead of lending money based on the
strength of a company’s balance sheet and taking credit risk now assumes
performance risk.
Warehouse receipt systems are a form of collateral substitute which also minimizes performance
risk in that the lender has the ability to sell off the asset in case of non-performance. In addition,
37
Miller (2013) points out that whereas in traditional secured lending, the underlying collateral is
the second source of repayment that needs to be mobilized when something goes wrong, in
collateralized commodity lending it is the first source of repayment. The lender who might be a
MFI does not rely on the borrower’s willingness to repay the loan and his existence as a going
concern but instead relies on the borrower’s ability to conduct the underlying commodity
transaction and has the possibility to sell off a very liquid asset, namely the commodities, as soon
as the loan is in default. The underlying collateral is usually soft commodities such as grain,
cotton, coffee or cocoa which after harvest will be stored in a licensed warehouse that issues a
receipt proving that the commodities have been physically received in the warehouse with the
receipt forming the basis of the financing (IFAD,2013). The warehouse receipt itself consists of
two parts, a certificate of pledge and a certificate of title. The farmer, trader, or agricultural
company is able to take out a loan by issuing a certificate of pledge to the lender and borrowing
is against this collateral which is the commodities which cover his working capital. The
limitation of this form of financing according to the IFC (2012) however is that warehouse
receipt finance is a form of secured lending to owners of “non-perishable” commodities which
are stored in a warehouse and have been assigned to a bank through warehouse receipts. It is
argued that in cognizance of the limited collateral available to support farmers’ financing needs,
such post-harvest commodities and warehouse receipts represent a liquid form of collateral
against which banks can lend (Gonzalez,2014).In addition, Meyer (2014) points out that a wellfunctioning warehouse receipt system gives farmers a choice in deciding whether to sell
immediately after harvest (when prices are often lowest) or to store in a licensed warehouse and
apply for short-term credit (thus enabling farmers to sell at a later date, when prices may be
higher). Warehouse financing also enable aggregators and processors to secure their sourcing
throughout the year and to purchase their raw materials
2.12 Insurance for Rural farmers
The IFC (2012) explains that most rural farmers are not truly risk diversified as they tend to be
either very concentrated in one activity or to have a portfolio of activities that are all exposed to
similar key risks like droughts and price risks which have a large impact on the profitability and
repayment capacity of the borrower. In developing countries such as Zimbabwe and Sub-Saharan
38
Africa in general, risk mitigation mechanisms like crop insurance or hedging are rarely available
to rural farmers, and some of these risks, in particular weather and price risks are systemic
affecting whole agricultural finance portfolios in addition to individual farm-level income losses.
In isolated cases where activities may be diversified, the risks are still often concentrated (a
drought would affect all activities and their market prices) and this is a key challenge to
prospective and current financiers to protect the loan portfolio against the most systemic risks,
with the lack of true risk diversification exposing lenders to the risk of default or at the very least
frequent rescheduling. As suggested by Miller (2011), the risks and challenges such as droughts,
floods, pests, or diseases are beyond the control of farmers within a region, as they are often
subject to the same weather and climate risks which makes it hard for financial service providers
to hedge them. The consequence being that financial service providers find it difficult to finance
agricultural activities to the detriment of development in this key sector. The nature of the flow
of capital is a further challenge to both the borrowers and lenders because agricultural production
generally has a slower turnover than other microenterprise ventures traditionally funded by MFIs
with agricultural credit requiring longer loan terms and being vulnerable to unpredictable and
potentially lower returns on capital. The resultant higher risk and greater sensitivity to interest
rate risk than traditional microfinance results in agriculture being shunned by lenders.The
personal risks of the borrower and his household affects both household income and the
borrower’s repayment capacity (IFC, 2012).In some instances severe health shocks or deaths in
the family that results in large healthcare bills or funeral expenses can jeopardize the viability of
a rural farming business for years to come, as households will often have to sell essential
livelihood assets such as livestock or resort to borrowing from money lenders at punitive rates to
obtain the necessary liquidity quickly and simply. Thus, insurance to cover these main personal
risks can significantly enhance the security package and ultimately lower default rates for the
banker. The principal three products that help to secure farmer credit are: credit life insurance;
credit health insurance, and; health insurance. Life insurance tends to become a mandatory part
of most loan packages so that borrowers are automatically insured.
There are risks that are particularly burdensome to agricultural based enterprises mostly systemic
risks that involve catastrophic losses such as drought, floods, etc., which pose special difficulties
39
and costs. Production insurance, such as crop insurance, can be a solution. A recent innovation
has been index-based insurance products that target rural farmers which have reached market
maturity and significant scale in several countries, for example India and Kenya. Such an indexbased insurance product involves writing contracts against specific perils or events (such as
drought, hurricane, or flood) or an area-yield index defined and recorded at local area levels
(usually at a local weather station or by government). Thus the index insurance payouts depend
not on the individual losses of each policyholder, but rather on the locally recorded weather
event or index of loss, which serves as a proxy for the losses in a region. All buyers in the same
region pay the same premium rate per dollar of coverage and receive the same rate of payment,
hence index insurance avoids adverse selection and moral hazard problems associated with
insuring rural, marginal communities. There are no onsite inspections or individual loss
assessments to perform which makes it relatively cheap to administer and it relies only on local
area index data which is generally reliable and available either through ground level data
measurements or remote sensing. In addition, IFAD (2013) points out that insurance helps
farmers to deal with the high risk related to specialized agricultural production. The interlinking
of credit with insurance enables rural farmers to move into higher-risk crops and cultivation
methods, which provide corresponding opportunities to achieve higher yields and incomes.
Morduch (2006) however observed that the prospects of micro-insurance though largely exciting,
much remains unknown. The expanding gaggles of micro-insurance advocates are ahead of the
available evidence on insurance impacts and the advocates may be right, at least in the longterm, but it is impossible to point to a broad range of great evidence on which to base that
prejudice. On the contrary though, Cai et al. (2010) suggest that micro-insurance may be as
important as micro-credit because it can supplement and strengthen its effects by protecting
farmers from the inherent risk of entrepreneurial activities. It can protect farmers against losses
when bad weather harms their harvest (e.g. climatic events such as hail, drought, and floods) or
against losses due to declines in the prices of agricultural commodities. Micro-insurance also
encourages farmers to buy higher quality products such as more resilient seed varieties, and
invest in fertilizer and other inputs which can improve agricultural productivity and boost
farmer’s livelihoods.
40
2.13 Empirical Literature Review
This section discusses microfinance case studies around the globe with the objective of drawing
insights on how countries and/or microfinance institutions serve rural farmers in other parts of
the world.

United States of America (USA)
Cocciarelli and Cantrell (2012) illustrate how in its thirty – year history, the California Coastal
Rural Development Corporation (Cal Coastal) has become an expert in financing rural and small
scale farmers. The micro financier makes non revolving lines of credit /loans to small strawberry
farmers through facilities structured to accommodate the start-up expenses and revenue cycle.
California Coastal Rural Development Corporation (Cal Coastal) has been financing rural and
small farmers since 1982 in the counties of Monterey, Santa Cruz, San Benito, South Santa
Clara, San Luis Obispo, Santa Barbara, and Ventura with approximately 90% of Cal Coastal ‘s
lending being in agriculture. Cal Coastal origins are through a group of farmer cooperatives who
decided to invest in a commercial produce cooler to support business development in their
community of Latino strawberry growers. Cal Coastal then evolved into an agricultural lender
serving as an intermediary re-lender using USDA Rural Development and Small Business
Development microloan funds. The borrowers sell a diverse selection of fruits and vegetables to
community members directly through farmers ‘markets, produce brokers and some grocery
stores in multiple counties. Cal Coastal is the largest USDA Farm Service Agency guarantee
lender in California. Their niche borrowers are Latino farmers who are unable to obtain regular
bank financing. Cal Coastal has achieved a reputation with sales companies and cooperatives of
farmers that handle both production and marketing, who frequently refer farm borrowers. The
California Coastal Rural Development Corporation is a significant provider of capital for an
underserved segment of smaller farm borrowers in the state, particularly Latino strawberry
growers along the Central Coast of California. Even as it has grown, however, Cal Coastal ‘s
personal lending approach to its limited-resource borrowers has remained core. Cal Coastal also
works closely with sales companies, or wholesalers known as shippers. There is close
41
collaboration and consultations on how the industry is moving and what the needs are with about
85% of Cal Coastal ‘s lending being to strawberry farmers, the majority of which produce for
sales companies. These loans require crop assignments from the sales companies as collateral,
through which the sales company makes crop proceeds payable to both Cal Coastal and the
grower jointly. The rest goes to farmers raising organic vegetables to sell at urban farmers’
markets, e.g. character loans with little possibility of crop assignment.

Romania
The European Investment Bank (EIB) (2015) details how from 2010 - 2014, a European Union
(EU) backed financial instrument has closed an important financial gap and helped over 740
projects from 694 beneficiaries by guaranteeing loans for rural development and agricultural
projects. In a market that typically asks for guarantees of 120 – 140% of the loan value, farmers
and entrepreneurs can rarely find such collateral, and banks are reluctant to invest. The value of
this financial instrument is significant as agriculture is a highly important but challenging sector
in Romania. One third of the Romanian workforce is employed in agriculture, but the sector has
long been in need of restructuring. Equally, developing Romania’s rural areas are of vital
importance since 70% of Romania’s poor live in the countryside. The managing authority
allocates funds through the Rural Credit Guarantee Fund (RCGF) and 31 banks acted as financial
intermediaries. This vast network penetrated Romania’s rural heartland and promoted the
assistance through farmers’ associations, rural TV programmes and ministerial county offices.
The public and private entities worked together effectively and gained both in financial and
social terms. The targeted uses of the fund include modernization of farming operations, value
addition to agricultural and forest production, SME creation and development support, support
for tourism activities, support for SME processing agricultural products, wood and non-wood
forestry products More importantly, Romanian rural farmers and rural SMEs were empowered to
implement their ideas, create jobs and help their communities through these guaranteed loans.
An estimated 10,200 jobs have so far been created or maintained through this financial
instrument. Participating banks send a guarantee request to the RCGF each time a new loan is
pre-approved. The pre-approval step means that the bank accepts the business plan of the
42
borrower and thus the risk of the loan. They share 20% of the risk of each loan and keep the
interest received whilst the RCGF covers 80% of the loan risk. As of December 2013, the
majority of loans under the scheme were well on their way to being repaid. This points to an
important advantage financial instruments have over grants, namely that they fund more
economically viable and sustainable projects The success story of the programme is that of
Alexander Graffius, a young Romanian rural entrepreneur who managed to secure funding to
build a modern egg-producing poultry enterprise that thrived when much larger Romanian egg
producers were incurring losses. He obtained the guarantee for 80% of the loan to start the
project. The project which as of 2014 employed 27 workers and produces around 48,000 eggs
daily with its products being sold through two brands in many large retail chains throughout the
country and also increasingly used by bakeries and pastries in their products.

Kenya
Owuor (2009) explains that Kenya is one country which has been at the forefront in Africa on
the adoption of the Grameen - model of MFI.This model which practices the group lending
methodology to overcome collateral problems and leverages on the so-called “social collateral”
with the important feature being the formation of groups that attach savings to creditworthiness,
with peer pressure and membership restrictions replacing the need for legal collateral. The
success of this model has seen widespread application in Kenya by organizations such as
Promotion of Rural Initiatives and Development Enterprises Ltd (PRIDE), Kenya Women
Finance Trust (KWFT), Faulu Kenya, Kenya Rural Enterprise Programme (K-Rep), Women
Development Company (WEDCO), Small and Micro Enterprise Programme (SMEP), Family
Finance and many others .Meyer (2014) in addition points out that Brazil and Kenya are
exceptional countries in their widespread usage of branchless banking and microfinance outreach
with low-income clients using products and services beyond payments but new products like
microfinance loans and micro-insurance also having been introduced by providers and third
parties. It has however taken years to develop these products and for them to reach scale with a
significant challenge being the design and management of a network of agents (George, et.al,
2011). The immense success and growth of Equity Bank to become the largest bank in the region
43
with 5.7 million accounts (over 57 percent of all bank accounts in Kenya) with operations in
Uganda and Southern Sudan having commenced business in 1984 and evolving from a
microfinance institution to an all-inclusive commercial bank listed on the Nairobi Stock
Exchange and Uganda Securities Exchange demonstrates the growth opportunities for serving
low-income clients and well-managed institutions in Africa as a whole (IFC , 2012).

Thailand
Meyer (2014) illustrated how Asian countries have demonstrated how to successfully supply
loans and other financial services for rural farmers in marginalized areas. In Thailand, the Bank
for Agriculture and Agricultural Cooperatives (BAAC) reaches millions of clients, the majority
of whom are poor and serve agriculture directly or indirectly. The positive performance of
BAAC and its continued expansion into agriculture has been underpinned by factors such as
operating in rural areas with high population density; reasonably favorable economic, rural and
agricultural policies; and fair to good rural infrastructure. The institution gives considerable
management autonomy, charges positive and often high loan interest rates, and stresses staff
training and accountability. There is use of innovative and low cost operating systems,
established appropriate loan terms and conditions, close monitoring of loan performance, and
developed information systems adequate for planning, control and monitoring. BAAC claims to
reach over 90 % of the country’s farmers by employing group lending for small loans; individual
lending for large loans, and loans to cooperatives and farmer associations. BAAC initially relied
upon government funds and bank loans but savings mobilization slowly expanded
2.14 Research Gap
The Zimbabwean MFI landscape is still highly concentrated in urban areas in terms of location
(ZAMFI, 2015; MFSB, 2017). The sector also seems to be dominated by money lenders as
opposed to real microfinance institutions (Mago, 2013; Masiyandima et al, 2013), which entails
that the local sector lags behind parts of the continent such as East Africa where large MFIs are
involved in large scale financing of rural agriculture in Kenya, Uganda, Ethiopia and Tanzania.
44
There are immense benefits for supporting rural farmers to drive the development of rural areas
and the national economy and microfinance is a key pillar in reaching these communities. The
Zimbabwean microfinance sector had 180 credit-only MFIs and 4 deposit-taking MFIs as of
December 31 2016 (RBZ,2017), which is quite a huge number for an economy the size of
Zimbabwe. Literature abounds on the use by MFIs of collateral substitutes and group lending
methodologies leveraging on social capital and respective high loan repayment rates among
borrowers who are predominantly women and the rural poor being a key target segment for
MFIs.There has however been limited research on the role of local MFI in advancing
development in the key rural economy and meeting the financial needs of this key constituent of
rural farmers. This missing middle represents a segment that can contribute to the growth of and
profitability of MFIs.
2.15 Chapter Summary
The chapter presented literature on the benefits of rural farming in Zimbabwe and the challenges
facing the same. The chapter also assessed and evaluated the concept of microfinance and the
approaches that could be adopted to enhance the successful support of rural farmers. Success
stories of interventions in the United States of America(USA), Europe and Africa were also
evaluated which can be replicated in Zimbabwe. The next chapter will present the Research
methodology.
45
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter focuses on the research philosophy, research design, target population, sample size
and sampling procedure, research instruments, data collection procedure, limitations of the study,
reliability and validity of the current studyand finally the data analysis. This will also involve a
discussion of how the data is going to be cleaned, presented and analysed.
3.1 Research Philosophy
Galliers (1991) defines a research philosophy as a conviction about the way in which data about
a phenomenon should be collected, examined and used. Saunders et al (2009) in addition points
out that a research philosophy is the development and nature of knowledge. This study uses the
phenomenological research philosophy which is defined by Saunders et al (2009) as a valuable
means of finding out what is happening, seeking new insights, asking questions and assessing
phenomena through the use of literature search, engaging experts and conducting focus group
interviews. Hui Lien at al (2012) further point out that phenomenology is a philosophy and a
method, the aim of which is to better understand life experience. The contribution of
phenomenology is to offer scholars a way to understand individuals and their interactions with
others and their environments as stated by Choga and Njaya (2011). In addition, Polit and
Hungler (1999) point out that phenomenological methods are particularly effective at bringing to
the fore the experiences and perceptions of individuals from their own perspectives, and
therefore at challenging structural or normative assumptions. The reasons for choosing
phenomenology is that the researcher is able to engage a wider audience in assessing the role and
significance of microfinance in the development of the rural farmers engaged in tomato
production in Domboshava.
46
An engagement of the rural famers themselves and the various stakeholders allows for a deeper
understanding of the phenomena. This is supported by Hui Lien et al (2012) who says that
phenomenological research translates into gathering ‘deep’ information and perceptions through
inductive, qualitative methods such as interviews, discussions and participant observation, and
representing it from the perspective of the research participant(s).The ‘problem’ for many
researchers with phenomenological research is that it generates a large quantity of interview
notes, tape recordings, jottings or other records all of which have to be analysed. Analysis is also
necessarily messy, as data doesn’t tend to fall into neat categories and there can be many ways of
linking between different parts of discussions or observations (Polit and Hungler, 1999).
3.2 Research Design
Cresswell (2014) explained that the research design is the most important phase of the research
process because the qualitative and/or quantitative aspects of the study are conveyed by the
chosen design. The research design itself is defined by Gibson (2014) as the master plan that
specifies the methods and procedures for collecting and analysing the required data. This is also
emphasised by Mathers et al (2001) who view the research design as an arrangement of
conditions for both the collection and analysis of data in a manner that aims to combine both the
relevance to the research purpose as well as the economy in procedure. This will ensure that the
data collected meets the research objectives as well as information needs of decision makers.
Myers and Avison (2002) in addition puts a simplistic view when they say that a research design
is a procedure used to gather data, analyse data, interpret results and disseminate the findings.
There are three main types of research designs which are experimental design; case study; and
survey design (Myers,2008). This study uses a survey research design which according to
Cresswell and Clark (2011) is a method of collecting data as reported by individuals and surveys
are questionnaires (or a series of questions) that are administered to research participants. The
surveys themselves are in two types namely longitudinal and cross-sectional surveys. This study
adopts the cross-sectional type which is defined by Mayo and Onwuegbuzie (2014) as an
47
observational study that involves the analysis of data collected from a population or a
representative subset at a specific point in time. The research was conducted within a limited
time frame of six months and hence the cross-sectional survey type is the most applicable as
opposed to a longitudinal survey which involves repeated observations of specific variables over
long periods of time, often decades. A cross-sectional survey also allows large quantities of data
to be collected within a short period of time and is relatively less costly to conduct.
3.3 Population
The population of a study according to Saunders (2009) refers to the whole group of individuals
or objects in which researchers are interested in studying specific phenomena. Mayo and
Onwuegbuzie (2014) in addition points out that a population is the whole group of items, people,
organisations, and objects that a research will be focusing on. This research has a focus on
Domboshava, an area in Goromonzi district of Mashonaland East province of Zimbabwe. The
population of rural farmers in Domboshava who are involved in horticulture is approximately
2000 (MOA,2017). The study also targeted the 27 Agriculture extension officers in the district;
the local authority leadership who include the District Administrator’s office (DA), headmen;
staff of Non-Governmental Organisations (NGO), and loans officers from microfinance
institutions. The RBZ (2017) states that as at 31 December 2016, the number of registered MFIs
stood at 180.
3.4 Sample
In this study, the sample size is 500 respondents and this is made up of 400 rural farmers; 20
Agriculture extension officers (Agritex); 20 local authority officials from the District
Administrator`s office (DA) and headmen; 30 representatives of Non-Governmental
Organisations (NGO) who have an interest in the rural farming sector and 30 loan officers from
MFIs. The sample size is deemed adequate by the researcher as similar studies of related
phenomena made use of sample sizes in this range such as Dondo and Shoko (2013) who had a
sample size of 300 rural farmers; and Masanga and Jera (2017) who had a sample size of 140.
48
3.5 Sampling Procedure
Polit and Hungler (1999) defines sampling as the process by which a researcher selects a sample
of participants from a population of interest. A similar view is given by Myers and Avison
(2002) who says that a sample is a subset of the target population from which information is
gathered to estimate something about the population. The current research chose to adopt a
stratified random sampling technique for choosing the rural farmers with a view to incorporate
rural farmers from irrigation schemes as well as those who are not part of irrigation schemes.
Stratified random sampling is a probability sampling technique that involves partitioning the
population into strata/layers then selecting elements separately from each sub-population by
random procedure (Mayo and Onwuegbuzie, 2004). A purposive sampling technique was
adopted for selecting the non – farmer constituent of the sample who include officials from
Agritex, local leadership from the DA` office and headmen and NGO officials. Muranda (2014)
defines purposive sampling as a non-probability sampling technique in which a researcher exerts
some effort in selecting a sample that he/she feels is most appropriate for the study. The
researcher chose officials that he believes are better positioned to avail the information needed
for the research. This is supported by Patton (2002) who points out that purposive research is
effective in its contribution to answering specific research questions.
3.5 Research Instruments
Johnson (2004) says that research instruments are tools for data collection, testing devices for
measuring a given phenomenon. Additionally, Gibson (2014) explains that the tools for data
collection include questionnaire, interview, and observation. The importance of selecting the
appropriate tools is pointed out by Robson (1993) who stresses that the validity and reliability of
any research outcome depends to a large extent on the relevance of the research instrument that
is used. The current research will use questionnaire as the instrument for data collection which
will be self-administered and also used in focus groups to broaden the means of data collection
as well as allow more views to be collected especially with focus groups. These instruments
empower the researcher to gather important information from respondents (Saunders et al,2009).
49
The instruments also allow the researcher to collect large volumes of data in a short period of
time which allows the responses to be collected in a standardized way (Polit and Hungler, 1999).

Questionnaire
A questionnaire is defined as a document with a list of questions for an investigation into a
phenomena (Polit et al,2001). In addition, Robson (1993) says the questions in a questionnaire
are systematic and well – organized in order to solicit information for the phenomena being
investigated. According to Myers and Avison (2002), questionnaires are a very effective and
convenient way of data collection when used for large samples and can produce valid and
meaningful results if the questionnaire is carefully designed and well administered. The main
disadvantage of the questionnaire according to McClure (2012) is the low response rates
associated with large samples.

Focus Group discussions
Freitas et al (1998) explains that focus groups are a qualitative research method which are a type
of in-depth interview accomplished in a group where participants influence each other through
their answers, ideas and contributions during the discussion. The moderator who is the researcher
stimulates these discussions with comments or subjects. Focus Groups are particularly suited
where the objective is to understand better how people consider an experience, idea, or event,
because the discussion in the focus group meetings is effective in supplying information about
what people think, or how they feel, or on the way they act (Krueger , 1994 ; Morgan 1988) as
quoted in Freitas et al (1998).Focus groups are comparatively easier to conduct and allow
collection of data in a quick way from a large number of respondents according to Morgan
(1988).The data analysis is however more difficult to do relative to other methods (Krueger ,
1994).
50
3.6 Data Collection Procedure
The research makes use of both primary and secondary data. The main information will be
collected through primary data collected from the field by the researcher through interactions
with rural farmers and stakeholders in Domboshava. The questionnaires will be administered by
the researcher to rural farmers and their representatives in the case of irrigation schemes who
have leadership structures in place, as well as officials from the local leadership. Focus group
discussions will be held with extension officers, NGOs and MFIs. The researcher will take time
to clarify the research instrument to the respondents prior to administration of the instrument.
The researcher will also make use of secondary data sources from publications from industry
bodies such as the RBZ, ZAMFI, and specialist NGOs active in rural agricultural development
such as FAO, IFC, IFAD and ZADT.
3.7 Limitations of the study
The researcher was subject to limitation in conducting this research with the major limitation
being the limited time frame provided for the research which has to be completed in six months
resulting in failure by the researcher to widen coverage of the rural farming areas in the district
which could have yielded more data and views. The changed economic environment post the
adoption of the multi-currency regime in 2009 also makes it difficult to compare data on the
older projects and farmers who have operated prior to 2009 including some who could have
folded operations. The costs of covering the whole district are also beyond the means of the
researcher who has to finance the project from own resources and in an environment where cash
shortages over the period January to June 2017 intensified. This resulted in reliance also being
placed on secondary data to augment research findings.
3.8 Reliability and Validity
Polit and Hungler (1993) state that the validity of an instrument is the degree to which the
instrument measures what it is intended to measure. The content validity refers to the extent to
which an instrument represents the factors under study. This is also explained by De Vos et al
51
(2001) who explains that reliability is the accuracy or precision of an instrument. Reliability is
also the extent to which an independent administration of an instrument will yield similar results
under comparable situations. Reliability is also defined as the extent to which data collection
techniques or analysis procedures yield consistent findings (Saunders etal, 2009). A pilot testing
of the questionnaire will be conducted to evaluate the clarity of questions; validity, and reliability
of the instruments before they are used to collect data from intended respondents. Content
validity will be further enhanced through consistency in administering the questionnaires as well
as question formulation in simple language for clarity and ease of understanding mainly to the
rural farmers.
3.8 Ethical Consideration
The research will be conducted for pure academic purposes, with information collected from the
respondents to be kept confidential. The researcher will engage the university to obtain
authorisation to pursue the research before engaging respondents. The researcher will be guided
by Mayo and Onwuegbuzie (2014) who explain that the researcher should at all times, under all
circumstances report the truth, and should never present the information in a biased manner. The
respondents will be treated equally and with respect throughout the duration of the data
collection process. The participants to the research will be informed about the purpose of the
research and given assurances that results will remain anonymous, and that all information will
be treated with high levels of confidentiality. This is expected to ensure that respondents will be
honest and open in giving their perspectives on questions asked.
3.9 Data Analysis Procedure
The data collected from the focus groups and questionnaires will be examined, sorted and
presented with the aid of descriptive statistics through frequencies, percentages and graphical
presentations. Wong (1999) as quoted in Munyoro et al (2017) argues that raw data needs to be
converted into a form suitable for analysis and interpretation. The process must begin with
editing raw data and checking physical questionnaires for blank pages, missing pages and
52
completeness of questionnaires (Munyoro, 2014). The responses will then be coded through
assigning numerics and symbols to responses whilst ranking of responses will be according to
the Likert scale. The researcher will then analyse the data through the use of the statistical
package for social sciences (SPSS). The statistical package will enable the research findings to
be presented through tables, graphs, charts for greater visual impact.
3.12 Chapter Summary
The chapter outlined the research philosophy and methodof undertaking the study. The chapter
also discussed issues on the research design, the research instruments to be used, sampling
procedure, data collection techniques and the analysis of the data. The chapter also defined the
population of the research as well as issues of reliability and ethical considerations which issues
affect the accuracy and dependability of the research.
53
CHAPTER FOUR
4.0 Introduction
This chapter presents the data gathered from the targeted respondents through questionnaires and
focus groups. The data is presented and analysed using the statistical package for social sciences
(SPSS). Presentation of the data is made through graphs, tables, charts and descriptive statistics
with an enhanced visual impact. The findings from the study are also discussed.
4.1 Questionnaire response Rate
In this study 500 questionnaires were issued to various stakeholders as the researcher sought to
establish the contribution of microfinance to the development of rural farming in Zimbabwe. The
chart below shows the various stakeholders and the proportion of questionnaires issued to them.
Figure 4.1
Source: Primary data
The total number of questionnaires distributed was 500 across respondent groups and 435 were
returned which gives a response rate of 87% as shown in the table below.
54

Questionnaire Response rate
Table 4.1
Questionnaires Returned
435
87%
Questionnaires not Returned
65
13%
Source: Primary data
4.2 Gender
This study was dominated by female respondents who accounted for 72% of the total
respondents relative to their male counterparts as shown in the chart below:
Figure 4.2
Source: Primary data
55
This reflects somewhat the demographic distribution in Zimbabwe where females
form the majority of the population nationally and in rural areas with the rural
population of 8 751 000 comprising 4 550 535 female (52%) and 4 200 464 being
male (FAO,2017). Kent and Poulton (2016) in addition point out that within sub
Saharan Africa, the majority of rural farmers are likely to be women. Chigusiwa et al
(2013) additionally argues that rural farmers engage in small scale farming activity
whilst awaiting opportunities to get alternative employment preferably in the more
lucrative industrial sector of the country in urban areas. The opportunity does come
mostly for men and women will continue with the farming legacy in order to
supplement the family income which is why they play a key role in most smallholder
rural farming activities. The researcher assumes that the observations of Chigusiwa et
al (2013) are consistent with the findings of the study.
.
Table 4.2
Gender
Frequency Percent
Valid
Cumulative Percent
Percent
Valid
male
121
28.0
28.0
28.0
female
313
72.0
72.0
100.0
Total
435
100
100
Source: Primary data
4.3 Age group of respondents
In this study, an analysis of the age groups of respondents was done and the age group of 41-50
years accounted for the greater proportion of respondents with 39% of the total respondents,
followed by 31 – 40 years which had 37%. This shows that the most active age groups involved
in rural farming is between 31 to 50 years, representing the economically active age groups. The
56
HIV/AIDS is prevalent among the 15 - 49 years’ age bracket (representing 18 percent for women
and 12 percent for men) but the country has made commendable strides in reducing the HIV
prevalence with anti-retroviral treatment (ART) coverage of 77 percent and prevention of mother
to child transmission of HIV (PMTCT) coverage of 93 percent (FAO, 2017)
Figure 4.3
Source: Primary data
Table 4.3
Age
Frequency Percent
Valid
Cumulative
Percent
Percent
20-30 years
35
8.0
8.0
8.0
31-40 years
161
37.0
37.0
45.0
41-50 years
170
39.0
39.0
84.0
years
69
16.0
16.0
100.0
Valid Total
435
100
100
above 50
Source: Primary data
57
4.4 Education
In terms of education, the majority of the respondents attained secondary school education as
shown by the results depicted in the following figure and table below. The FAO (2017) report
says that the national literacy rates are high in Zimbabwe at 94 percent for women and 96
percent for men (GoZ, 2011) which shows that the population attains at least basic education.
Figure 4.4
Source: Primary data
Table 4.4
Level of Education
Frequency Percent
Valid
Cumulative
Percent
Percent
Secondary
278
64.0
64.0
64.0
Diploma
126
29.0
29.0
93.0
degree
31
7.0
7.0
100.0
Valid Total
435
100
100
Source: Primary data
58
The findings show that the rural farmers possess limited education with most (64%) having
attained four-year secondary education, with 29% having attained diploma level education in
various fields with a mere 7% holding degrees with the degree and diploma holders mostly being
Agritex and Loan officers from MFIs.Chigusiwa et al (2013) says that most rural dwellers in
Zimbabwe are elderly people, women or school leavers who possess little or no skills that are
required in more sophisticated sectors of the economy such as industry. The high unemployment
level being experienced in Zimbabwe is a manifestation of major developmental challenges
(FAO,2017). This high unemployment is assumed to be the reason the few diploma holders and
degreed rural people have failed to obtain job opportunities in urban areas and are found
practicing rural agriculture to eke out a living. The EAFF (2013) additionally argues that rural
agriculture has become a source of livelihood to the majority of the population who include
women (who form a majority in smallholder agriculture), the youth with low levels of education
and to elderly people. Kent and Poulton (2016) also stress that education forms a barrier to entry
into higher return activities for many rural inhabitants who are amongst those least likely to
benefit from migration as they are among the least educated (education is a key determinant of
migration).
4.5 The Number of Years practising rural farming
The study found that the majority (91%) of respondents have been practicing rural farming for a
period more than 5 years with those in the 6-10-year bracket (31%),11-15-year bracket (40%)
and 15 years + (20%).Most of the respondents from the rural farmer constituent indicated that
farming has been a family tradition with them having practised vegetable and tomato farming
whilst growing up, learning from their parents and having now also started their own families
whilst still practising tomato and vegetable farming on family plots. The Agritex respondents
were also fairly experienced having been involved in the agriculture sector for a period in excess
of 5 years in general. This is consistent with Miller (2011) who points out that most rural farmers
need to recognise that it is no longer sufficient or feasible to cultivate and market as did their
forefathers but rather adapt to modern technologies and trends to enhance competitiveness.
Agriculture must be treated as a business activity and rural and small producers must think and
act beyond agriculture as a subsistence activity (Coates and Hofmeister,2013).
59
Figure 4.5
Number of years practising Farming
Source: Primary data
Table 4.5
Years in Horticulture
Frequency Percent
1-5years
Valid
Cumulative
Percent
Percent
39
9.0
9.0
9.0
135
31.0
31.0
40.0
174
40.0
40.0
80.0
15years
87
20.0
20.0
100.0
Total
435
100
100
610years
1115years
Above
Valid
Source: Primary data
60
4.6 Factor Analysis
In this study, the researcher sought to establish the significance of microfinance to communal
farmers and thus used a 5 - point Likert scale to capture the opinions of the respondents on the
questionnaire. According to the Likert scale 1= strongly, 2= agree, 3= neutral, 4= disagree and 5
strongly disagree. The researcher went further to establish the major determinants or rather
cause(s) of the pattern of responses in the study and used the Kaiser stopping method, which
method considers factors with an Eigen value above one. The table below shows the Eigen
values computed by the Kaiser model.
Table 4.6
Total Variance Explained
Component Initial Eigen values
Extraction Sums of Squared Loadings
Total
% of Variance Cumulative % Total
% of Variance Cumulative %
1
1.253
12.534
12.534
1.933
19.335
19.335
2
1.600
16.005
35.340
1.600
16.005
35.340
3
1.306
13.056
48.396
1.306
13.056
48.396
4
1.933
19.335
60.929
1.253
12.534
60.929
5
1.020
10.197
71.127
1.020
10.197
71.127
6
.870
8.695
79.822
7
.784
7.842
87.664
8
.521
5.212
92.876
9
.403
4.034
96.910
10
.309
3.090
100.000
Source: Primary data
61
From the table above it is clear that experience in farming (number of years practising rural
agriculture) was the major determining factor to the way farmers responded in the question as it
had the highest Eigen value of 1.933 as compared to age, gender and education which had Eigen
scores of 1.25, 1.6 and 1.3 respectively. Therefore, after being identified to be the main
determinant in this study, experience in farming was then used to carry out the ANOVA test and
the table below shows the ANOVA test values.
Table 4.7 - ANOVA
Mean
Std Dev
ANOVA p.
Value
Microfinance is significant to communal farming
1.3
0.59
0.06
Microfinance is easily available in rural
4.8
0.87
0.23
Microfinance institutions offer training services
4.3
0.94
0.13
Interest rates and loan tenors are viable for farming 3
operations
1.32
0.08
Microfinance adequately staffed
3.0
1.01
0.04
Lending to communal farmers is a profitable business
2.8
1.0
0.07
Communal farmers meet requirements to qualify for 2.7
credit
0.93
0.26
Microfinance has access to development partner 2.9
financing
Microfinance institutions work with input suppliers
3.6
0.85
0.03
0.66
0.32
Communal farmers are organized into representative 2.9
groups
1.02
0.42
Government support programmes complement 3.2
microfinance institutions
Communal farmers use digital finance platforms
2.4
0.98
0.01
0.79
0.31
Digital finance platforms lower transaction costs
0.90
0.28
Source: Primary data
62
2.9

Microfinance is significant to communal farming
The notion that microfinance is significant to communal farming had a mean score of 1.3 which
indicates that farmers were in agreement to this viewpoint, while a standard deviation of 0.59
which is below one shows that the results were all close to the mean. In further validation of the
claim an ANOVA p value of 0.06 proved that indeed microfinance was significant to communal
farming. This is supported by Miller (2011) who says that microfinance institutions (MFIs)
which are more socially driven could turn out to be good providers of agricultural finance and
services to rural farmers. The EAFF (2013) in addition explains that although it is argued that
improved productivity and output levels will be achieved through the introduction of new
production technology, credit is a prerequisite to gain access to such technology particularly for
the rural farmers in Africa with little or no capital of their own which all but cements the view
point that microfinance is very critical in increasing crop production.

Microfinance is easily available to rural farmers
This study revealed that microfinance was not readily available to farmers in rural areas with
little or no awareness of the services. This claim is supported by a mean score of 4.8 which is
very close to strongly disagreeing on the Likert scale adopted in the research. In addition, a
standard deviation of 0.87 indicates that the results gathered around this assertion were not by
mere coincidence but a true reflection of the views and perceptions of the population under
study. Furthermore, an ANOVA test which showed a score of 0.23 implies that this claim was of
significance to the study. According to Nuhu et al (2014) despite the recent growth in the
microfinance sector, advancing loans and credit to farmers to increase crop production is still a
challenge. There is a general consensus that overall, smallholder farmers have insufficient access
to financial services because most rural areas, where smallholder farmers are located, have
limited networks of financial institutions (EAFF,2013).
63

Microfinance institutions offer training services
Respondents in this study highlighted that microfinance institutions were they were present were
not offering any training programmes in their area. This is shown by a mean score of 4.3 and a
standard deviation of 0.94 which shows that these results were not by chance but represent the
perception of the rural farmers. To further validate this claim an ANOVA score of 0.13 showed
that this notion does have a bearing to the study at hand. Miller (2011) points out that the
suitability of microfinance to finance rural farmers greatly lies in the fact that their financial
services are often linked with the training and other support services that they provide, either
directly or through linkages with other organizations. In addition, Morvant-Roux (2008) explains
that the effectiveness of financial services` provision for rural farmers partly depends on the nonfinancial services offered to improve agricultural production. A successful way to better support
rural and agricultural populations is to create alliances with other actors (NGOs, governmental
entities, peasant organizations, etc.) to set up complementary services like training and technical
assistance (TA).These training possibilities are endless, ranging from management or financial
advisory services for farmers to capacity building for elected representatives of MFIs
(Opportunity,2016).The agricultural package model of DECSI (Debit Credit and Savings
Institution) in Ethiopia is an example of an institution offering TA, market information and
producer networking services along with its financial service which approach federates a variety
of actors to help boost the development of activities financed. According to Blair et al. (2012),
there is strong evidence to suggest that the offer (and delivery) of financial services training
significantly raises individuals’ productive incomes.

Interest rates and loan tenors are viable for farming operations
This study also indicated that farmers have no idea whether interest rates and loan tenors that
MFIs offer were viable for farming operations. This is supported by a mean score of 3 which
signals that the respondents were neutral on the subject which might indicate lack of knowledge
on the matter. A standard deviation of 1.32 showed that the responses varied widely from the
mean thus showing that respondents were not clear on the issue. However, an ANOVA test was
carried out and hinted that this notion was significant to the study. The EAFF (2013) argues that
in the very few instances rural farmers qualify for a facility, they get it at such a high interest rate
64
and an unfavourable repayment schedule that can make them bankrupt, pushing them out of
farming altogether. In addition, Meyer (2014) also points out that relatively few MFIs make long
term loans so farmers making large investments must seek loans elsewhere. In Zimbabwe
however the MFI sector bemoans what they believe is a policy deficiency at the RBZ, chief of
which is the one-year license tenure which limits the industry`s ability to offer medium to long
term facilities (ZAMFI,2015).

Microfinance adequately staffed
Respondents in this study were also not sure whether microfinance institutions were adequately
staffed to ensure wider coverage and effective monitoring of their operations. This is
demonstrated by a mean score of 3 and a standard deviation of 1.01 which shows that responses
were inconsistent in relation to the matter at hand. The researcher assumes that the limited
coverage and awareness of microfinance amongst the majority of respondents could have led to
the inconsistency in responses. However, the ANOVA test proved that this notion was not
significant to the study. The importance of adequately staffed and capacitated institutions is also
stressed by the RBZ (2017) which encouraged MFIs to strengthen their corporate governance
structures and risk management systems in order to build sustainable financial institutions that
can grow and provide financial services on a permanent basis to an increasing proportion of the
low income and marginalized groups

Lending to communal farmers is a profitable business
In this study it was noted that the majority of respondents believed that lending to communal
farmers is a profitable business. Rural farmers are generally part of the “missing middle” where
they are not served by either mainstream banks or MFIs but they form a potentially good client
base for microfinance institutions as the mean score to this notion was 2.8 supported by a
standard deviation of 0.60 thus indicating that the results were not by chance but a true reflection
of the respondents` views and perceptions. Furthermore, an ANOVA p value of 0.07 was seen to
be endorsing this claim in relation to the study. In general, it is more costly to serve rural farmers
as this involves higher transaction costs relative to urban areas given the distances, lower
65
population densities, and lower quality infrastructure in rural areas according (IFC, 2012). The
immense potential for MFIs with a long-term view is underscored by Kent and Poulton (2016)
who point out that the value of Africa’s domestic food markets is estimated to be US$50 billion
per annum and was projected to double by 2020, driven by urban population growth and
consumer preferences for naturally grown food and vegetables.Rural farmers are a major player
in the domestic food markets and if they are capacitated to increase their production levels and
adoption of more efficient systems, they will begin to increasingly supply the large and growing
food markets locally in urban areas for domestic markets in the short to medium term, whilst
regional and international export markets can be a long term goal. Furthermore, advances in
information and communication technologies, improved market integration systems and new or
adapted financial products and approaches are opening the opportunities for microfinance
institutions to better serve smallholder crop producers (Miller,2011).

Communal farmers meet requirements to qualify for credit
The general perception amongst communal farmers is that they do not meet requirements to
qualify for credit but however this study proved otherwise. A mean score of 2.7 and a standard
deviation of 0.93 showed that the communal farmers themselves believed they were eligible for
credit from MFIs. There is however a greater need for MFIs to increasingly adopt Group lending
methodologies and leverage on social capital to ensure rural farmers qualify for their support. To
further authenticate this claim an ANOVA test was done and it showed that this notion was of
great significance to the study. The use of group lending models used by microfinance
institutions to target rural and smallholder farmers was popularized by the Grameen group
lending model from Bangladesh, which is relatively rigid and strict, and therefore have high loan
repayment records (EAFF,2013). The model also ensures that there is constant dialogue between
the farmer, his/her group members and the financial institution, and this collective approach
reduces the risk of defaulting. This model intrinsically has a high level of farmer involvement,
and the group borrowing is customized to their requirements
66

Microfinance has access to development partner financing
Although a mean score of 2.9 was recorded on this notion indicating agreement, 51% of the
respondents were neutral on this notion showing that there was less information available on this
variable. A standard deviation of 0.85 showed that the responses did not vary much from the
mean. However, the ANOVA test carried out showed that this notion was of less importance to
the study. Otero (1999) points out that microfinance institutions are an integral part of the
financial system and need to access capital markets to fund their lending portfolios which in turn
allows them to dramatically increase the number of poor people that they reach. In jurisdictions
which permit, they can also capture savings which is the provision of another important financial
service to the poor, and access deposits as another source of capital. Mutambanadzo et al (2013)
in their study of Zimbabwean MFIs concluded that the lack of appropriate funding is by far the
biggest obstacle of MFIs growth in Zimbabwe.

Microfinance institutions work with input suppliers
Microfinance institutions were said not to be working with input suppliers. This can be
illustrated by a mean score of 3.6 which resembles disagreement and a standard deviation of 0.66
which further indicate that these results were not by chance. After carrying out the ANOVA test
it can be concluded that this notion was of paramount importance to the study as it had a score of
0.32 because farmers lack access to farming inputs like seeds, fertilizers, insecticides, fungicides
and other agricultural resources. Research according to Opportunity (2016) has shown that rural
African farmers use significantly fewer inputs on their farm land than their peer low-income
counterparts in Latin America and South Asia. There is immense value in partnering reputable
local input suppliers to enable farmers to have access to fertilizer and improved seeds which they
can use on their land.

Communal farmers are organized into representative groups
This study also revealed that communal farmers were organized into representative groups which
they use for their farming business. A mean score of 2.9 showed that the respondents were in
agreement to this notion while a standard deviation of 1.02 showed that responses varies widely
67
or rather not stable thus giving room to doubt the results. However, an ANOVA p value of 0.42
endorsed this notion to be relevant to the study. Kent and Poulton (2016) underscore the
importance of farmers’organizations whose important role is in the provision of a forum for
collective action, increasing the political voice of the rural farmer group with some gains to rural
farmers such as infrastructure investment and improvements in service provision being also a
focus of such groups to the benefit of rural farmer communities.

Government support programmes complement microfinance institutions
Government support programmes were seen not to be complementing microfinance institutions.
This can be supported by a mean score of 3.2 and a standard deviation of 0.98 thus respondents
disagreed to the notion and their opinions were not by chance. Using an ANOVA test it can be
concluded that this notion was irrelevant to the study from the respondents’ view point.

Communal farmers use digital finance platforms
There is increased adoption on the use of digital finance platforms by communal farmers.
Regardless their exclusion from mainstream financial services communal farmers found financial
salvation in digital finance platforms as supported by the mean score of 2.4 and a standard
deviation of 0.79 which is below one. An ANOVA test further endorsed this notion by providing
a score of 0.31 thus highlighting the importance of this claim to the study. The increasing
adoption of platforms such as ecocash which dominates the payment landscape ahead of peers
one wallet, telecash and netcash (now Getcash) and the visibility of their agent networks in rural
areas give credence to this development.

Digital finance platforms lower transaction costs
Digital platforms were discovered to be lowering transaction costs as noted by the mean score of
2.9 and supported by a standard deviation of 0.9. Furthermore, this claim can be validated by an
ANOVA score of 0.28 thus proving it is significant.
68
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
This chapter gives a summary of the key findings of the study regarding the contribution of
microfinance to the development of rural farming in Zimbabwe with a focus on the rural farmers
of Domboshava. The conclusions which can be drawn from these findings and the
recommendations which the researcher proposes to ensure the development of a robust and
sustainable rural farming sector in Zimbabwe are indicated.
5.1 Summary of Findings
The following are the major findings of the study which sought to understand the contribution of
microfinance to the development of rural farming in Zimbabwe with Domboshava tomato
farmers of Goromonzi district being the case study

Microfinance is significant to communal farming
The majority of respondents as demonstrated by a mean of 1.3 and a standard deviation of 0.59
affirm the general view of respondents and scholars that microfinance is very significant towards
the development of communal farming. This is supported by Miller (2011) and Morvant-Roux
(2008) who suggest that microfinance has the potential to develop rural farming given its
advantage in terms of proximity to the client and its frequent association with cooperative
approaches. The access to credit is significant for rural farmers as it enables them to gain access
to new technologies which improves productivity and competitiveness (EAFF,2013).
69

Microfinance institutions offer training services to their borrowers
The study shows that microfinance institutions are not active in rural areas and are depriving the
rural farming communities of the training services that MFIs are frequently associated with. The
importance of training is highlighted by Gonzalez (2014) who explains that the purpose of
financial services training is to teach potential and real borrowers the significance of money and
how to manage it wisely which offers the opportunity to learn basic skills related to earning,
spending, budgeting, saving, and borrowing (Cohen &Sebstad, 2003). Training services also
typically emphasize the growing of high-value crops, adoption of high performing varieties and
market diversification, while also using market-driven approaches to enable farmers to
implement technologies that increase yields, quality, and competitiveness (Gonzalez,2014).

Microfinance interest rates and loan tenors enhance viable farming operations
The study found out that most farmers had limited awareness of microfinance lending facilities
with most respondents being neutral on the subject as shown by a mean score of 3 and a standard
deviation of 1.32. A report by the EAFF (2013) shows that in Kenya, the lack of appropriately
structured capital and access to affordable credit is cited by rural and smallholder farmers as the
main factor behind the low productivity in agriculture. The same scenario also prevailed in
Uganda where the view was that high interest rates inhibit agricultural investments (EAFF,2013).
In addition, Morvant-Roux (2008) points out that the interest rates charged by most MFIs do not
reflect the profitability rates of most agricultural activities and hence do not support the
development of viable farming enterprises. There is recognition that whilst a lot of progress has
been made in easing financial access, rural and smallholder farmers remains bogged down by
limited access to appropriate financing (Meyer, 2015). The lack of appropriate financing
structures for all farmers across the entire agricultural system is stressed by the Minister of
Finance in the Herald (2017) where he indicated that a suitable “all-in rate” should be 5% per
annum and minimum tenor of 1 year.
70

Rural farmers meet MFI requirements to qualify for credit
The study shows that most rural farmers are of the view that they qualify for loans which can be
advanced by MFIs.Nuhu et al (2014) argue that although it is true that many MFIs do not take
collateral especially those which focus on the poorest who normally do not possess any collateral
at all, several MFIs in practice do require some form of collateral. This is supported by EAFF
(2013) who also affirm that owing to the lack of collateral and/or credit history of most rural
farmers, they are by-passed not only by commercial and national development banks but also by
formal micro-credit institutions. In more developed microfinance markets there is increasing use
of collateral substitutes where MFIs often encourage repayment by requiring some collateral
even if ithas more symbolic than real value (Armendariz and Morduch, 2010). These forms of
collateral substitutes which are commonly used in agriculture include co-signers (guarantors) or
physical movable assets such as livestock, tools, machinery and other business and personal
assets with the idea being the notional or use value to the borrower being more critical than the
market or sale value of the pledged asset (Meyer, 2014). The IFC (2012) additionally argues that
rural farmers and their producer associations in limited cases where present frequently lack the
collateral acceptable for larger and longer-term loans which will make meaningful contribution
to the development of the rural farming sector. Miller (2011) however supports the increasing
adoption of the much publicized microfinance innovation, the personal and group guarantees
which according to him also have weaknesses since group members are often also farmers and
likely to face the same risks. The proposal to enable guarantees to work best is incorporation of
group members who do not depend on similar sources of income but have diverse sources of
income.

Lending to communal farmers is a profitable business
The study found out that the majority of respondents across the groups of farmers, extension
officers, NGO staff, local leadership and MFIs all share the view that there is immense potential
for viable and profitable business in supporting the rural farming sector. This is demonstrated by
a mean score of 2.8 and a standard deviation of 0.6. The potential growth of the food sector in
Africa is explained by Kent and Poulton (2016) who value the value of Africa`s domestic food
71
markets at levels of $50 billion hence, the rural and small holder farmers are a vital cog in these
key local and regional markets. In addition, Bindu and Chigusiwa (2014) point out those
Domboshava farmers are one of the largest suppliers of vegetable and tomatoes to the capital city
of Harare and this demand will continue to grow as urbanization takes place. Furthermore, Mago
and Hofisi (2014) support the notion that microfinance has the potential to play a very pivotal
role in the commercialisation not only of rural and smallholder farming activities but also the
successful implementation of agricultural ideas where microfinance becomes one way of helping
farmers to sharpen their agricultural ideas in order to promote rural economic development. This
is achieved through the adoption of what is termed the “integrated” view which focuses on the
provision of credit facilities together with a package of related follow-up services such as
training whereas as opposed to the more prevalent “minimalist” view which is concerned with
giving credit only.The attractiveness of serving the sector with appropriate products is supported
by research findings showing an average repayment rate of 80% among poor borrowers in more
mature MFI markets of Bangladesh, the Philippines and Brazil (Armendariz de Aghion and
Morduch, 2005; Kondo et al, 2008).

Rural farmers use digital finance platforms
The study also shows that the rural farmers were keen to embrace digital finance platforms such
as the ecocash payment system but the lack of proper infrastructure hinders the adoption of such
technologies and the whole system benefits from the reduced costs, more so in light of the
current cash challenges that have been experienced in Zimbabwe since 2016.This is shown by
the mean of 2.4 and standard deviation of 0.79 from the data analysis. One of the most prominent
gaps in developing financial services particularly for rural Africa is the poor infrastructure which
manifests in bad roads, erratic electricity provision, and the lack of proper communications
systems (Coates and Hofmeister, 2013). Meyer (2015) in addition points out that mobile phones
are transforming the ways in which farmers and rural people access information, products and
services which can indirectly support finance with examples where rural producers can more
easily access market information leading to better price and market opportunities (Aker, 2010;
Muto and Yamano, 2009).
72
5.2 Recommendations
The researcher makes the following recommendations to the stakeholders in the rural farming
and microfinance industry in order to enhance the development and modernisation of rural
farming sector which is believed will have a multiplier effect on the rural economy at large:
Microfinance institutions need to take a medium to long term view of their operations and see the
immense opportunities for growth and profitability that lie in serving rural farmers. Rural
farmers have an advantage over other sustenance activities like artisanal and small scale miners
who tend to be highly mobile according to the study by Munyoro et al (2017) who observed that
artisanal miners are of no fixed abode and mostly lead lifestyles which are risky. Rural farmers
on the contrary have a more established social structure and stability upon which to build (Miller,
2011). Rural farmers have permanent homes and raise families in their villages which factors
MFIs can use to target them through the integrated approach to serving their financial needs as
argued by Mago and Hofisi (2014). Rural areas also have an advantage in terms of the social ties
that exist among them, which according to Miller (2011) can be fertile ground for group lending
schemes which are appropriately formed, structured to ensure high repayment rates as in other
parts of the world notable Asia and Latin America.
The key stakeholders in the microfinance sector who are the RBZ, ZAMFI and the donor
community should work towards the establishment of a credit guarantee scheme which will go a
long way in addressing the issue of collateral substitutes for lending to rural farmers. The credit
guarantee scheme when properly set-up helps to address the key challenge of lack of adequate
and acceptable collateral which is prevalent among the marginalized groups who include SMEs,
women, youth, rural and small holder farmers in accessing bank credit (ZAMFI,2016). The
credit guarantee scheme has been successfully rolled out in Kenya by Equity bank, in Europe
with the Romania case study. There should however be safeguards to ensure MFIs do not take
unnecessary risks due to “moral hazard” problems.
73
The government should prioritise production and ensure ‘targeted interventions’ to assist the
vulnerable groups of society are routed through MFIs.A case in point is the recent USD90
million SME facility availed by the RBZ as reported by the Herald of May 6, 2017 and Newsday
of May 30, 2017.This facility has USD40 million earmarked for Gold mining SMEs, USD10
million for horticulture,USD15 million for cross border traders,USD15 million for women
projects and USD10 million for business linkages. The allocation of more resources to cross
border traders which is a non-productive activity over key productive sectors such as rural
farming appear to show misplaced priorities by the government as there are immense benefits
that can be realised from modernising and upgrading the rural farming sector to supply domestic
markets and regional and international export markets in the medium to long-term.
The Ministry of Agriculture, Mechanisation and Irrigation development needs to partner the MFI
sector in the rehabilitation of key infrastructure which is in a state of dilapidation and increases
costs for rural farmers. There are bad road networks, poor communication systems which affect
mobile phone network reception thereby limiting benefits that could accrue to the farmers
through enhanced access to market information, production information and training material
and mobile payments. Key parastatals such as the Agricultural and Rural Development Authority
(ARDA) which used to provide low-cost transport for rural farmers to and from markets also
need to be capacitated and re-focused to spearhead the development of rural farming. The
support for more efficient irrigation systems suitable for rural farmers such as drip kits also
needs to be explored from more advanced nations such as India through global leading
companies such as Jain systems.
The regulatory authority, RBZ needs to encourage the consolidation of players in the MFI sector
such that fewer, well capitalised institutions play a more visible and effective role of nurturing
the development of marginalised groups of society with rural farmers at the top of the pile. The
MFSB (2017) report argues that the gap between a money lending licence (USD25, 000) and the
next class of deposit-taking institutions (USD2, 5 million) is too wide for players operating in the
same industry. It is observed that bigger economies with more developed MFI sectors have fewer
players with Tanzania having 140; Uganda 92 whilst East Africa`s economic powerhouse Kenya
has only 24 institutions. Zimbabwe which is a much smaller economy and facing economic
74
headwinds with 184 institutions does appear to have too many smaller, insignificant players who
end up charging exorbitant fees due to their small capacity. The ZAMFI (2016) report indicated
that the local MFI sector is highly polarized with 5 large credit-only MFIs having a combined
loan portfolio of $58.8 million which represents 70.8% of the total sector loans as at 31
December 2016.The annual licencing cycle currently in place also needs to be reviewed to
ensure a consolidated MFI sector becomes attractive to international investors and MFI targeted
funds.
The donor community should avoid ‘direct interventions’ in rural farmer financing which tend to
distort markets, but rather focus on assisting in the development of a favorable policy
environment, in improving the legal and regulatory framework for rural financial markets, as
well as the development of the institutional capacity of the RBZ and ZAMFI and fostering
support innovations which lower transaction costs and improve risk management (Meyer, 2014).
A key contribution is to help protect the microfinance industry from threats by governments
through caps on interest rates for microloans according to Meyer (2011) , the key reason for
MFI success in many countries having been underpinned by the freedom to set interest rates at
levels necessary to cover costs and risks.International agencies have a potential and useful role to
play through advocating a long term strategy for financial market development (Meyer ,
2014).This is achieved through subsidizing investments in public goods that will benefit the
entire financial services sector such as a strengthening of property rights, creating of collateral
registries, credit bureaus, and special courts for credit defaulters which highlight potentially
high-payoff public goods supportive of rural microfinance (Miller,2013).
5.3 Chapter Summary
The chapter concludes the study after covering the research findings, and proposes
recommendations which the researcher believes can foster the development of a vibrant and
highly productive rural farming sector. The immense contribution that microfinance can play
towards the modernization, capacity building and fostering linkages amongst players in the rural
farming sector is without doubt. Rural livelihoods are dependent on this sector and growth in
75
production and productivity levels will have a multiplier effect on the rural economy and the
national economy at large. It is the researcher`s hope and belief that adoption of
recommendations in the study will go a long way in the long-term development of mutually
beneficial relationships amongst all stakeholders with the common goal being the creation of a
successful and productive rural farming sector.
5.4 Further Research
There is scope for the research to be done in other crop producing areas and evaluating ways in
which linkage banking can be implemented with MFI at the centre of linking the value chain
actors who include input suppliers, rural farmers and their customers. The degree to which
modern financing structures such as value chain financing, warehouse receipting systems for key
commodities can be rolled out in an environment where key players are linked can then be
explored to identify the impact on rural farmer livelihoods and growth of the rural economy. The
extent to which strategic alliances between key stakeholders with an interest in rural farming can
be leveraged upon to create successful rural farming systems can also be further investigated.
76
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APPENDIX A: Questionnaire
THE CONTRIBUTION OF MICROFINANCE TO THE DEVELOPMENT OF COMMUNAL
FARMING: A CASE STUDY OF HORTICULTURAL FARMERS IN DOMBOSHAVA
May you kindly fill in the questionnaire and tick the response that you think is the most appropriate to
each statement provided below. If you wish to make any additional comments, please do so at the end of
the questionnaire. Please note that the information obtained from this study is purely for academic
purposes and all responses treated with confidence. May you complete the questionnaire honestly and
return to the researcher.
�Male �Female
1. Gender
2. Age
�20-30 Years
�31-40 Years
�41-50 Years
3. Education: �Secondary �Diploma � Degree
�50 and above
� Postgraduate
4. How long have you been practicing horticulture farming?
� 1-5 year and below
� 5-10 years
�10 -15 years
Strongly
Agree
5
6
7
7
8
� 15 and more years
Agree
Neutral
Disagree
Strongly
Disagree
Microfinance is significant to the development of
communal farming
Microfinance is easily available to communal farmers
Microfinance institutions offer training services to
support their borrowers
The interest rates and loan tenors of microfinance
institutions promote viable farming operations
Microfinance institutions are adequately staffed for
monitoring of financed projects
9
Lending to communal farmers is profitable business
10
Communal farmers meet requirements to qualify for
microfinance loans
11
Microfinance institutions have access to development
partner financing for on-lending to communal farmers
12
Microfinance institutions work with input suppliers
and customers
13
Communal farmers are organized into representative
groups
14
Government support programmes complements
microfinance institutions
15
Communal farmers use digital finance platforms
16
Digital finance platforms lower transaction costs
Comments…………………………………………………………………………………………………………
Thank you for your help!
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