Empowering South African Smallholder Farmers: Integrating Climate Resilience into Credit Assessment

Agriculture, a sector vulnerable to climate change, relies heavily on debt to invest in modern technology for efficiency and increased production in the face of changing climatic conditions. Despite this, a large group of smallholder farmers in South Africa are excluded from accessing credit at commercial banks, yet they make up a significant proportion of the farming population. The current funding framework in South Africa encompasses the five Cs of credit with a complex view of climate risk. Therefore, this study aimed to propose a simple climate-inclusive credit approach tailored for smallholder farmers. Specifically, this study (1) profiled the respondents and identified the status quo of credit access at commercial banks of smallholder farmers and (2) assessed smallholder farmers' compliance with the determinants of the credit application outcome determined by commercial banks. This study used a semi-structured questionnaire to collect data from 223 smallholder farmers, who were interviewed through a referral system in two provinces. Descriptive statistics and a logistic regression model were used to analyse the data. The results reveal that the majority (71.75%) of farmers were female, with an average age of 49 years. This study also established that a substantive number of smallholder farmers operated in communal lands without a title deed, posing a challenge in accessing bank credit. The results from the logistic regression model show that the five Cs of credit were significant in determining the decision to apply for a credit facility at the bank. The model further showed a positive relationship between climate-resilient technologies/assets and credit accessibility. This study recommends the need for a simple climate-inclusive credit model that considers climate change so as to foster climate change resilience. This study suggests that banks look at the ownership of assets that promote climate resilience when it comes to assessing the credit applications of smallholder farmers.