Issue 9 February - May 2002by Roshnee Pillay

“A lack of access to agri-support systems has long been identified as a major stumbling block for the expansion of small scale farming in the developing world. The supply of appropriate support structures such as the funding of inputs and production assets, mechanisation services, marketing, extension services and training, could remove the barriers to the more efficient utilisation of agricultural resources, resulting in an increase in economic activity and income levels”.

These are the words of Thozama Doni, General Manager of Umthombo Agricultural Finance, a division of the South African Sugar Association, at the Umthombo Agricultural Finance Grower of the Year Awards. Umthombo is South Africa’s largest private agricultural finance organisation directed towards the empowerment of small-scale cane growers farming on communally held land. Previously known as the Financial Aid Fund (FAF), the organisation was founded in 1973 with a mere R5 million made available by the industry. FAF grew, and by the beginning of 2001, its loan book stood at more than R110 million. In addition, the organisation held a savings portfolio of R50 million per annum, received from a client base of 56 000 farmers. With a 95% loan repayment rate and a bad debt write-off of less than 3%, the fund continues to be one of the most successful developmental lending programmes in the country.

Current figures indicate that small-scale farmers grow 20% of South Africa’s sugar produce. There are 2 000 large-scale commercial farmers and more than 50 000 small-scale growers in the country. With the economic development and subsequent empowerment of previously disadvantaged people, a growing number of medium-scale farmers are also entering sugarcane agriculture on farms made available by the milling companies at market related prices. Employment within the sugar industry is pinned at approximately 85 000 jobs, with this number reaching 350 000 when employment in related or support industries is factored in.

The success of the FAF was over a period when other similar initiatives were largely unsuccessful. The Farmer Support Programme, initiated by the Development Bank of Southern Africa (DBSA) in the mid 1980s, as well as the BATAT initiative of the National Department of Agriculture (NDA), initiated in 1994, were amongst those that did not succeed. “We achieved our goals by focussing on small scale sugar growers,” stated Doni. “In addition, we adopted a structure that allows clients to influence policy direction, involve the community in loan screening and assessment, encourage clients to save for their future operations so as not to forever depend on credit and operate in an environment that provides extensive support for farmers in the form of extensions and training”.

Community involvement and adaptation of its service to the evolving needs of its market are the same characteristics that prompted the recent relaunch of FAF in the form of Umthombo Agricultural Finance. The name change was initiated for two main reasons:

1) to foster an identity that clients could easily identify with (Umthombo is the Zulu word for a fountain or spring) and

2) to free the organisation from the perception that it provides “hand-outs” to farmers. The change also allows for the implementation of various new policies and procedures. Umthombo’s core objective is to provide programmes that contribute towards the empowerment of rural people as well as ensure their self-sustainability. While still concerned with Rands and Cents, cane yields and infrastructure improvements, Umthombo also aims to extend its service delivery. This will be done through the establishment of a network of full-time loan officers in the various mill areas, the creation of a uniform standard of communication that ensures all employees of the organisation speak the language of its clients; the introduction of several new products and the redesign of its existing range. The fund will also strive to simplify loan procedures; incentivise good loan repayments, maintain a high level of risk management and appoint Client Liaison Officers from local communities to assist with loan processing and other related activities. In addition to this, the committee overseeing Umthombo will be strengthened by the appointment of independent experts and the establishment of a Consultative Forum that will ensure Umthombo remains in touch with the needs of its client base.

Two new products have been introduced under the Umthombo label. Zakhe (Access) is a start up loan for growers who have access to less than 2 hectares of cane. The interest rate for this loan is lower than any other product currently available in the portfolio. Usiso (Agribridge) provides a bridging finance facility for growers as well as infield transport contractors. It is specifically designed to assist in the period between harvesting and receiving of payment for cane sold. Umthombo’s products all encourage growers who have access to relatively small pieces of land to make savings on costs by using family labour for most of the activities. This enables them to have a small initial loan, which they can pay back in a shorter time, leaving more income for the family. It is encouraging to note that the growers are beginning to heed this call.

To further incentivise growers and promote role models amongst the small-scale sugar farming sector, encourage good husbandry practices and good loan repayment, the annual Grower of the Year award was introduced three years ago. The first ceremony under the auspices of the new Umthombo Agricultural Finance was hosted in KwaZulu Natal in November last year. This year’s title was awarded to Monica Shandu who started farming in 1997 with assistance from Umthombo. The total value of her prize is in the region of R30 000. Several other female farmers have also been extremely successful in their endeavours. Last year’s recipient of the Grower of the Year Award was also the National Department of Agriculture’s Female Farmer of the Year. Emma Sambo was financed by Umthombo to develop 15 hectares of sugar cane in Mpumalanga province. She managed to pay back her loan in good time, built herself a home, purchased two cars and maintains a healthy retention savings account with Umthombo.

Who qualifies for agricultural finance?
To take advantage of Umthombo’s product portfolio one needs to be a sugar cane grower or infield transport contractor who is holder of a South African ID or is a legal resident in the Republic of South Africa. In addition, the successful candidate must be able to produce proof that he or she has the right to use land. Approval of all loans takes a maximum of fourteen working days, except for the Agri-bridge product, which can be approved in up to three days. Annual installments are negotiated according to crop cycle and loan payments are deducted from the client’s proceeds. Since the majority of Umthombo’s clients have access to small areas of land only, insurance is not a requirement, as the premiums charged become too high and as such inaccessible. If a client has a large area however and consequently requires a larger loan, the organisation reserves the right to insist on an insurance cover. New clients are provided with debt management training prior to receiving their finance and any other training requirements are negotiated through the South African Sugar Experiment Station (SASEX), the Industrial Training Centre (ITC) or the Small Grower Development Trust (SGDT).

Author's Contact Details
Author: Roshnee Pillay
Tel: +27 31 508 7031
Fax: +27 31 508 7191
Email: roshneepil@sasa.org.za
Website: www.sugar.org.za