The Cotton Company of Zimbabwe (Cottco) is the largest company in the cotton sector, accounting for around 70% of seed cotton purchases and processing, and has operated a smallholder contract farming scheme since 1992/3. The scheme uses a number of mechanisms to minimize default:
Credit is extended in the form of physical inputs (seed, fertilizer and pesticide) to smallholder groups. The whole group is penalized if one member defaults, so there is an incentive for peer policing to ensure repayment. Groups are self-selecting, though all new members have to be able to demonstrate that they have a good track record in cotton cultivation. The size of groups has declined during the lifetime of the scheme. Originally groups had to have a minimum of 50 members; by the 1998/99 season this had changed to a minimum of 5 and maximum of 25.
Considerable effort is made to forge close relationships between the company and the participating smallholders. Local Cottco agents are in year-round contact with smallholders, and additional services are provided by the company, including extension advice.
Monetary rewards are given to groups with high repayment rates. Defaulters are followed up quickly and assets, such as cattle, can be seized. A debt collector has been contracted for this purpose.

In 1998, 50,000 smallholders were in the scheme. The repayment rate for the 97/98 season was 98 %.

Analysis:

• Credit applicants are selected on both company and smallholder group criteria.
• Repayment is encouraged by individual and group incentives, lending in kind, and strict treatment of defaulters.
• Since Cottco accounts for 70% of purchases in thecotton sector, there are relatively few alternatives for the smallholders' output.