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REPAYMENT CONSIDERATIONS
| 1. |
Individual
incentives: the more comprehensive the range of services offered
by the agribusiness, the more individual farmers stand to lose by
defaulting and therefore being excluded from the scheme-see creating
incentives for repayment |
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| 2. |
Group
incentives: peer group pressure often achieves high repayment
rates-see case study on Uganda
Vanilla Growers Association |
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| 3. |
Lending in kind: providing credit in the form of seeds, pesticides,
fertilizers, etc. reduces the possibility of diverting credit to alternative
uses. Also, credit is released in instalments through the production
cycle, with inputs distributed only as and when required-see case
study British American Tobacco,
Uganda |
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| 4. |
Co-operation between buyers: this is not common but, potentially,
provides mutual benefits, either through agreement not to purchase
from farmers contracted by other buyers, or through joint operation
of the scheme. |
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| 5. |
Lack
of alternative uses for output: If the output has any value other
than to the processor or trader who provides the credit, then there
is a risk that not all of the produce will be available for purchase
by the credit provider. This is particularly relevant to food crops.
It is impossible to prevent household consumption, and households
will resort to this if they are dissatisfied with the price offered
for the produce, or if they are food insecure, or if they believe
they can escape penalty. |
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| 6. |
Strict
treatment of defaulters: Legislation can be developed and enforced
which, in theory, protects both parties in the contract. In the absence
of legally enforceable contracts, companies have sometimes taken enforcement
into their own hands-see case study enforcing
repayment |
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