International Journal of Economics and Financial

Issues
ISSN: 2146-4138

available at http: www.econjournals.com

International Journal of Economics and Financial Issues, 2020, 10(3), 225-235.

Private Capital Formation Activities and Bank Credit Access

Among Farmers in Zimbabwe

Blessing Ropafadzo Chigunhah1*, Ezekia Svotwa2, Gerald Munyoro3, Tendai J. Mabvure4,

Ignatius Govere5
1
Graduate Business School, Chinhoyi University of Technology, Zimbabwe, 2Department of Crop Science and Post-Harvest
Technology, Chinhoyi University of Technology, Zimbabwe, 3Graduate Business School, Chinhoyi University of Technology,
Zimbabwe, 4Department of Accounting and Finance, Chinhoyi University of Technology, Zimbabwe, 5Faculty of Agriculture and
Environmental Sciences, Bindura University of Science Education, Zimbabwe. *Email: [email protected]

Received: 06 March 2020 Accepted: 10 May 2020 DOI: https://doi.org/10.32479/ijefi.9751

ABSTRACT
Bank credit is indispensable for commercializing and modernizing the agricultural sector in developing economies like Zimbabwe, where agriculture
is the key pillar of livelihoods. This study sought to establish the relative importance of private capital formation activities as drivers of bank credit
access among farmers in Zimbabwe. A structured questionnaire collected data from a sample of 372 respondents. Garrett’s Ranking Technique and
SPSS were used to rank the capital formation activities, whilst Friedman Tests (with Wilcoxon’s Signed Rank Post-hoc tests) were used to determine
the statistical significance of the rankings. Credit history, which falls under social capital was the most important driver of bank credit access among
the farmers, followed by agricultural production qualifications and skills. Farm assets and business management skills were the third and fourth most
important catalysts of bank credit access, whilst social networks were the least important. Hence, farmers are implored to uphold integrity in honouring
their loan obligations consistently, pursue agricultural production and business management skills, and invest in productive physical assets on and off
the farm. Policy should also address the land tenure issue to stimulate on-farm capital investments, and intensify knowledge enhancing agricultural
extension services to improve agricultural production knowledge among farmers.
Keywords: Bank Credit, Credit Access, Investments, Human Capital Formation, Physical Capital Formation, Social Capital Formation
JEL Classifications: Q12; Q13; Q14

1. INTRODUCTION banks are also not sufficiently financing the agricultural sector as
their average agricultural loan books have failed to reach the pre-
Bank lending is the most common source of external finance for the Fast Track Land Reform (FTLRP) maximum of 91% attained in
bulk of SMEs and entrepreneurs for their start-up, cash flow and 1999 (Reserve Bank of Zimbabwe (RBZ), 2006, 2019). The key
investment needs (OECD, 2015). In the agricultural sector, bank question is, why are the farmers in Zimbabwe failing to access
credit availability empowers farmers to acquire all the resources bank credit, and has anything been done to capacitate them to fulfil
that they need for enhancing production, income and livelihoods what the banks want? Most policies devised by the government
(Makamure et al., 2001; Rahji, 2000). However, in Zimbabwe, of Zimbabwe like the 99 Year Lease Agreement, the Collateral
the national budget is mostly inclined towards the financing of Registry and Command Agriculture have been directed towards
administrative costs rather than productive investments in critical addressing, and in some cases circumventing the collateral
sectors like agriculture (Echanove, 2017). Local commercial deficiency problem among farmers.

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 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

However, bank lending theory postulates that a lender does Samuel et al., 2015). Agricultural production and business
not only look at collateral when assessing agricultural loan management skills and experience, which are part of human
applications, but a combination of factors that can make a potential capital formation, were also established as other key determinants
borrower be described as creditworthy (Feschijan, 2008; Rouse, of credit access (Odu et al., 2010; Seyoum, 2017; Wulandari
1989; Seyoum, 2017). Jakušonoka and Barakauska (2016) et al., 2017). Social networks, a part of social capital formation,
propound that a client’s ability to repay all liabilities and debts is was also recognized as an important determinant of credit access
understood as the borrower’s creditworthiness, which thus makes among farmers in numerous studies (Abdul-Jalil, 2015; Adams,
him/her credible. Different models such as the 5C’s of credit 2015; Mayowa, 2015).
(Character, Capacity, Capital, Collateral and Conditions); the 5P’s
(Person, Payment, Principal, Purpose and Protection), the LAPP Available studies on the subject of capital formation in
(Liquidity, Activity, Profitability and Potential), the CAMPARI Zimbabwe have mostly focused on its impact on economic
(Character, Ability, Margin, Purpose, Amount, Repayment and growth at national level (Nyarota et al., 2015) and determinants
Insurance) model and Financial Analysis and Past Experiences of private investments in all productive sectors of the
methods (FAPE) guide lenders in the assessment of their potential economy (Bayai and Nyangara, 2013). Munyoro (2019) also
borrowers’ creditworthiness (Abbadi and Karsh, 2013). These studied the contribution of capital formation to agricultural
models show that the focus of policy in Zimbabwe on solving entrepreneurship development in Zimbabwe’s smallholder
the collateral issue alone is not sufficient to eliminate financial agriculture. Capital formation literature beyond Zimbabwe
constraints among farmers. Hence, the essence of this study is to has also focused on its role in enhancing farm productivity
enhance the farmers’ creditworthiness by encouraging them to (Bisaliah, 2012; Toringepi, 2016; Venkataramana and Reddy
adopt a combination of private capital formation activities, which Chinnappa, 2012); agricultural growth (Ma et al., 2013);
are perceived in this study as not only able to address the collateral economic growth (Bathla, 2014; David and Lopez, 2001; Ding
problem, but several other lending requirements set by banks. & Knight, 2011; Ibrahim, 2000); and its determinants (Ike and
Umuedafe, 2013; Jiranyakul, 2014).
At farm level, physical capital investments may comprise of
farm equipment, machinery, irrigation, land improvement and Numerous studies in literature have also demonstrated how bank
land reclamation, which enable the farmers to grow existing credit can engender capital formation (Afolabi, 1998; Joliya et al.,
crops more intensively, and to also take up high value crops 2017; Lemma, 2015; Nwaenze et al., 2014; Omankhanlen, 2012;
(Sivakumar, 2013). On the other hand, human capital includes Ponnala, 2016). However, they have been silent on the impact that
the ability, skills and knowledge per worker (Kadir et al., capital formation activities themselves could have on the supply of
2018), which David and Lopez (2001) perceive as durable and bank credit at farm level in developing economies like Zimbabwe,
lasting over a significant portion of the life of the possessor. where private banks are reluctant to supply the long-term financial
The acquired skills and knowledge play an important role of capital that is required by farmers for extensive capital formation,
determining the possessors’ labor productivity, their ability to especially in new resettlement farms. Therefore, by demonstrating
absorb new knowledge and to master new technologies (Becker, how a package of private capital formation activities by individual
1962; Schultz, 1961). However, Gómez-Limón et al. (2012) farmers influenced their access to bank credit finance in Zimbabwe,
highlight that physical and human capital partially determine the study will immensely augment the existing body of knowledge.
economic development because they overlook the way in Hence, the study sought to establish the importance of individual
which economic actors interact and organize themselves in capital formation factors as drivers of bank credit access among
production and in augmenting other types of capital. This brought farmers in Zimbabwe, based on the perceptions of commercial
increased attention to social capital formation. According to banks in Zimbabwe, as well as farmers and agricultural extension
Gómez-Limón et al. (2012) social relationships may affect the officers in the Hurungwe District of Mashonaland West province.
economic sustainability of farmers through influencing their
farming practices and their propensity to adopt new technologies
from the information supplied through these relationships. This 2. HYPOTHESES
enables them to learn new techniques, acquire know-how, obtain
training from others, and in some cases obtain official assistance The study’s hypotheses were therefore spelt out as follows:
to implement various practices.
H0: Capital formation activities are not perceived as important
Several capital formation activities have been linked to bank credit drivers of bank credit access among farmers in Zimbabwe.
access in available empirical literature that generally sought to
comprehend the determinants of credit access among farmers, H1: Capital formation activities are perceived as important drivers
especially in the smallholder farming sector. Credit history, which of bank credit access among farmers in Zimbabwe.
is perceived as a part of social capital formation in this study
through building relationships with creditors like banks, was 3. MATERIALS AND METHODS
established as a determinant of credit access in various studies
(Abdul-Jalil, 2015; Ijioma and Osondu, 2015; Kuye, 2015). Farm The study was underpinned by the post-positivism research
assets, a physical capital formation factor was also identified as philosophy. Therefore, quantitative techniques were used to
a determinant of credit access (Korir, 2013; Njogu et al., 2018; address the study’s objectives.

226 International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020
 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

3.1. Population, Sampling Procedure and Sample Size Garrett Score. Each variable’s total score from the Likert Scale
The study’s population was made up of 5 485 respondents was subsequently obtained and multiplied by its Garret score to
comprised of 4 273 Model A1 farmers, 1 107 Model A2 obtain its total Garret Score value. Lastly, the mean score value
farmers and 93 Agritex officers in Hurungwe District; and 12 for each variable was calculated. The capital formation factor
registered operational commercial banks in Zimbabwe. Since with the highest mean value was considered as the most important
it is recommended for cross sectional survey studies to use driver of credit access among farmers in Zimbabwe. Friedman’s
random sampling techniques to minimize selection bias (Zheng tests (with Wilcoxon-signed post hoc tests) in SPSS were used
et al., 2015), stratified random sampling was used to select the as a follow up to confirm the order of the rankings obtained, and
respondents who participated in the study. The 12 registered and to establish the statistical significance of the differences in the
operational commercial banks in Zimbabwe were all considered rankings by the respondents.
as part of the sample. The total population of Model A1 farmers,
Model A2 farmers and Agritex officers was subsequently used to 4. RESULTS
proportionately determine their respective sample sizes based on
the 360-sample size recommended by the Raosoft Sample Size The study’s findings are presented in detail in this section, starting
Calculator at a 95% confidence level. Respondents were then with the credit access status of farmers in Hurungwe District.
randomly selected from each stratum. The sample for the study
was therefore made up of 372 respondents comprised of 281 A1 4.1. Credit Access Status of Farmers in Hurungwe
farmers; 73 A2 farmers; 6 Agritex officers and 12 commercial District
banks’ credit officers. In the past period between 2000 and 2014, only 5 Model A1
farmers in Hurungwe District accessed bank credit from formal
3.2. Data Analysis banking institutions compared to 24 who accessed from the Model
Garrett’s Ranking Technique was used to rank the respondents’ A2 sector (Table 1). In the current period between 2015 and 2019,
perceived importance of individual capital formation factors none of the Model A1 farmers accessed bank credit, whereas 17
as drivers of bank credit access among farmers in Zimbabwe. farmers from Model A2 accessed it in the same period. Available
Garrett’s Ranking Technique was previously used by Asante- studies in Zimbabwe confirm that smallholder Model A2 farmers
Addo et al. (2017) in the analysis of farm households’ reasons for are the most preferred borrowers by banks because they possess
joining or not joining micro-credit programs in Ghana. Zalkuwi more collateral assets than their poorer smallholder Model A1
et al. (2015) also applied the technique in the comparison of counterparts as shown by this study (FACASI, 2015; Masiyandima
constraints influencing sorghum farmers in India and Nigeria. et al., 2011; Vitoria et al., 2012).
According to Dhanavandan (2016), the Garrett ranking method
can be used by a researcher who seeks to know the preference of Therefore, a total of thirty-five (35) (5 Model A1 and 30 Model
respondents among different variables. Zalkuwi et al. (2015) also A2) farmers who had accessed bank credit in both the current and
highlight that Garrett’s ranking technique provides the change past periods were used to rate the extent to which they thought
of orders of constraints and advantages into numerical scores, different capital formation factors (credit history, farm assets,
whose key advantage over simple frequency distribution is that social networks, agricultural production qualifications, skills and
it arranges variables based on their severity or importance from knowhow, and formal education) had helped them to access bank
the respondents’ point of view. Hence, the technique’s application credit on a Five-point Likert Scale. Thirty (30) farmers used in
in this study enabled the arrangement of capital formation Model A2 included twenty-nine (29) farmers who used to access
factors (credit history; formal education; agricultural production in the past period (sixteen (16) of whom were still accessing in
qualifications and skills; physical farm assets and social networks) the current period), and one (1) farmer who had started accessing
based on their perceived importance as credit access drivers among in the current period. Hence, the figure captured both past
farmers in Zimbabwe. A 5-point Likert Scale was used by the and current users of bank credit in the sector. The study’s key
respondents to rate the different capital formation factors, where informants that included eight (8) commercial banks and four
1 represented the most important rank and 5 the least important. (4) Agritex officers also participated in the ranking of the capital
The outcomes of their rankings were converted into percent formation factors as catalysts of bank credit access. Hence, a total
positions using the following formula proposed by Garrett and of forty-seven (47) respondents’ perceptions were taken account
Woodworth (1969): of in establishing the perceived importance of capital formation

100( Rij − 0.5)

Percent position = Table 1: Credit access status of farmers in Hurungwe
Nj
District
Farmers’ credit access status Model A1 Model A2
Where: (n=279) (n=53)
Rij = Rank given for the ith variable by the jth respondent Yes No Yes No
Nj = Number of variables ranked by the jth respondent Past access to bank credit (2000-2014) 5 274 29 24
Current access to bank credit 0 279 17 36
Making use of Garrett’s Table (Appendix 1), the percent positions (2015-2019)
assigned to each rank were converted into scores, known as the Source: Primary Data (2019)

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 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

activities in enhancing farmer access to bank credit in Zimbabwe credit. On the other hand, Agritex officers believed that 21.1% of
using the Garrett Ranking technique. Hence, the figure captured credit access among farmers in Hurungwe District was ascribed to
both past and current users of bank credit in the sector. The use good credit history. However, an unexpected result was obtained
of farmers who had previously accessed bank credit in the study among commercial bank credit officers, who rated credit history
was deemed appropriate because they would be in a better position as the second most important driver of bank credit access among
to objectively rank different capital formation activities that farmers, with a mean Garret score of 0.224. This result showed
helped them to access bank credit. Therefore, in order to avoid that commercial bank credit officers believed that 22.4% of credit
guessing and speculation, farmers who had not accessed bank access among farmers in Zimbabwe was accounted for by good
credit before were excluded in the rating of the capital formation credit history. The explanation for this lower score was that credit
factors. A separate paper publication (Chigunhah et al., 2020) history received its only least rating from a commercial bank which
dealt with the reasons why the bulk of the farmers in the district had indicated at the onset that it never financed farmers directly, but
were not participating in formal credit markets. The study’s key rather did so through value chain actors like tobacco contracting
informants that included 8 commercial banks and 4 Agritex officers companies like Tianze Tobacco. However, all the other bank credit
also participated in the ranking of the capital formation factors officers had agreed that a good credit history was an important
as catalysts of bank credit access among farmers, based on their driver of bank credit access among farmers in Zimbabwe.
actual experiences as lenders and agronomists who worked closely
with the farmers. Hence, a total of forty-seven (47) respondents’ All the 5 Model A1 farmers who had previously accessed bank
perceptions were taken account of in establishing the importance credit strongly agreed that their clean record of honouring
of capital formation activities as drivers of bank credit access past loan obligations, not only with banks, but also with other
among farmers in Zimbabwe. creditors helped them to access bank credit from formal banking
institutions in Zimbabwe. Similarly, all the Model A2 farmers who
4.2. The Perceived Importance of Capital Formation had previously and were still accessing bank credit also strongly
Factors as Drivers of Bank Credit Access among agreed that their good credit history helped them to access bank
Farmers in Zimbabwe credit. Seyoum (2017) confirms that banking institutions monitor a
The 5-point Likert scale’s rankings (1-5) were initially converted potential borrower’s regularity of payments to all its key partners.
into percentiles, and then converted into their Garret Scores
The majority of the Model A2 farmers who were under contract
determined by the Garrett’s ranking conversion table (Table 2;
farming with different tobacco contractors also revealed that
Appendix 1).
their good record of repaying their loans obligations with their
contractors helped them to acquire guarantee letters from them
Each capital formation factor’s total score for each respondent
to use as security for accessing additional asset financing and
group (Model A1 farmers, Model A2 farmers, commercial bank
other farm improvement loans from formal banking institutions
credit officers and Agritex officers) was subsequently determined
in Zimbabwe. Moreover, seven out of the eight commercial banks
as shown below, based on the frequency of the rankings it received
that participated in the study also perceived credit history as an
on the 5-Point Likert Scale (Table 3).
important driver of credit access, as well as all the four Agritex
The weighted Garret Ranking score of each capital formation officers who also participated in the study.
factor was subsequently calculated and ranked (Table 4).
Credit history was confirmed by Abdul-Jalil (2015) to be an
4.2.1. Credit history important determinant of credit access among farmers in Karaga
There was a marginal difference in the ranks assigned to credit District in the Northern Region of Ghana. In the study, farmer
history as an important driver of bank credit access among farmers creditworthiness, which was defined as the ability to repay loans,
by all the 4 respondent groups (Table 4). Model A1 and A2 had a positive and highly significant influence on the amount of
farmers, as well as Agritex officers in Hurungwe District ranked credit a farmer could access from formal sources. Ijioma and
credit history as the prime driver of credit access among farmers. Osondu (2015)’s study in the Anambra State of Nigeria also
Model A1 farmers believed that 24.4% of their access to bank established that past loans repaid by farmers had a positive and
credit was attributed to their clean history of honouring past loan significant effect on their access to bank credit. According to the
obligations. Model A2 farmers assigned a relatively lower 23.9% study, the ability to repay loans qualified the farmers to obtain more
to credit history as an important catalyst of their access to bank loans from lending institutions. The same study also revealed that if
farmers promptly repaid their borrowed funds without defaulting,
the lenders would become willing to release more funds to them.
Table 2: Conversion of ranks and percentiles into Garret
Overall, 98% of the study’s respondents perceived credit history
Scores
as an important driver of bank credit access among farmers in
Likert scale rank Percentile position Garrett’s score
Zimbabwe. Consequently, credit history was ranked as the most
1 10 75
2 30 60 important driver of bank credit access among farmers relative to
3 50 50 other capital formation factors, with an aggregate Garrett mean
4 70 40 score of 0.23. Hence, credit history was recognized as an important
5 90 25 driver of bank credit access among farmers in Zimbabwe in this
Source: Garret Ranking Table (Appendix 1; Garrett and Woodworth (1969)) study.

228 International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020
 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

Table 3: Determination of each capital formation factor's total garret ranking score
Ranking by A1 A2 Commercial Agritex Garrett’s Total score (Frequency*Garret’s score)
respondents Farmers Farmers Banks (n=8) Officers score A1 Farmers A2 Farmers Commercial Agritex
(n=5) (n=30) (n=4) (n=5) (n=30) Banks (n=8) Officers (n=4)
Credit history
1 5 30 4 4 75 375 2250 300 300
2 0 0 3 0 60 0 0 180 0
3 0 0 0 0 50 0 0 0 0
4 0 0 1 0 40 0 0 40 0
5 0 0 0 0 25 0 0 0 0
Total 375 2250 520 300
Agricultural production qualifications and skills (APQS)
1 4 20 5 3 75 300 1500 375 225
2 1 8 2 1 60 60 480 120 60
3 0 0 1 0 50 0 0 50 0
4 0 1 0 0 40 0 40 0 0
5 0 1 0 0 25 0 25 0 0
Total Score 360 2045 545 285
Business management qualifications, skills and knowhow (BMQS)
1 0 5 4 4 75 0 375 300 300
2 5 17 2 0 60 300 1020 120 0
3 0 5 1 0 50 0 250 50 0
4 0 2 1 0 40 0 80 40 0
5 0 1 0 0 25 0 25 0 0
Total score 300 1750 510 300
Social networks
1 0 5 0 1 75 0 375 0 75
2 0 3 0 1 60 0 180 0 60
3 0 1 0 2 50 0 50 0 100
4 2 4 5 0 40 80 160 200 0
5 3 17 3 0 25 75 425 75 0
Total score 155 1190 275 235
Farm assets
1 3 28 1 4 75 225 2100 75 300
2 2 0 6 0 60 120 0 360 0
3 0 0 0 0 50 0 0 0 0
4 0 0 1 0 40 0 40 40 0
5 0 1 0 0 25 0 25 0 0
Total score 345 2165 475 300
Source: Primary data (2019)

Table 4: Weighted garret ranking scores for individual capital formation factors
Capital formation Weighted score Rank Overall
factor A1 A2 Credit Agritex A1 A2 Credit Agritex Mean Rank
Farmers Farmers officers officers farmers farmers officers officers score
Credit history 0.244 0.239 0.224 0.211 1 1 2 1 0.230 1
APQS 0.235 0.218 0.234 0.201 2 3 1 4 0.222 2
BMQS 0.195 0.186 0.219 0.211 4 4 3 1 0.203 4
Social networks 0.101 0.127 0.118 0.165 5 5 5 5 0.128 5
Farm assets 0.225 0.230 0.204 0.211 3 2 4 1 0.218 3
Source: Primary data (2019)

4.2.2. Agricultural production qualifications, skills and important driver of their access to bank credit from formal banking
experience institutions, and assigned them with the highest Garrett mean
Agricultural production qualifications and skills were perceived rank of 0.235 relative to other respondents. Similarly, Model A2
by commercial bank credit officers as the most important farmers ranked them as the second most important driver of bank
driver of bank credit access among farmers relative to other credit access compared to other capital formation factors. Even
capital formation factors. Garrett ranking results (0.234 Garrett though the Model A2 farmers’ ranking for agricultural production
mean score) show that the bank credit officers believed that qualifications and skills occupied the third rank relative to the other
approximately 23.4% of bank credit access among farmers could respondents’ rankings, they accounted for approximately 21.8%
be attributed to the farmers’ possession of qualifications and skills of their access to bank credit, which was not too far off from the
in agricultural production (Table 4). Model A1 farmers also ranked higher rankings assigned by bank credit officers and Model A1
agricultural production qualifications and skills as the second most farmers. Despite not being far off from the rankings assigned

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 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

by the other respondents, Agritex officers perceived agricultural asset endowments to access bank credit compared to their Model
production qualifications and skills among farmers as the second A2 counterparts who were more reliant on their physical asset
least important driver of bank credit access among farmers in endowments. This observation raises concerns over the potentially
Hurungwe District relative to other capital formation factors. unfair and counter-productive exclusion of skilled poor farmers
Their ranking results showed that 20.1% of credit access among from lending programs due to their inability to produce collateral
the farmers could be explained by their possession of agricultural assets to secure borrowing. Agritex officers in Hurungwe District
production skills. However, in spite of occupying the second least also perceived farm assets as the most important driver of bank
important rank relative to other factors and the least rank relative to credit access among farmers, and assigned them with a 0.211
other respondents, a closer look at the Agritex officers’ responses Garrett mean score, which occupied the first rank relative to other
on the 5-point Likert Scale showed that all the officers had actually capital formation factors.
agreed (3 strongly agreed, 1 agreed) that agricultural production
qualifications and skills were important catalysts of bank credit The study obtained another unexpected result from bank credit
access among farmers. The Agritex officers expounded that officers, who assigned the least Garrett mean score of 0.204 to farm
farmers who were qualified and skilled in agricultural production assets as an important driver of credit access among farmers. The
had higher productivity and loan repayment potential, which was study had expected commercial banks to assign the highest rank to
highly favoured by banks. farm assets based available literature, which postulates that local
banks place weight and emphasis on the availability of collateral
Seyoum (2017)’s study of Ethiopian private banks similarly assets when lending to farmers in Zimbabwe (Masiyandima et al.,
established that the spread of skill and experience among the 2011; Nyamutowa and Masunda, 2013; Vitoria et al., 2012). The
management team (for example in production) and experience lower rating of farm assets by commercial banks may be ascribed
in the area they are seeking funding for were important catalysts to the fact that most farmers do not have freehold titles to their land,
of bank credit access. Odu et al. (2010)’s study in the Niger State which presents land tenure risk issues to the banks as confirmed
of Nigeria equally discovered that access to formal credit was by various studies (Ministry of Agriculture, 2013; Richardson,
increased significantly by the farmer’s experience and skills in 2005). Diagne (1999)’s study in Malawi similarly discovered
rice farming because it provided a guarantee that the project would that the composition of a household’s assets was more important
most likely succeed. Chandio et al. (2017)’s study in the Sindh as a determinant of access to formal credit than the total value of
rural province of Pakistan also discovered that farming experience assets or landholding size. This may also serve to explain why
had a positive effect on the farmers’ access to bank credit. Saqib farm assets were ranked by the commercial bank credit officers
et al. (2018) also observed that experienced farmers had better as the second least important determinant of credit access among
relationships with other farmers, money lenders and traders, farmers in Zimbabwe relative to other capital formation factors.
which helped to enhance their access to credit in the flood-prone Nonetheless, the farm assets’ rating by the commercial banks
areas of Pakistan. All in all, 94% of the respondent perceived was not too far off from the other ratings by farmers and Agritex
agricultural production qualifications and skills as important officers, which still shows that they were an important driver of
drivers of bank credit access among farmers in Zimbabwe. As a bank credit access among farmers in Zimbabwe.
result, they were ranked as the second most important driver of
bank credit access among farmers in Zimbabwe, with an overall The bank credit officers and Agritex officers indicated that the
Garrett mean score of 0.222. In light of these findings, the study availability of productive farm assets enhanced the farmers’
also recognized agricultural production qualifications and skills production capacity and income, which positively affected their
as important drivers of bank credit access among farmers in ability to repay the loans advanced to them. Several studies
Zimbabwe. also identified farm assets as important determinants of credit
access among farmers (Korir, 2013; Mayowa, 2015; Njogu
4.2.3. Farm assets et al., 2018; Samuel et al., 2015). Mayowa (2015)’s study of
The respondents’ rankings of farm assets as an important driver of farmers in South Africa’s peri-urban areas established that fixed
bank credit access among farmers were also marginally different. assets like buildings, fences and irrigation facilities fulfilled the
Model A2 farmers assigned the highest weight of 0.230 to farm collateral role as the farmers had no ownership of the land but
assets as catalysts of their access to bank credit compared to held Permission to Occupy certificates (PTO), which were not
other respondents, despite ranking them second relative to other recognized as acceptable collateral by the Land Bank. Njogu
capital formation factors (Table 4). This shows that Model A2 et al. (2018)’s study in Kenya also revealed that 23.65% of
farmers believed that 23% of their access to bank credit could be credit access among farmers was attributed to the value of their
attributed to their possession of farm assets. Model A1 farmers collateral assets, whilst an additional 13.27% was ascribed to the
also perceived that approximately 22.5% of their access to formal total assets they employed in the production process. Overall, 94%
bank credit could be explained by their farm asset endowments, of the respondents perceived farm assets as important catalysts
and ranked them third relative to other capital formation factors. of bank credit access among farmers in Zimbabwe. Hence,
Several studies confirm that most Model A2 farmers possess farm assets were ranked as the third most important driver of
larger asset endowments that make them the most preferable bank credit access among farmers in Zimbabwe, with an overall
customers to banks in Zimbabwe (Masiyandima et al., 2011; Garret mean score of 0.218. Accordingly, this study recognized
Vitoria et al., 2012). These findings actually revealed that Model farm assets as an important driver of bank credit access among
A1 farmers depended more on their farming skills than their farmers in Zimbabwe.

230 International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020
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4.2.4. Business management qualifications, skills and highest rank from Agritex officers, who assigned it with a mean
experience Garrett score of 0.165. Model A2 farmers also believed that only
Commercial bank credit officers assigned the highest Garrett 12.7% of their access to bank credit could be attributed to the
mean score of 0.219 to business management qualifications social networks they had built, or rather who they knew (Table 4).
and skills as catalyst of bank credit access among farmers The Model A1 farmers also felt that only 10.1% of their access to
compared to the other respondent groups (Table 4). Even if bank credit could be explained by the social networks that they
they were ranked third by the commercial bank credit officers possessed. These results may signal the presence of bias, nepotism
relative to other capital formation factors, approximately 22% and possibly corruption in loan granting processes by banks in
of the farmers’ access to bank credit in Zimbabwe could be Zimbabwe. However, the commercial banks’ low rank of 0.118 for
explained by the farmers’ possession of qualifications and skills social networks as a driver of bank credit access among farmers
in business management. Agritex officers also perceived business shows that they vehemently deny that they are helpful. Despite
management qualifications and skills as the most important driver the ranking results shown, the majority (79%) of the respondents
of bank credit access among farmers in Hurungwe District relative disputed that social networks were an important driver of credit
to other capital formation factors. As a result, they were assigned access among farmers in Zimbabwe. Several studies contradict
another high Garret mean score of 0.201, which meant that they these findings as they established that social networks positively
attributed almost 20% of bank credit access among farmers to influenced bank credit access among farmers (Abdul-Jalil, 2015;
their possession of these business management qualifications and Kofarmata et al., 2016; Saqib et al., 2018). As a result, social
skills. However, both Model A1 and Model A2 farmers were the networks emerged as the least ranked driver of bank credit access
only respondents who assigned weights below 20% to business among farmers in Zimbabwe, with the least Garrett mean score
management skills and qualifications as a driver of bank credit of 0.128. Hence, social networks were not perceived as important
access (Garrett mean scores of 0.195 and 0.186 respectively). drivers of bank credit access among farmers in Zimbabwe in this
Both farmer groups had also ranked business management study.
qualifications and skills as the second least important catalysts
of their access to bank credit relative to other capital formation Overall, a total of four out of five capital formation activities were
factors. According to the commercial banks and Agritex officers perceived by the majority of the respondents as important drivers
in the study, a farmer who possessed business management skills of bank credit access among farmers in Zimbabwe. However, in
or who had a management team that possessed these skills was order to be able to determine the statistical significance of the
more likely to run a profitable farming enterprise. Moreover, the rankings obtained and to generalize the findings, the Friedman
commercial banks highlighted that a farm with personnel that is test was conducted. Determining the statistical significance
endowed with business management skills was preferable because of the rankings helped the study to reject or fail to reject the
it was able to provide essential information for making a lending null hypothesis that capital formation factors were perceived
decision like business plans and historical financial statements. as important drivers of bank credit access among farmers in
In other words, such a farm could prove convincingly that the Zimbabwe. Post hoc tests were also performed using the Wilcoxon
project seeking funding was viable, legal and fell within the bank’s signed rank tests to determine the statistical significance of
risk appetite, which helped to reduce information asymmetry and different combinations of the capital formation factors. The
moral hazard problems that usually expose lenders to risk. Bonferroni adjustment was applied on the results obtained from
the Wilcoxon tests to determine the statistical significance of the
In support of these findings, Sebatta et al. (2014) discovered that paired variables.
farmers who possessed business financial management skills and
able to produce documents like business plans and budgets had 4.2.6. Friedman test (with Wilcoxon signed rank post hoc tests)
better access to bank credit than their counterparts who lacked such The mean ranking of the capital formation activities by the
skills in Zambia. Mukasa et al. (2017) also observed that farms Friedman test corresponded with and confirmed the Garret
that employed qualified workers in Ethiopia had better access to Rankings obtained by this study (Appendix 2). There was a
bank credit. Good business management practices also helped statistically significant difference in the perceived importance of
farmers in Kenya to gain access to bank credit (Njogu et al., 2018). capital formation activities as drivers of bank credit access among
All in all, 79% of the study’s respondents agreed that business farmers [X2 (4) = 101.555, p = 0.000]. Post hoc analysis with
management qualifications and skills were an important driver of Wilcoxon signed-rank tests were carried out with a Bonferroni
bank credit access among farmers. Hence, business management correction applied, which resulted in a significance level set at
qualifications and skills were ranked as the fourth most important p<0.005 (0.05/10). The median inter-quartile ranges (IQR) of
drivers of bank credit access among farmers in Zimbabwe, with a the variables were: agricultural production qualifications and
Garrett mean score of 0.203. This study also recognized business skills = 5 (5 to 5); business management qualifications and
management qualifications and skills as an important driver of skills = 4 (4 to 5); farm assets = 5 (4 to 5); credit history = 5
bank credit access among farmers in Zimbabwe. (5 to 5); social networks = 2 (1 to 3). There were statistically
significant differences between 8 out of the 10 paired variables,
4.2.5. Social networks which accounted for the overall significance of the rankings
Social networks were ranked as the least important driver of bank (Appendix 2). However, there were no significant differences
credit access among farmers in Zimbabwe by all of the study’s (p>0.005) between credit history and farm assets and farm assets
respondent groups. Despite this, social networks received the and agricultural production qualifications and skills. Hence, the

International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020 231
 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

study rejected the null hypothesis (H02) that capital formation Region of Ghana. Available from: http://www.dspace.knust.edu.gh/
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development is prioritized to ensure that farmers have access determinants of credit demand among farmers in Hurungwe district
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finance on their own. Access to irrigation infrastructure could
David, P.A., Lopez, J.G.G. (2001), Knowledge, Capabilities and Human
help the farmers to enhance their productivity, income and loan
Capital Formation in Economic Growth. New Zealand: Treasury
repayment ability, which is attractive to lenders. Farmers are also Working Paper Series 01/13, In The New Zealand Treasury.
encouraged to pursue cheaper irrigation alternatives on their own Dhanavandan, S. (2016), Application of garret ranking techniques:
like drip irrigation and boreholes to ensure that they are protected Practical approach. International Journal of Library and Information
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Structural Change. Available from: http://www.ghbook.ir/index.ph
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APPENDIX

Appendix 1
Percent Score Percent Score Percent Score
0.09 99 22.32 65 83.31 31
0.20 98 23.88 64 84.56 30
0.32 97 25.48 63 85.75 29
0.45 96 27.15 62 86.89 28
0.61 95 28.86 61 87.96 27
0.78 94 30.61 60 88.97 26
0.97 93 32.42 59 89.94 25
1.18 92 34.25 58 90.83 24
1.42 91 36.15 57 91.67 23
1.68 90 38.06 56 92.45 22
1.96 89 40.01 55 93.19 21
2.28 88 41.97 54 93.86 20
2.69 87 43.97 53 94.49 19
3.01 86 45.97 52 95.08 18
3.43 85 47.98 51 95.62 17
3.89 84 50.00 50 96.11 16
4.38 83 52.02 49 96.57 15
4.92 82 54.03 48 96.99 14
5.51 81 56.03 47 97.37 13
6.14 80 58.03 46 97.72 12
6.81 79 59.99 45 98.04 11
7.55 78 61.94 44 98.32 10
8.33 77 63.85 43 98.58 9
9.17 76 65.75 42 98.82 8
10.06 75 67.48 41 99.03 7
11.03 74 69.39 40 99.22 6
12.04 73 71.14 39 99.39 5
13.11 72 72.85 38 99.55 4
14.25 71 74.52 37 99.68 3
15.44 70 76.12 36 99.80 2
16.69 69 77.68 35 99.91 1
18.01 68 79.19 34 100.00 0
19.39 67 80.61 33
20.93 66 81.99 32

234 International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020
 Chigunhah, et al.: Private Capital Formation Activities and Bank Credit Access Among Farmers in Zimbabwe

Appendix 2: Friedman tests (with Wilcoxon signed rank post hoc tests) for capital formation factors as drivers of credit
access among farmers in Zimbabwe
Descriptive statistics
N Percentiles
25th 50th (Median) 75th
Agricultural production qualifications and skills 47 5.0000 5.0000 5.0000
Business management qualifications and skills 47 4.0000 4.0000 5.0000
Farm assets 47 4.0000 5.0000 5.0000
Credit history 47 5.0000 5.0000 5.0000
Social networks 47 1.0000 2.0000 3.0000

Friedman test
Ranks
Mean rank
Farm assets 3.46
Business management qualifications and skills 2.50
Agricultural production qualifications and skills 3.61
Credit history 3.95
Social networks 1.49

Test Statisticsa
N 47
Chi-Square 101.555
df 4
Asymp. Sig. .000

Test statisticsa
Business management Farm assets – Agricultural Credit history – Social networks –
qualifications and skills- production qualifications Agricultural production Agricultural production
Agricultural production and skills qualifications and skills qualifications and skills
qualifications and skills
Z −3.885b −1.512c −3.125c −4.549b
Asymp. Sig. (2-tailed) 0.000 0.131 0.002 0.000
a. Wilcoxon signed ranks test
b. Based on positive ranks.
C.Based on negative ranks.
Test Statisticsa
Farm assets – Business management Credit history – Business Social networks – Business
qualifications and skills management qualifications and skills management qualifications and skills

Z −4.722b −5.026b −4.142c

Asymp. Sig. (2-tailed) 0.000 0.000 0.000
a. Wilcoxon Signed Ranks Test
b. Based on negative ranks.
c. Based on positive ranks.

Test Statisticsa
Social networks – Credit history
Z -4.965b
Asymp. Sig. (2-tailed) .000
a. Wilcoxon Signed Ranks Test
b. Based on positive ranks.

International Journal of Economics and Financial Issues | Vol 10 • Issue 3 • 2020 235