Efficacy of collateral types used by financial intermediaries in KwaZulu-Natal

M.E. Kuhn, Mark A.G. Darroch and Gerald F. Ortmann

Agrekon, 1997, vol. 36, issue 4, 13

Abstract: Collateral is an important incentive device used by lenders to encourage loan repayment. However, collateral must have secure and transferable title, it must be marketable, have low lender liquidation costs and lenders must be able to attach the collateral. Study results for rural and micro-enterprise finance institutions in KwaZulu-Natal showed that assets such as vehicles and equipment were not effective as collateral due to high costs in attaching the asset. Cessions on crops were often constrained by flaws in collection mechanisms. Secure and transferable property rights were important preconditions for land to have value as collateral. Collateral substitutes such as joint liability mechanisms were less effective when lending to large farmer groups (30-60 members) compared with small groups (4-6 individuals) of micro-entrepreneurs operating in urban areas.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:ags:agreko:54724

DOI: 10.22004/ag.econ.54724

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