Financing the development of poor communities in the Northern Cape of South Africa: An analytical framework for the study of Livestock Banks

Ana Marr

doi:10.4102/jef.v3i1.344

Abstract

This paper is part of a major project about the Northern Cape Land Reform and Advocacy (NCLRA) programme being implemented by FARM-Africa* in South Africa. The NCLRA programme had initiated a financial mechanism to help poor communities to get access to finance and training in order to enable them to make better use of their newly-acquired land. One prominent aspect of the programme is the implementation of Livestock Banks, or the use of animals as financial products. The paper provides an analytical framework with which to evaluate the effectiveness of Livestock Banks in the poor communities of the Northern Cape in South Africa. It focuses on the design, implementation and future of Livestock Banks. The paper argues that Livestock Banks need to be reformed and enhanced if they are to continue to play a key role in the goal of creating financial and economic value in Africa, particularly when the primary objective is simultaneously to help reduce poverty.

Highlights

Microfinance has revolutionised the financial landscape and become a potentially powerful tool for the reduction of poverty worldwide
This paper aims at filling this gap and contributing towards a better conceptual understanding of cashless microfinance
The present paper offers an alternative analytical framework based on the empirical working of a charity organisation in the Northern Cape of South Africa

Summary

Introduction

Microfinance has revolutionised the financial landscape and become a potentially powerful tool for the reduction of poverty worldwide. By working in groups and extending small-scale financial products, microfinance has helped mitigate the information asymmetries and high transaction costs usually associated with lending to low-income populations, generally perceived as risky clients. The vast literature on microfinance practice has focused on cash transactions with the target population in need of financial services (Hulme & Mosley, 1996; Brau & Woller, 2004; Cull, Kunt & Morduch, 2007). What has been neglected is the study of in-kind microfinance whereby transactions are primarily based on livestock. While the general theoretical framework of group-lending (that generates peer monitoring and reduces default risks) applies to in-kind microfinance, livestock banking needs to be studied in relation to the quantity and quality of the livestock and other supportive mechanisms for the system to survive

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Conclusion