Financing of horticultural marketing in Asia

This paper discusses how horticultural traders in Asia finance their activities, how they use that finance and whether there is scope for financial institutions to increase lending to them. There have been few previous studies on how traders source finance, on the credit interactions between them and on their credit interactions with farmers. The paper briefly reviews the limited available literature and draws on a number of unpublished case studies carried out in 2001. Sources of working capital are the traders' own funds, friends and family and local moneylenders as well as others in the marketing system. Farmers also provide finance by accepting deferred payment for their products. Marketing system participants use credit mainly to secure supply, guarantee markets and reduce transaction costs. There are many vertical financial linkages within those systems, usually revolving around wholesalers in wholesale markets. The general conclusion is that availability of working capital is not a major constraint to the functioning of horticultural marketing systems. Banks rarely offer a satisfactory alternative to informal financial sources, even if interest rates are much lower. Without suitable collateral banks are generally reluctant to lend and their procedures are too slow. Working capital needs of horticultural traders are unpredictable and loans are often required immediately. Banks should examine whether they can develop loan products more adapted to the needs of the horticultural sector.