FARMING AS A BUSINESS

APOLOU Training Manual

September 2018
Farming as a Business Training Manual

Table of Contents
BACKGROUND .............................................................................................................................2
ACKNOWLEDGEMENTS ................................................................................................................2
MODULE 1: FARMING AS A BUSINESS...........................................................................................3
FROM SUBSISTENCE TO COMMERCIAL FARM ENTERPRISES ............................................................. 4
PROFITABILITY ANALYSIS .................................................................................................................... 8
Gross Margin Analysis..................................................................................................................... 9
Risk Analysis .................................................................................................................................. 10
MODULE II: FARM FINANCIAL MANAGEMENT ............................................................................ 11
FINANCIAL PLAN FOR THE POULTRY PROJECT ................................................................................. 12
MAKING A BUSINESS PLAN .............................................................................................................. 13
CASH AND CREDIT MANAGEMENT .................................................................................................. 16

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Farming as a Business Training Manual

BACKGROUND
Karamoja occupies the eastern area of North Uganda and borders South Sudan to the North, Kenya
to the East and the sub-regions of Acholi, Lango and Teso to the West. The sub-region occupies
almost 10% of Uganda’s land area and is divided into 8 districts: Kaabong, Kotido, Abim, Moroto,
Napak, Amudat, Nakapiripirit and Nabilatuk. The 2014 Census estimates the population at slightly
under 1 million, while the United Nations reports a population of 1.2 - 1.3 million. It is widely
recognized that 75 - 80% of the people live in absolute poverty.

Most farmers in Karamoja region lack the formal business education and knowledge of basic
financial practices such as the calculation of profitability and productivity of farming as a household
activity. The manual is intended to encourage farmers to work together, make corporate decisions,
and harness each member’s talents in managing the farming as a business, for greater productivity
and prosperity. The manual will assist agribusiness enterprises acquire planning and basic business
skills so as to be fully commercial and achieve higher profits and competitiveness. The manual
focuses on building farmers’ business management knowledge and skills in record keeping,
planning, risk management, market analysis, and contract management. These skills will help
farmers understand the impact that improved management, diversification, and market selection
can have on their farm incomes.

ACKNOWLEDGEMENTS
This module and associated training materials are made possible through the generous support of
the American people through the United States Agency for International Development (USAID). The
contents are the responsibility of Mercy Corps and do not necessarily reflect the views of USAID or
the United States government.

This facilitator handbook on farming as a business has been developed and adapted from the
following references:
 James R. Okoth, Winfred Nalyongo and Alexis Bonte. 2010. Facilitators’ Guide for Running a
Farmer Field School: An adaptation to a post emergency recovery programme. FAO Uganda.
 David Kahan. 2010. Entrepreneurship in Farming. Food and Agriculture Organization of the
United Nations. Rome.
 Tawedzegwa Musitini. 2012. Farming as a Family Business: Training Manual. USAID funded
Zimbabwe Agricultural Competitiveness Program.

Cover Photo Credits:

Clockwise from top left: Georgina Goodwin / Mercy Crops, Ezra Millstein / Mercy Corps, Corinna
Robbins / Mercy Corps, Semakula Emmanuel / Mercy Corps, Georgina Goodwin / Mercy Corps

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Farming as a Business Training Manual

MODULE 1: FARMING AS A BUSINESS

Learning Objective: Have farmers understand the value of moving from small-scale farming to profitable
farming through Farming as a Business (FAAB).

Target Audience Field Extension Workers, Farmer Enterprise Groups.

Estimated Time
Recommended Methodology
Materials Required
Module Objectives
120 minutes.
Participatory training through group discussions and role play.
Flip chart paper, markers, cards, note books, and pens.
1. To understand the fundamental principles of farming as a
business.
2. To do a profit analysis for selected crops and livestock in the
community.
3. Preparation of a business plan.
4. To establish and understand the financial gains of running a
successful farm enterprise.

Step 1: Begin with farmers’ thoughts about the farming system in their community. Lead them to talk about
general observations about farmers in rural communities which include:

Crop with Maize Lethal Necrosis disease. Photo: Cassandra Nelson / Mercy Corps
Photo: National Media Group

 They usually have small plots, crops, and animals share the same small plot.
 They have difficulty controlling diseases on the plot and lack modern farming skills, making
production unmanageable.
 There is little monetary importance attached to farming as farmers do not attach any cost to the
factors of production.

Step 2: Talk about their understanding of farming and business. Do they see them as separate ideas? Do
they know anyone who has a commercial farming business? Ask them to compare farming and

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business. Do most rural farmers approach agriculture as a business? What are the common
businesses in their community and is farming one of them?

Step 3: Present the benefits of Farming as a Business.

Benefits to the Family Benefits to Society

Growth in income due to market participation.
Improved standards of living due to increased
income.
Diversity of consumed products purchased using
increased income.
Improved nutrition and household food security.
Increased productivity and efficiency of the family
farm.
Improved consistency in supply of products.
Improved quality of products.
Growth of rural-based businesses and employment
creation.
Improved distribution of food and raw material
through trade.
Growth of productivity and supply base for agro-
industry inputs.

Farming as a business approach puts emphasis on the value of moving from survival farming to profitable
farming. If farmers make good management decisions, they can feed themselves and create their own safety
net. The next time a crop fails, the farmers will remain financially secure because they will have learned how
to select the right enterprises, spread their activities, save money and realize more earnings on the farm.
The goal of Farming as a Business is to boost farmer earnings by reducing costs, increasing on the harvest
and sell at higher prices.

Reducing Costs: For the farmer to increase profit, he/she must first reduce production and marketing costs.
The farmer can reduce costs without giving in on level of production and quality of crops and livestock on
his/her farm.

High-cost choice Low-cost choice

 Purchase of fertilizer.  Use of green manure.
 Hire of labour to weed.  Family members weed.
 Individual input purchase.  Bulk buying.

Increasing Harvest: Farmers must adopt better practices to get the best out of their farms. The farmer will
get higher yields if he/she: plants in a timely manner, uses better-quality inputs, correctly manages soil and
water use, keeps the fields free of weeds, controls pests and disease and harvests on time.

Higher Prices: Farmers can improve the value of their products by adding more features. Even though the
farmers want to cut costs they should be willing to spend on product improvements that will attract higher
prices. If the farmers are organized under a network, they can decide to pack their produce during the
decline period until after harvest-when the prices rise.

The Right Combination: The aim of a farmer is to balance the 3 essentials to realize growth in profit. Farmers
cannot earn profit if they do not invest in their business. Farmers can add value to their products, but they
can only charge high prices if consumers are willing to pay for such improvements.

From Subsistence to Commercial Farm Enterprises

This section will take you through the stages of starting and continuing with a profitable farm enterprise.
First, the farmers will select the enterprise and examine the profitability and risks related with that selected
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choice. Then the farmers will create a budget for the enterprise and begin planning for the business with the
intention of earning more profits.

Step 1: Review the conversation from the previous session introducing FAAB. Make sure the group knows
the FAAB message.

Photo: Ezra Millstein / Mercy Corps Photo: Corinna Robbins / Mercy Corps

Subsistence Farming Commercial Farming

Production for home support and limited
motivation for the market.
Limited participation in input and output markets.
Limited investment in inputs and technology.
Reliance on retained seeds or donated inputs and
traditional technology.
Little valuation of inputs and outputs.
Extensive product mix.
Production for the market with a strong motivation
on generating profits.
Active participation in input and output markets.
Active investments in inputs and technology.
Reinvestment of profits into inputs and technology.
Estimation of inputs and outputs.
Narrow product range.

Step 2: Explore the farmers’ understanding of creativity and running a business. Do they know what these
concepts mean? Do they know any business persons in the community? What are some examples of
businesses in the community? Are these successful? If so, why? Do they lower costs, add value or
both? What businesses failed?

Step 3: Discuss the factors for success in an enterprise.

Step 4: Break into mini groups. Ask each group to debate if they should begin a group business, the types of
enterprises the group can undertake, and the trials to starting a group enterprise.

Step 5: Each mini group should present a suggestion for a group enterprise. It should also briefly describe
the trials to starting this activity.

Step 6: Start the enterprise selection process, using the suggestions from the mini groups as choices. Place
each suggestion into groups so they can easily compare them: Livestock [e.g. cattle vs. goats, pigs,
sheep, poultry], crops [cereals, pulses, vegetables, tubers].

Step 7: From this smaller list of business ideas, have the group understand the measures it should use to
select its enterprise. Help the farmers agree on which measures are the most important. Every

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measure gets a mathematical value. The most important measure gets the highest number (e.g. 10)
and the least important gets the lowest number. Table 1.1 is an example of the list of measures and
the group’s explanations for the ranking.

Step 8: Ask the farmers to vote on each of the measure. This particular group has focused on 5 potential
businesses including: sorghum, groundnuts, simsim, millet and beans.

Based on the local experience, have the group think on the status of each enterprise in its village free of
the other 4 enterprises. Ask participants to vote by a show of hands and agree with the following
statements: growing sorghum in our village is profitable, there is ready market, the start-up costs are
low, takes a short time to mature, there are low risks related and we can get the skills to grow it and
handle.

Profit Market Startup Costs, Duration, Risks, Skills, Total

Enterprise Rank
W = 10 W=9 W=8 W=7 W=6 W=5 Score
Sorghum 7 = 70 4 = 36 7 = 56 8 = 56 6 = 36 4 = 20 274 1
Groundnuts 4 = 40 3 = 27 6 = 48 4 = 28 5 = 30 5 = 25 198 4
Simsim 6 = 60 7 = 63 5 = 40 4 = 28 4 = 24 7 = 35 250 2
Millet 5 = 50 7 = 63 3 = 24 3 = 21 7 = 42 4 = 20 220 3
Beans 3 = 30 4 = 36 4 = 32 6 = 42 4 = 24 5 = 25 189 5

 Tally the votes against the particular boxes as shown in the table above.
 Multiply the totals for each measure by the weight.
 Add the totals for all the measures for each enterprise to get the total score.
 Rank the enterprises by total scores. The highest score ranks #1.

Table 1.1: Selection of Potential Enterprises.

Step 9: The result of the neutral ranking was based on the group’s local knowledge and experience with the
enterprises being compared. To ensure that the enterprise selected is practical and possibly cost-
effective, the group needs to do further analysis. In the next session the group will do a profitability
analysis of the top three potential enterprises. In this case, the group will look at sorghum, simsim
and millet.

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Farm Enterprise Selection

An enterprise is any activity a person or group does to make money or profits. The profits can be
put back into the enterprise to increase the size of the business or to increase savings. As the size of
the business increases, profits should also increase as well.

A business person is someone who takes risks to try to earn money. A business person starts
enterprises. He takes a lot of risks because he must invest much money before the enterprise can
even begin production. Debate with the farmers the several factors that can lower the threat for a
business person and increase the chance of success for his/her enterprise.

Risks: What are the threats involved? Is the group happy with taking these threats? In the farming
as a family business concept, outcomes can be disrupted at production stage which affects output
level, market level which affects revenue and profit; and income distribution level which affects
family source of revenue.

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Profitability Analysis

The group has already narrowed down its potential enterprises to three. During the next two
sessions, the group will decide the enterprise it will start. The group will explore which of its final
three enterprises is the most profitable. A profitability analysis has two parts. The first part is a
gross margin analysis. The second is a threat or opportunity analysis.

Learning Objective: By the end of this session, farmers will be able to carry out a profitability
analysis of the 3 potential enterprises and make informed decisions.

Step 1: Debate terms that will be used in the gross margin analysis.
 Gross margin: The expected profits.
 Total costs: The amount you spend on producing the product.
 Total revenue: The total amount that you earn from selling all your products.
 Harvest/Output: The amount of a product you produce.
 Price: The amount for which you sell each product item.

Step 2: Ask the farmer or group:

 List all the activities the group would need to implement from the start to the end of the
enterprise.
 List all the inputs it would need to run 1 acre of the enterprise. These inputs could
include land, labor, tools, seeds, equipment, and advertisements.
 Estimate the cost of each input, using personal experience as a guide.
 Estimate the total costs of the inputs.
 Ask members to estimate the total output of the enterprise, using their own experiences
with the crop as a guide.
 Find out the projected market price per unit of the product (this information should
come from market surveys or farmers’ experiences).
 Estimate the expected returns by multiplying the output by the market price per unit.
 Take away projected total costs from expected returns to calculate the gross margin.

Step 3: Each mini group should present its answers. Each one will have slightly different results.
What inputs were left out? Ask the group to agree on the costs listed until it has a gross
margin analysis that every group agrees on.

Step 4: Repeat for each potential enterprise.

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Gross Margin Analysis

Profit refers to the amount of money a person makes from a business. Profit equals total revenue minus
total costs. A businessperson wants to earn more money from sales than the amount she invested in the
business. Here’s an example: a farmer spends 40,000 shillings on transport, seeds and fertilizers to grow a
tomato crop. After the tomatoes have grown she sells all of them to a shop for 100,000 shillings. How much
profit has she made?

Total Sales – Total Cost = Profit

100,000 – 40,000 = 60,000

Below is a gross margin analysis for sorghum (it also includes the risk analysis, which your group will learn
more about next session). This gross margin analysis shows the expected cost of the inputs the farmers need
to undertake a sorghum enterprise. Based on the assumption that unit prices and costs will stay about the
same as the previous season, the farmers estimate that if they spend 250,000 shillings on inputs, they can
make 1,000,000 shillings of income. If that is true, they will make 750,000 shillings in profit.

Sorghum Expectations:

Harvest × Market Price = Income

500 kg × 2,000 USh/kg = 1,000,000 USh

First, determine the total costs of production:

Item Cost Total Cost

Input Report Quantity
(USh) (USh)
Bush clearing 1 acre 30,000 30,000
1st Ploughing 1 acre 40,000 40,000
2nd Ploughing 1 acre 30,000 30,000
Labour Planting 3 man days 2,000 6,000
st
1 Weeding 15 man days 2,000 30,000
2nd Weeding 15 man days 2,000 30,000
Harvesting 4 man days 2,000 8,000
Seeds Seso I 5 kg 5,000 25,000
Planting String 1 5,000 5,000
Tools
Hoes 3 6,000 18,000
Post-Harvest Super grain bags 3 1,000 3,000
Materials Tarpaulin 1 50,000 50,000
Total Variable Costs 275,000

Table 1.2: Expected production costs or estimated total costs.

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Risk Analysis

Next, conduct the risk analysis to complete the profitability analysis:

Gross Margin Analysis Risk Analysis New Gross Margin Analysis

10% Harvest Decrease:
Expected Harvest per acre:
500 kg – (10% of 500)
= 500 kg
= 450 kg
10% Price Decrease:
Selling Price per kg:
2,000 USh – (10% of 2000)
= 2,000 USh
= 1,800 USh
If 10% Decrease in Yield:
(450 kg × 2,000 USh) – 275,000 USh
= 625,000 USh Income
If 10% Decrease in Price:
(500 kg × 1,800 USh) – 275,000 USh
= 650,000 USh Income

Total Production Cost: 10% Production Cost Increase: If 10% Increase in Productions Costs:
(Estimated Total Cost) 250,000 USh + (10% of 275,000) (500 kg × 2,000 USh) – 275,000 USh =
= 250,000 USh = 302,500 USh 725,000 USh Income

Expected Returns:
500 kg × 2,000 USh
= 1,000,000 USh If 10% Decrease in Revenue and a
10% Increase in Production Costs:
Total Profit: 900,000 USh – 275,000 USh
Expected Returns – Total = 625,000 USh Income
Production Cost = Profit
= 750,000 USh Income

Table 1.3: New gross margin analysis after assessing for risks in decrease in harvest production, price
decrease and increase in production costs.

The farmer/group can decide the most profitable enterprise of the three after finishing the gross margin
analysis for simsim and millet.

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Farming as a Business Training Manual

Module II: Farm Financial Management

Lessons:
 Making a simple budget and financial plan.
 Making a business plan for a farm enterprise.
 Using records to make decisions.
 Cash and Credit Management.

To ensure that the enterprise meets the farmer or group’s expectations, it will need to budget its resources,
plan well and manage the business properly. Budgeting is the process of deciding where your resources will
come from, where they will go and how they will be used. The farmers will need to develop a budget in
order to evaluate whether they have enough capital to implement the selected enterprise. The idea of
preparing farm budgets is becoming increasingly important in recent years due to rapidly changing
production and economic conditions.

A budget takes an inventory of existing or accessible resources, looks at alternative uses of these resources,
attaching all estimated costs and returns for each alternative to aid in farm decision making. With a good
farm budget, the farmer can now choose the enterprise or combination of enterprises that give the best
earnings in line with the family long term aims.

Fixed Costs are costs that stay the same whether production goes up or down. This farmer needed materials
to construct a poultry house for Kuroiler birds. These are fixed costs because they are not recurring.

Item Cost Total Cost

Item (Inputs) Detailed Report Quantity
(USh) (USh)
Poles 20 3,000 60,000
House Dimension Iron Sheets, G’30 10 pieces 35,000 350,000
3m×4m = 12m2 Wire Mesh 5 pieces 30,000 150,000
Chicken Mesh 1 Roll – 1 meter 40,000 40,000
Chicken Density Shutters 1 15,000 15,000
of 8 birds/m2 Assorted Timber 15 Pieces 7,000 105,000
Assorted Nails 15 kg 5,000 45,000
Feeders 1 meter FD / 20 birds 8 10, 000 80,000
Drinkers 3.5 liter drinker / 10 birds 8 8,000 64,000
Total Fixed Costs 909,000

Table 2.1: Breakdown of fixed costs for a poultry project.

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Variable Costs are also known as working costs and they go up or down depending on the level of
production. For example, to produce more eggs a farmer needs more chickens. Each additional chicken costs
more money.

Unit cost Total cost

Item (inputs) Detailed report Quantity
(USh) (USh)
Chicks 4 weeks old chicks (Kuroiler breed) 100 7,000 700,000
Transport Vehicle Hire 1 30,000 90,000
Growers Mash
(100 birds × 100g/bird × 140 days) –
Feeds (rearing period × 1,000 USh/ kg of feed) 1,400 kg 1,200 1,680,000
Note: Consumption rates will vary
according to age (60 – 120 gm/day)
Farm labor from start to maturity at 20 2 100,000 200,000
Labor
weeks.
Vaccination New Castle Disease and Fowl Pox 2 20,000 40,000
Antibiotics 1 75,000 75,000
Multivitamins 1 75,000 75,000
Anticoccidials 1 20,000 20,000
Glucose 1 10,000 10,000
Total Variable Costs 2,890,000

Table 2.2: Breakdown of variable costs for a poultry project.

Financial Plan for the Poultry Project

The task for a farmer is to decide how a business will have enough money to reach its planned aims and
ideas. In the financial plan, the farmer must consider the business environment, find the type of resources
needed to realize these intentions and the total cost of each type of resource.

Amount
Details of Funding Sources
(USh)
Farmer Group Contributions 250,000
Personal Savings in SILC Group 450,000
Mercy Corps Grant 1,000,000
Other Sources
External Loan from Post Bank 450,000
Remittance from Relatives in Kampala 1,430,000
Total Contributions 3,580,000
Total Projected Costs
3,799,000
[Fixed + Variable Costs]
Surplus/Deficit
- 219,000
[Total Contribution – Total Projected Costs]

Table 2.3: Estimated financial plan for a poultry project.

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After drawing the budget and making the cash flow estimate, the farmer will be in a position to decide
whether; to start implementation if the cash estimate is manageable, to wait until they have raised enough
resources or select another enterprise, the scale of production is suitable or there is a need to increase or
reduce.

Making a Business Plan

Mr. Lokiru Mark has decided to start a journey walking from Kamion trading centre to Kaabong
town to purchase some items. The intention to start a business is like a journey that a traveler
decides to embark on. If a traveler is to reach his destination, he must know where he is coming
from, where he is going, and how to get there, otherwise he will become lost and not be able to
reach the destination. In the same way for you to operate a successful business, you must know
where you are coming from and where the business is going in order for you to realize benefits
and returns on investment.

A business plan is a tool for managing a profitable enterprise, it summarizes the intentions and
covers all the ideas and budgets showing how the intentions are to be realized.

Learning Objective: For the group to prepare a business plan, a work plan, and understand how
to manage business enterprises well.

Step 1: Explain how the enterprise selection process relates to business planning. A good business
plan identifies what resources the farmer/group needs, when the resources are needed, and
the source.

Step 2: Ask the group to brainstorm why they must have a business plan. Build on their responses
to explain why a business plan is good for farm enterprise.
 A business plan identifies resources and gives you direction by dividing the business goal
into individual activities.
 It states the results to be achieved and determines how much investment is needed to
start the business?

Step 3: Debate the key difficulties the farmer/group faces in planning for the business. Do the
farmers know the cost of certain resources? Are they uncertain about the time frame of the
enterprise?

Step 4: Practice with a blank business plan to define each of the modules on the sheet. Look below
at Figure 2.1 for an example of a simplified business plan.

Step 5: Ask the group to summarize its objectives. The group needs to identify what enterprise will
help it earn profits. Exactly how will the group get the most benefit out of the harvest?

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What will it do to reduce costs? What approach does it have to demand high prices? Write
all of this on the business plan.

Step 7: Based on the budget estimates drawn, decide and agree on the scale of production and
estimated start-up and operating costs for the enterprise. Include the sources of funding on
the business plan.

Step 8: Assign roles and responsibilities to members. This includes agreeing on the rules that every
member must follow such as members’ financial contributions towards financing the
enterprise.

Step 9: Begin writing out a simple work plan, the group can use a seasonal calendar if suitable to
decide when each step must take place.

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BUSINESS PLAN

NAME OF FARM ENTERPRISE: RUPA FARMERS ENTERPRISE GROUP

VILLAGE: SUB COUNTY: RUPA DISTRICT: MOROTO

Enterprise/Activity: Commercial Production of Beans

Overall Objective: To maximize the group’s income through commercial production of beans

Specific Objectives
 To maximize yield through use of improved bean varieties
 To minimize costs through use of group labor
 To get premium prices by selling high quality beans during off-season

Estimated Start-up Costs: 250,000 USh

Sources of Funding
 Members’ Contributions: 150,000 USh
 Group Fund: 100,000 USh

Scale of Enterprise: Start with 2 acres during 1st rains of 2019 and expand to 4 acres in the 2nd rains.

Members’ Roles and Responsibilities (Four working committees under the leadership of a coordinator)
 Purchases Committee (3 members)
 Production Committee (4 members)
 Finance Committee (Treasurer and 3 members)
 Marketing Committee (3 members)

Rules and Regulations

 All members to pay contribution of 10,000 USh each.
 All members to work on group garden at least once a week.
 A fine of 1,500/= for absenting from group work.
 All members to carry out monthly monitoring visits.

Responsible
Activity When Where Resources Expected Output
Person
Ploughing Feb, 19 Group Plot Production Lead Oxen, Plough Ploughed field
Seed purchases Feb,19 FICA Agent Purchases Lead Cash, Seed Seed purchased
Planting Mar, 19 Group Plot All Members Group Labour Crop planted
Weeding May,19 Group Plot All Members Group Labour Crop weeded
Harvesting June, 19 Group Plot All Members Group Labour Crop harvested
Drying & threshing June, 19 C/P’s Home All Members Hired Labour Clean crop
Sorting & bagging July, 19 C/P’s Home Marketing Lead Hired Labour High quality beans
Marketing Sept, 19 Moroto T/C Marketing Lead Transport High income

Figure 2.1: Example Business Plan for a Farmers Enterprise Group

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Cash and Credit Management

To help finance budget shortages, farmers can use credit, but it can be dangerous if farmers do not
have the right information. Although farmers are encouraged to save and raise funds, seeking credit
is another method of getting money for the farm enterprises. Loans look attractive because you do
not have to sacrifice and have discipline to get a loan, like you do with savings. Two important
things to keep in mind are:

 Loans are not free money

 They must be repaid, often with interest and loans must be repaid on time. If the group fails to
repay on time, it will not only have trouble accessing credit in the future but will pay a higher
cost in terms of interest for the delayed amounts.

The most suitable form of credit is “in kind” but farmers must understand how to use credit for this
purpose, their responsibilities and receive training on how to manage these assets. This could take
the following forms:

Livestock: The members can crossbreed goats or cows in order to improve the quality of their
animals. This can also enable a larger number of members to keep animals. Animals provide the
benefits of milk, hides, manure and meat. The farming system will also become integrated from
seeking livestock as credit.

Improved Seeds for Planting: Either the group or individual members can borrow seeds. They
would repay the loan with new seed after the harvest.

Irrigation Infrastructure: The group could use this to produce year-round. It would have constant
income flow for group activities and for members.

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Before deciding on accessing external sources of credit, it is important to carry out a study of the
costs of credit offered by the different financial institutions. Each institution’s rates will be
different. The group should pay attention to: interest rates charged, fees required (e.g. processing
fees, insurance fees, and loan protection fees), bank charges, length of the loan and the reputation
of the lending institution.

Credit in Cash (Also Paid in Cash)

Advantages Disadvantages
Flexibility in deciding how to use the credit. Possibility of fraudulent use by group leaders.
Increase in group fund through interest. High interest rate may lead to capital loss.
Higher chances of default if business fails.
Bookkeeping requires literacy.
Credit in Kind (Also Paid in-kind)
Advantages Disadvantages
Easily managed by group members. Members may resist making payments in kind.
Changes in interest/inflation will not affect Livestock or poultry deaths may result in serious
capital. setback for repayment.
Default minimized.
Simple bookkeeping.
Little possibility of fraud.

Table 2.4: Advantages and disadvantages of paying in cash verses paying in-kind.

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