The relative importance of liquidity and other constraints inhibiting the growth of small‐scale farming in KwaZulu‐Natal

A logit model is used to examine the extent of liquidity constraints relative to other constraints inhibiting small‐scale farming in KwaZulu‐Natal. These other constraints include poor access to land, labour and information, and high transaction costs. Data for the analysis were sourced from two rural districts in the former KwaZulu. The results suggest that liquidity is important, while imperfect land markets, information costs and high transaction costs are also significant inhibiting factors. Investments in literacy and language skills, vocational training, and business and financial management skills may improve income opportunities for rural people and hence enhance their ability to invest, save and borrow. Better roads, telecommunications and legal institutions are also required to realise the full benefit of investment in extension and credit services.