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Training guides and manuals > Rural finance course > Module 06: Loan management

The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.

  1. Financial analysis measurement
  2. Financial indicators – ratios
  3. Rural loan analysis – chart

Using machines and additional sources of power usually makes human labour more productive.  People can do more work at a faster rate.  So machinery can help farmers to increase the area they cultivate, thus producing more crops or livestock to sell. It can help them transport products to more distant markets and potentially sell things for a better price.  Machinery, however, is often expensive and it depreciates and needs replacing after some time. 

This booklet explains how farmers can calculate the costs associated with the ownership and use of draught animal power, tractors and other tools and machines.   It shows how they can assess the pros and cons of investing in new machinery using partial budgets and cash flows and introduces the ideas of opportunity cost and break-even point.  The fact that the cost per hectare of owning machinery and draught animals reduces as the area cultivated increases means that offering hire services is one way a farmer can improve his chances of covering his costs and repaying loans used to buy machinery.

The final chapter provides guidance on how to develop and operate a contract hire service and explores the concept of joint ownership as an alternative means of spreading the costs of machinery ownership.

This book takes a pragmatic approach to financial record-keeping, explaining how important it is to have accurate information about transactions but offering a variety of simple approaches which farmers could use to help them keep track of their income and expenditure.  As a first step simply keeping the paperwork associated with financial transactions in a safe and organised manner is recommended.  This could be supplemented with notes made on a calendar or in a notebook.

If a farmer has prepared a cash flow plan as suggested in Book 1 of this series, one of the most useful things he can do is to compare his actual expenditure and receipts with those he included in his plan. This monitoring procedure is perhaps the best way for anyone to improve their money management.  Problems can be identified early and steps taken to avoid financial difficulties.

For those convinced of the merits of record-keeping, alternative cash book layouts are described and in the final chapter, the idea of using a bank account is introduced together with ways of incorporating bank transactions into a cash recording system.