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Agricultural credit provision: what really determines farmers’ participation and credit rationing?

Agricultural credit provision: what really determines farmers’ participation and credit rationing? PurposeThe purpose of this paper is to analyze determinants of farmers’ participation and credit rationing in microcredit programs using survey data from Ghana.Design/methodology/approachThe authors use the Garrett Ranking Technique to analyze farmers’ reasons for participation or non-participation in credit programs, a probit regression model to estimate factors influencing farm households’ participation, and the Heckman’s sample selection model to identify factors influencing farm households’ probability of being credit rationed by microcredit programs.FindingsThe results reveal that farm households participate in credit programs because of improved access to savings services and agricultural loans. Fear of loan default and lack of savings are reasons for non-participation in credit programs. Furthermore, membership in farmer-based organizations (FBOs) and the household head’s formal education are positively associated with farmers’ participation in credit programs. The likelihood of farmers being credit rationed (i.e. their loan applications were either rejected or the amount of credit they applied for was reduced) is less likely among higher income farmers and members of FBOs such as farmer cooperatives and savings clubs.Practical implicationsThe findings suggest that policy strategies aiming to improve access to savings and credit services should educate farmers and strengthen FBOs that could serve as entry points for financial service providers. Such market smart strategies have the potential to improve farmers’ access to financial services and reduce rural poverty.Originality/valueAlthough existing studies have examined farmers’ participation in credit markets and credit rationing separately, the unique contribution of this paper is the analysis of participation in microcredit programs as well as the likelihood of farmers being credit rationed in Ghana. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Agricultural credit provision: what really determines farmers’ participation and credit rationing?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0002-1466
DOI
10.1108/AFR-02-2016-0010
Publisher site
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Abstract

PurposeThe purpose of this paper is to analyze determinants of farmers’ participation and credit rationing in microcredit programs using survey data from Ghana.Design/methodology/approachThe authors use the Garrett Ranking Technique to analyze farmers’ reasons for participation or non-participation in credit programs, a probit regression model to estimate factors influencing farm households’ participation, and the Heckman’s sample selection model to identify factors influencing farm households’ probability of being credit rationed by microcredit programs.FindingsThe results reveal that farm households participate in credit programs because of improved access to savings services and agricultural loans. Fear of loan default and lack of savings are reasons for non-participation in credit programs. Furthermore, membership in farmer-based organizations (FBOs) and the household head’s formal education are positively associated with farmers’ participation in credit programs. The likelihood of farmers being credit rationed (i.e. their loan applications were either rejected or the amount of credit they applied for was reduced) is less likely among higher income farmers and members of FBOs such as farmer cooperatives and savings clubs.Practical implicationsThe findings suggest that policy strategies aiming to improve access to savings and credit services should educate farmers and strengthen FBOs that could serve as entry points for financial service providers. Such market smart strategies have the potential to improve farmers’ access to financial services and reduce rural poverty.Originality/valueAlthough existing studies have examined farmers’ participation in credit markets and credit rationing separately, the unique contribution of this paper is the analysis of participation in microcredit programs as well as the likelihood of farmers being credit rationed in Ghana.

Journal

Agricultural Finance Review – Emerald Publishing

Published: Jul 3, 2017

References

  • The Uganda rural farmers scheme: women’s accessibility to agricultural credit
  • Challenges to maize fertilization in the forest and transition zones of Ghana
  • Agricultural credit constraints and borrowing behavior of farmers in rural Punjab
  • Agricultural productivity, credit and farm size nexus in Africa: a case study of Ghana
  • Determinants of women’s participation in self-help group (SHG)-led microfinance program in Tamil Nadu
  • Formal and informal institutions lending policies and access to credit by small-scale enterprises in Kenya
  • Agricultural credit rationing in Ghana: what do lenders look for?
  • Factors influencing the decision to participate in micro-credit programme: an illustration for Northern Ghana
  • Credit constraints and household welfare in the Eastern Cape province, South Africa
  • An assessment of clients of microfinance programs in Uganda