Determinants of Access to Formal Credit by Smallholder Tobacco Farmers in Makoni District, Zimbabwe

Abstract

This study used data from 77 smallholder tobacco farmers from Makoni district in Zimbabwe to investigate factors affecting smallholder tobacco farmers' access to formal credit. The results of the study showed that contact with extension services, farmer's attitude towards risk of borrowing and ownership of land cultivated significantly and positively influenced the probability of farmers' access to formal credit in the study area. These findings confirm that improving access to extension services and secure land ownership remain the important factors in the quest to improving access of smallholder farmers to formal credit in Zimbabwe. Improved access to information on credit use through extension services is also likely to positively influence farmers' perceptions on credit risk, which would in turn reduce fears associated with formal credit sources. Encouraging farmers to insure both their crop and loans against the event of crop failure can also be used to reduce the risk associated with formal credit sources and help improve access to formal credit by a majority of smallholder farmers.

Stimulating farmer access to bank credit in Zimbabwe: The bankers perspective

“…Similar findings were obtained in Ghana, where the fear of loan default was the most important reason that prevented farmers from participating in agricultural credit programs (Asante-Addo et al, 2017). In Zimbabwe, Dube et al (2015) also established that the majority (63%) of farmers not accessing formal credit feared taking the risk that came with borrowing.…”

“…Chitungo and Munongo (2015) investigated the effect of various farmer and farm characteristics (age, marital status, education, household size, income, remittances, and crop type) on the farmers' decision to apply for credit from informal lenders in the rural districts of Zaka, Chiredzi and Masvingo. Dube et al (2015) only focused on the determinants of credit access in the formal sector among smallholder tobacco farmers in Makoni District. Therefore, no study to the researcher's knowledge has applied the DEA to comprehend how lender/ supply side attributes affect Zimbabwean farmers' credit demand for bank credit.…”

Determinants of demand for credit by smallholder farmers': a farm level analysis based on survey in Sindh, Pakistan

“…Using a linear regression analysis to demonstrate the linkage between various socioeconomic characteristics of the farmers and their rate of accessibility to the agricultural credit, Etonihu et al (2013) reported that the formal education, distance to formal financial institutions and types of credit source were significant factors prompting smallholders' accessibility to credit in Nigeria. Determinants of access to formal credit by smallholder tobacco farmers in Makoni District, Zimbabwe, were investigated by Dube et al (2015) by utilizing survey data of 77 smallholder tobacco farmers. The results of logit regression model revealed that improved access to credit usage information by extension programs is expected to have a significant effect on the attitudes of farmers about credit risk, which in turn will reduce the concerns associated with structured credit sources.…”

“…Formal agricultural credit is an important farm input along with modern technology playing role for improved crops yield and accelerating agricultural modernization and economic development (Anang et al, 2015). According to Dube et al (2015) and Zeller et al's (1997) studies, the welfare of households is affected by access to credit and eliminating the capital constraints during the vegetation growth and planting season of crops, thereby increasing the capabilities of those with low or no savings to meet their financial needs for crop production. The formal agricultural loan is not required only for the small-and medium-scale farmers for survival, but also large-scale farmers can get benefit to improve farm income with minimal savings (Das et al, 2009).…”

“…The sources of institutional credit have increased as compared to noninstitutional credit in the farming sector. Credit has chief role in agricultural production, but farmers do not have easy access due to bureaucracy and complicated application procedures and restrictions by formal lending institutions (Dube et al, 2015, Malik et al, 1991. In developing countries such as Pakistan, smallholders' farmers are facing problems in the access of agricultural credits due to meager nature of the loan amount required by farmers, which is difficult to administer, and the inability to provide collateral demanded by formal sources (Chandio et al, 2017b, Hussain andThapa, 2012;Saqib et al, 2018).…”