Factors Affecting Farmers’ Access to Formal and Informal Credit: Evidence from Rural Afghanistan

Abstract

Adequate access to credit is necessary for the sustainable development of agriculture. This study uses a double hurdle model to investigate what affects farming households’ credit participation and amount, and a Probit model to find out credit constraints. For this purpose, the data from a survey of 292 farming households in Afghanistan was utilized. The study finds that households obtain credit for their agricultural activities from various formal and informal sources. The results of the double hurdle model reveal that the financial activities of the households were positively determined by crop diversity, education, number of adults in a household, size of land, and access to extension. Non-agricultural income decreases the likelihood of participation. The results of the analysis of credit constraints indicate that formal credit did not help small-scale and remoter farming households; however, these households relied on informal credit, especially when they faced income shock. Furthermore, religious belief increased the chances of avoiding formal credit but not informal credit. It is suggested that formal credit should be expanded to rural areas, especially to small-scale farming households. Policy makers should also consider increasing access to extension. Formal financial institutions should provide Sharia-compliant credit, which increases the confidence level of households in using formal credit in Afghanistan.

Using an Artificial Neural Networks Experiment to Assess the Links among Financial Development and Growth in Agriculture

“…Ref. [17] conducted a survey of 292 farming households in Afghanistan. The results of the double hurdle model reveal that the financial activities of the households were positively determined by crop diversity, education, number of adults in a household, size of land, and access to extension.…”

Socio-economic Factors Affecting Uptake of Banana Value Addition among Smallholders in Chuka Sub-county, Tharaka Nithi County, Kenya

“…This is the reason only 15.6% of farmers who access credit use it for farming purposes and 39.7% for those who use the loan for other purposes like expanding their personal businesses [Table 9]. However, the use of credit for these other purposes help farmers diversify their sources of income [52].…”

Measuring the Immeasurable: The Evolution of the Size of Informal Economy in the Agricultural Sector in the EU-15 Up to 2019

“…Obstacles to obtain finance also fuel the informal economy in rural areas where financial institutions and their availability are on lower levels than in big cities (Uddin, 2020). Informal credits are prevalent in rural households (Huong & Simoni) as well as in agricultural enterprises (Floro, 2019), or no formal written contract exists at all (Moahid & Maharjan, 2020). In some areas the whole development depends on supply of informal credits (Tang & Guo, 2017).…”