The impact of credit on productivity of smallholder farmers in Ghana

Nordjo, Ralph Essem; Adjasi, Charles K.D.

doi:10.1108/afr-10-2018-0096

Cited by 41 publications

(33 citation statements)

References 35 publications

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“…Simtowe and Zeller (2006) found that access to credit increased adoption of hybrid maize among credit-constrained agricultural households in Malawi. Similar results are found in numerous other studies including (Abdallah, 2016;Akudugu, 2016;Iddrisu et al, 2017;Nordjo and Adjasi, 2019).…”

Section: Introductionsupporting

confidence: 92%

Uptake of insurance-embedded credit in presence of credit rationing: evidence from a randomized controlled trial in Kenya

Ndegwa

Shee

Turvey

et al. 2020

AFR

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PurposeDrought-related climate risk and access to credit are among the major risks to agricultural productivity for smallholder farmers in Kenya. Farmers are usually credit-constrained due to either involuntary quantity rationing or voluntary risk rationing. By exploiting randomized distribution of weather risk-contingent credit (RCC) and traditional credit, the authors estimate the causal effect of bundling weather index insurance to credit on uptake of agricultural credits among rural smallholders in Eastern Kenya. Further, the authors assess farmers' credit rationing, its determinants and effects on credit uptake.Design/methodology/approachThe study design was a randomized controlled trial (RCT) conducted in Machakos County, Kenya. 1,170 sample households were randomly assigned to one of three research groups, namely control, RCC and traditional credit. This paper is based on baseline household survey data and the first phase of loan implementation data.FindingsThe authors find that 48% of the households were price-rationed, 41% were risk-rationed and 11% were quantity-rationed. The average credit uptake rate was 33% with the uptake of bundled credit being significantly higher than that of traditional credit. Risk rationing seems to influence the credit uptake negatively, whereas premium subsidies do not have any significant association with credit uptake. Among the socio-economic variables, training attendance, crop production being the main household head occupation, expenditure on food, maize labour requirement, hired labour, livestock revenue and access to credit are found to influence the credit uptake positively, whereas the expenditure on non-food items is negatively related with credit uptake.Research limitations/implicationsThe study findings provide important insights on the factors of credit demand. Empirical results suggest that risk rationing is pervasive and discourages farmers to take up credit. The study results also imply that credit demand is inelastic although relatively small sample size for RCC premium subsidy groups may be a limiting factor to the authors’ estimation.Originality/valueBy implementing a multi-arm RCT, the authors estimate the factors affecting the uptake of insurance bundled agricultural credits along with eliciting credit rationing among rural smallholders in Eastern Kenya. This paper provides key empirical findings on the uptake of RCC and the effect of credit rationing on uptake of agricultural credits, a field which has been majorly theoretical.

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Section: Introductionsupporting

confidence: 92%

Uptake of insurance-embedded credit in presence of credit rationing: evidence from a randomized controlled trial in Kenya

Ndegwa

Shee

Turvey

et al. 2020

AFR

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“…Furthermore, access to credit is also considered to be an important tool for smoothing consumption, promoting production and reducing vulnerability to poverty especially for poor households (Dobridge, 2018; Thanh et al ., 2019; Sun et al ., 2020). Recently in Ghana, studies that have looked at access to credit and savings among smallholder farmers have been biased towards examining the determinants that influence smallholder access to credit and savings (see for example Asante-Addo et al , 2017; Sekyi et al ., 2019; Nordjo and Adjasi, 2019; Twumasi et al , 2019; Aidoo-Mensah, 2019). Moreover, the combined effect of savings, credit and insurance in the Ghanaian literature is scanty.…”

Section: Literature Reviewmentioning

confidence: 99%

Improving productivity among smallholder farmers in Ghana: does financial inclusion matter?

Peprah

Koomson

Sebu

et al. 2020

AFR

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PurposeDoes financial inclusion matter for productivity among smallholder farmers? The authors answer this question by using the sixth and seventh rounds of the Ghana Living Standard Survey to examine the extent to which financial inclusion affects productivity among smallholder farmers in Ghana.Design/methodology/approachThe study uses a pooled data of the 6th and 7th rounds of the Ghana Living Standard Survey which are national representative data. The authors model an Instrumental Variable (IV) to correct for endogeneity in financial inclusion and a dominance analysis to examine the effects of access to credit, ownership of savings account and insurance product on farmers' productivity.FindingsResults from the study indicate that financial inclusion significantly enhances productivity. Moreover, credit, savings and insurance products influence productivity at various degrees. Thus, expanding the scope of financial services (access to credit, savings and insurance) among smallholder farmers is crucial for inclusive finance and sustainable agricultural production.Practical implicationsThe findings of the study have implications for financial institutions in the design of financial products that the meet the needs of smallholder farmers.Originality/valueSeveral studies have looked at how access to credit influences agricultural productivity in Africa. However, in recent times financial inclusion has been advocated for because it goes beyond mere access to credit. This paper to the best of our knowledge is the first of its kind to examine how financial inclusion could affect agricultural productivity in Ghana.

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“…Nordjo and Adjasi (2020) used a propensity score matching technique to assess the impact of credit on productivity in Ghana using two control groups and found that better access to credit led to an increase in productivity through investment in farm inputs. The impact was more pronounced for the control group with better credit access.…”

Section: The Literaturementioning

confidence: 99%

Impact of credit market conditions on agriculture productivity in Sub-Saharan Africa

Shuaibu

Nchake

2021

AFR

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PurposeThis study conducts an empirical analysis of the relationship between credit market conditions and agriculture output in Sub-Saharan Africa.Design/methodology/approachThis paper uses a two-stage least square instrumental variable and difference generalised method of moments dynamic panel model because potential reverse causation and endogeneity are addressed.FindingsThe findings show that better credit market conditions contribute to agriculture productivity. The results also show that better infrastructure and availability of agriculture inputs are associated with productivity improvements. The empirical results are robust when an alternative measure of agriculture productivity is used.Research limitations/implicationsAn important research agenda for future studies will be to consider alternative measures of credit market conditions and other intervening variables that influence the nexus. Besides, other methods that account for cross-sectional dependence could also be considered as the impact of credit on agriculture varies across the sub-regions.Practical implicationsThe findings make a case for enhancing credit market access to boost agriculture productivity. There is also a need to implement financial education programs for farmers and ensuring continuous engagement with farmers.Originality/valueAlthough the issue of agriculture finance has been well documented in the literature, few studies have estimated the elasticity of agriculture productivity to changes in credit conditions. Also, our consideration of the intervening role of infrastructure amongst others is an area that has remained relatively unexplored.

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The impact of credit on productivity of smallholder farmers in Ghana

Cited by 41 publications

References 35 publications

Uptake of insurance-embedded credit in presence of credit rationing: evidence from a randomized controlled trial in Kenya

Uptake of insurance-embedded credit in presence of credit rationing: evidence from a randomized controlled trial in Kenya

Improving productivity among smallholder farmers in Ghana: does financial inclusion matter?

Impact of credit market conditions on agriculture productivity in Sub-Saharan Africa

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