This paper analyzes the determinants of smallholder farmers’ access to formal credit in the Bilatte Zuria Woreda of Ethiopia. It identifies factors that either limit or enhance the ability of smallholder farmers to obtain formal credit. This study is aimed at policymakers, financial institutions, and agricultural development organizations seeking to improve financial inclusion and support agricultural productivity in similar regions.
Key Insights
Farm Size
An increase in farmland size by one hectare increases the probability of getting formal credit access by 1.47, indicating larger farms are more likely to access credit.
Extension Service
Households participating in agricultural extension services have 2.095 times higher probability of accessing formal credit compared to those not participating. “Farmers who receive an education are more likely to participate due to being exposed to various financial products.”
Lending Procedure
Complex lending procedures negatively impact the probability of accessing formal financial credit. The coefficient of lending procedure is negative (β11 = -0.589), and the odds ratio is less than one (Exp(B) = 0.803).
Total Livestock Ownership
An increased number of livestock decreases the odds in favor of access to formal credit use decreases by a factor of 0.864 for households with large livestock, as they are hypothesized to have more wealth available.
Age of Household Head
Increasing age of household head is associated with a decrease in the probability of getting formal credit access. The coefficient of age (β1 = -0.022) implies that aging by one year will result in a 0.978 times decline in the probability of getting formal credit access, potentially due to older farmers having larger capital bases.
Awareness of Credit Service
Awareness of availability of credit service gives 1.918 times more likely chance to access formal credit for smallholder farmer compared to household head without awareness of availability of credit service. “This means the awareness of availability of credit service increases the chance to access formal credit by 92% for smallholder farmer.”
Key Statistics & Data
- Formal Credit Access: Only 41% of the respondents in the study area had access to formal credit.
- Sampling: A sample of 365 households was selected using multistage sampling techniques from 4,216 smallholder farmers in three selected Kebeles.
- Maize Production: The study area, Bilatte Zuria Woreda, is the largest maize production area in the Sidama region.
- Extension Service Impact: 51.1% of household heads with extension service access also received formal credit, compared to 32.5% of those without extension services.
- Chi-Square Test Results: Extension service and access to formal credit show a Chi-Square value of 13.111 with a p-value of 0.000, indicating a significant association.
Methodology
The study used a mixed-methods research design, incorporating both quantitative and qualitative data collection and analysis. Primary data was collected from interviews using structured questionnaires, while secondary data was sourced from the Bilatte Woreda agriculture office and formal credit institutions. A multi-stage sampling technique was employed to select 365 households from three randomly selected Kebeles within Bilatte Zuria Woreda. Quantitative data was analyzed using SPSS version 20 and STATA version 14, utilizing descriptive and inferential statistics, including binary logistic regression models.
Implications and Conclusions
The study concludes that access to formal credit among smallholder farmers in Bilatte Zuria Woreda is significantly influenced by a combination of socioeconomic, institutional, and awareness factors. Addressing these factors through innovative credit schemes, policy measures, and information drives is crucial to improve financial inclusion and enhance agricultural productivity. The research highlights the need for tailored interventions that consider the specific needs and preferences of smallholder farmers, including simplified lending procedures, promoting credit awareness, and integrating agricultural extension services.
Key Points
- Only 41% of respondents in the study area have access to formal credit, indicating a significant gap in financial inclusion.
- Access to formal credit is significantly influenced by farm size, extension service availability, and awareness of credit services.
- Age, income level, lending procedures, and number of livestock also play a significant role in determining credit access.
- Innovative credit schemes tailored to the needs of smallholder farmers are essential to improve credit accessibility.
- The study utilizes a binary logistic regression model to analyze quantitative data, providing a robust statistical foundation for the findings.
- Agricultural extension services significantly improve the likelihood of smallholder farmers accessing formal credit.
- Complex lending procedures negatively impact farmers' ability to access formal credit.