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Determinants Of Participation In Agricultural Group Guarantee Loans: A Case Of Smallholder Farmers In Eastern Uganda

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  • Ninsiima, R
  • Bulyaba, R
  • Makosa, D

Abstract

This paper establishes that agricultural group guarantee loans (AGGLs) are indeed an innovative tool used by Microfinance Institutions (MFIs) to extend credit to resource-disadvantaged smallholder farmers regarded as not credit-worthy by traditional lenders. It disproves popular literature that one requires assets to access formal credit and that extremely poor farmers are segregated from borrowing citing a lack of collateral to pledge to both group members and to the lender. This paper indicates that efforts to get smallholder farmers out of destitution should be redirected to addressing other group credit aspects other than increasing participation. Multi-stage sampling obtained 161 agricultural loan borrowers of Promotion of Rural Initiative Development Enterprises (PRIDE) microfinance, a formal Tier III credit institution in Uganda. Both borrowers of the group (AGGLs) and Individual (Individual Loan borrowers, IL) loans were selected for comparison purposes. Semi-structured interviews and in-depth discussions with farmer groups (focus group discussions, FGDs) collected both quantitative and qualitative data for the study. Descriptive statistics analysis presented the socioeconomic characteristics of the borrowers while the binary logistic regression model determined the factors that influence participation in AGGLs. The findings indicated that IL borrowers were better off in socioeconomic aspects such as income than AGGL borrowers. The study results revealed that the probability of participating in AGGLs decreases with an increase in the number of asset ownership and an increase in household expenses, particularly education. This implies that AGGLs are socially perceived to be a “facility for the poor”, supporting the motives of MFIs. Agricultural group guarantee loans are associated with smaller loan amounts due to fear of default. These smaller amounts limit investment and consequent income improvement. This is the first paper to study participation in AGGLs offered by a formal credit institution in Uganda. Other group loans offered in Uganda do not target agriculture, those that do, are offered by savings and credit cooperative organizations (SACCOs) informally started by farmers.

Suggested Citation

  • Ninsiima, R & Bulyaba, R & Makosa, D, 2023. "Determinants Of Participation In Agricultural Group Guarantee Loans: A Case Of Smallholder Farmers In Eastern Uganda," African Journal of Food, Agriculture, Nutrition and Development (AJFAND), African Journal of Food, Agriculture, Nutrition and Development (AJFAND), vol. 23(4), January.
    • Handle: RePEc:ags:ajfand:340690
    DOI: 10.22004/ag.econ.340690
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    References listed on IDEAS

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    Keywords

    Agribusiness; Agricultural Finance;

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