The Use of Credit by Rice Farmers in Takeo

This study examined the credit access of different types of farmers and the impact of credit on farmers’ production and livelihoods to identify options for improving credit access and promoting successful credit utilisation. Qualitative research was undertaken in Takeo Province, where microfinance institutions (MFIs) have proliferated. The villages studied represented three types of rice-farming system. The challenges facing rice farmers included high and increasing input costs, the low quality of fertilisers, and the rising cost of mechanisation due to the price of fuel. While these trends increased the demand for credit, the squeeze on farm profits was reducing the viability of agricultural loans. Lack of formal land title to use as collateral was also a barrier to credit for many farmers. The need to ensure high repayment rates by carefully assessing potential clients meant that MFIs screened out poor farmers with little collateral and high vulnerability. Poor farmers often resorted to loans from informal sources when subject to livelihood shocks, despite the high risk of falling further into indebtedness. A challenge facing all farmers was the high interest rates for formal credit. MFIs were charging 30% p.a. to maintain financial sustainability. However, MFIs have reduced interest rates over time due to increasing competition and local saving. Rural development NGOs could better integrate training in farm and business skills in their credit programmes. Greater private sector involvement in the rice sector through contract farming may also help finance smallholder development. Provided the vulnerability of poor farmers is addressed, expansion of commercial credit will have a largely positive impact on rural livelihoods.