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Are smallholder farmers credit constrained? evidence on demand and supply constraints of credit in Ethiopia and Tanzania

Author

Listed:
  • Balana, B.
  • Mekonnen, D.
  • Haile, B.
  • Hagos, Fitsum

    (International Water Management Institute (IWMI))

  • Yimam, S.
  • Ringler, C.

Abstract

Credit constraint is considered by many as one of the key barriers to adoption of modern agricultural technologies, such as chemical fertilizer, improved seeds, and irrigation technologies, among smallholders. Past research and much policy discourse associates agricultural credit constraints with supply-side factors, such as limited access to credit sources or high costs of borrowing. However, demand-side factors, such as risk-aversion and financial illiteracy among borrowers, as well as high transaction costs, can also play important roles in credit-rationing for smallholders. Using primary survey data from Ethiopia and Tanzania, this study examines the nature of credit constraints facing smallholders and the factors that affect credit constraints. In addition, we assess whether credit constraints are gender-differentiated. Results show that demand-side credit constraints are at least as important as supply-side factors in both countries. Women are more likely to be credit constrained (from both the supply and demand sides) than men. Based on these findings, we suggest that policies should focus on addressing both supply- and demand-side credit constraints, including through targeted interventions to reduce risk, such as crop insurance and gender-sensitive policies to improve women’s access to credit.

Suggested Citation

  • Balana, B. & Mekonnen, D. & Haile, B. & Hagos, Fitsum & Yimam, S. & Ringler, C., 2020. "Are smallholder farmers credit constrained? evidence on demand and supply constraints of credit in Ethiopia and Tanzania," IWMI Working Papers H050170, International Water Management Institute.
    • Handle: RePEc:iwt:worppr:h050170
    DOI: 10.2499/p15738coll2.134152
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    Cited by:

    1. Christopher Mutungi & Julius Manda & Shiferaw Feleke & Adebayo Abass & Mateete Bekunda & Irmgard Hoschle-Zeledon & Gundula Fischer, 2023. "Adoption and impacts of improved post-harvest technologies on food security and welfare of maize-farming households in Tanzania: a comparative assessment," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 15(4), pages 1007-1023, August.
    2. Li, Rongda & He, Jing, 2024. "FinTech development and household resilience to negative income shocks: The role of informal risk sharing," International Review of Economics & Finance, Elsevier, vol. 94(C).
    3. Yao, Becatien & Shanoyan, Aleksan & Schwab, Ben & Amanor-Boadu, Vincent, 2023. "The role of mobile money in household resilience: Evidence from Kenya," World Development, Elsevier, vol. 165(C).

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    Keywords

    Agricultural credit;

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