Substitutes Or Complements: Formal And Infomrl Credit Demand By Maize Farmers In Ashanti And Brong Ahafo Regions Of Ghana

Abstract

This study examines credit demand by maize farmers and analysed factors influencing their use of informal and formal credit. The analysis is based on data collected from a survey of 590 maize farmers in seven districts of Ashanti and Brong Ahafo Regions of Ghana during May-July 2010. Descriptive statistics, probit and bivariate probit models were used to analyse the data. The study revealed informal credit sources for maize farmers as relatives and friends, traders and private money lenders. Maize traders are major players in the informal credit market followed by agricultural input sellers. Among the formal sources rural banks are the most prominent. Regional location, Gender, engagement in other economic activities and the level of agricultural commercialisation were observed to be factors that influence farmers' demand for informal credit. In addition to these factors, farmer years of education and proximity to financial institution influence demand for formal credit. The result of the bivariate probit suggests that formal and informal credits are not necessarily perfect substitutes but they complement each other to provide credit needs of farmers in maize production.

Determinants of Agro-credit Repayment of Small- Holder Farmers in Tanzania

“…In our discussion with CRDB Bank loan manager, he disclosed that currently they are no longer offering loans to paddy producers due high default rate averaged at 78 per cent. Awunyo-Vitor [10] has reported in his empirical studies that large rate of default has been a major problem in agricultural credit [37] study also verified this finding. They concluded that as loan interest rate is smaller, financing costs will decrease for loan-takers and loan repayment will be easier.…”

“…The loan volume may be another issue to discuss. Awunyo [10] stated that the larger the loan size, the lower the probability of repayment default. A poorly designed lending program and improper implementation may lead to defaults [11].…”