The Constraints of Agricultural Credit and Government Policy Strategy

Abstract

Low access to credit in the agricultural sector is also caused by problems of agricultural sector actors (especially farmers) and financial institutions. Farmers are still having difficulty in accessing credit (accessibility and unbankable) and the limited financial institutions that channel credit to the agricultural sector. Therefore, the government must issue a policy in growing the agricultural sector, especially in anticipation of access credit constraints by farmers. The agricultural sector as a high-risk business, therefore formal institutions are less interested in financing the agricultural sector on the grounds of high transaction costs, asymmetric information, low profits, lack of collateral, education of farmers is relatively low. In addition, most banks do not want to finance agriculture due to fluctuating production and uncontrolled price risk. While the constraints of the farmers in obtaining formal credit is a complex procedure, there should be collateral as well as high payment delay fees, long distances and less information about capital.

Constraints to Farmers’ Access, Utilization and Repayment of Bank of Agriculture’s Loan in North Central, Nigeria

“…The price fluctuation of the agricultural inputs and outputs as well as the natural disaster projects the agricultural sector as a high-risk business and therefore formal institutions are less interested in financing the sector. This is consistent with the findings of Gashayie & Singh (2015) and Herliana et al (2018) who observed that the agricultural sector as a high-risk business, therefore most banks do not want to finance agriculture due to fluctuating production and uncontrolled price risk. Eze et al (2010) equally agreed that even with mandatory (preferred sector) lending, guarantee of exposure and subsidized fund schemes, most commercial banks prefer not to lend for farming, citing its relatively lower productivity and higher risk to the non-agricultural sector as their reason.…”

“…This wrong perception was reechoed in the opinion of Alamba (2017) while reacting to complaints by farmers over the delay in loan disbursement by the bank. The study by Herliana et al (2018) agreed that formal institutions are less interested in financing the agricultural sector on the grounds of high transaction costs, asymmetric information, among another factor.…”

What Influences Rice Farmers’ Choices of Credit Sources in Côte d’Ivoire? An Econometric Analysis using the Multinomial Conditional Logit Model

“…Rice farmers prefer greater proximity to lenders. as other researchers have observed, geographic proximity significantly reduces TCs such as transport costs, communication fees and time costs involved in credit access (antwi & Ohene-yankyira, 2017;Herliana et al, 2018;Hosseini et al, 2012). Some rice farmers live in remote areas where access to transport is difficult (often only weekly transport), making regular visits to credit institutions costly.…”

“…For instance, in Iran, the TCs borne by borrowers represented, on average, 9% of the total loan size (Hosseini et al, 2012). TCs increase with geographic factors such as distance (Herliana et al, 2018). These costs negatively affect smallholder farmers and could discourage them from participating in the credit market.…”

The Spatial Effect of Agricultural Sector Growth in West Java: A Spatial Approach to Panel Data

“…The low disbursement of bank credit to the agricultural sector was mainly due to the prudent banking sector to avoid the risk of bad loans. According to Azis and Wicaksono (2016); Panekenan et al (2017); Herliana et al (2018), the low disbursement of bank credit to the agricultural sector is caused by too high prudentiality by implementing banks in lending and the experience or perception of banks facing nonperforming loans when…”