The role of savings mobilization on access to credit: a case study of smallholder farmers in Ghana

Abstract

Purpose The purpose of this paper is to examine the effect of savings mobilization on access to credit among smallholder farmers’ in the Birim central municipality of Ghana. Design/methodology/approach A cross-sectional primary data set was used to estimate the factors influencing smallholder farmers’ access to credit and size of loan to be borrowed using the IV-Probit and IV-Tobit model. Findings The results of the study revealed that savings mobilization has a positive significant impact on access to credit and the total amount of credit one can borrow as well. Other control variables such as transaction cost and farm size depicted a negative significant impact on access to credit. Land ownership, member of an association, household size, years of farming experience and education also showed a positive significant impact on access to credit. Research limitations/implications The paper only examined the savings effect on credit accessibility among smallholder farmers in one of the municipality’s in the Eastern region of Ghana. Future research should consider all or many municipality for an informed generalization of findings. Practical implications This paper provides evidence that smallholder farmers knowledge on the financial market is poor and it would require the policymakers or NGOs to organize financial management training programs so that the farmers high ignorance of the financial market will significantly reduce. Originality/value Although existing studies have examined smallholder farmers’ access to credit, the unique contribution of this paper is the analysis of the impact of saving mobilization on credit accessibility in Ghana, a major access to credit determinant in the financial market. In addition, those researchers who factored in savings as an access to credit determinant did not also consider the casual relationship between these two variables, thus, the present of endogeneity of which this paper does.

Does Credit Influence Fertilizer Intensification in Rice Farming? Empirical Evidence from Côte D’Ivoire

“…Therefore, this can result in the loss of earnings for the lender who decides not to grant the loan. Our result bears rich parallels to those of Abdallah [31] and Twumasi et al [51], who found that transaction costs such as transport costs decrease the likelihood of farmer AC in SSA and Ghana, respectively.…”

“…Undeniably, the high level of education is important human capital, which could enable farmers to accurately understand credit requirements compared to their counterparts with a lower educational level. Similar observations have been made by Twumasi et al [51] and Ouattara et al [13], who found that the excellent level of education is one of the key determinants of farmers' access to credit, respectively in Ghana and Côte d'Ivoire.…”

“…However, experience is often correlated with rice farmer's age; more experienced farmers might well be more risk-averse and less prone to face a change [43,46]. Experienced farmers may also have a good reputation with credit lenders [51]. This can increase their probability of AC.…”

“…Indeed, the distance between lenders and borrowers is positively correlated with the cost of transport paid by both (lender and borrower) for visits. Previous studies have reported a negative effect of distance on AC [31,51]. The interest rate represents the credit cost.…”

“…The variable land tenure is a proxy of the land title (land ownership). The land title is often used as collateral by farmers to guarantee the credit [31,51]. Thus, being a landholder could increase the AC.…”